Establish Solo 401k in Phoenix AZ

Establish Solo 401k in Phoenix AZ | Loan Solo 401k to Sister in Phoenix Arizona | Phoenix AZ Solo 401k

 

After I Open Solo 401k, I plan to loan my solo 401k through a trust deed investment to my sister who lives in Phoenix Arizona so that she can buy her own personal house before the Phoenix AZ  market heats up, as I have read a lot of foreign investors are buying up Phoenix AZ real estate with all cash. The trust deed investment will be secured in firs position by my sister’s house. However, I want to be careful before I proceed with this transaction so as to make sure I don’t engage in a prohibited transaction with my Solo 401k by investing it in a trust deed to my sister.  I called Fidelity, my current Solo 401k provider, and they told me that they don’t offer this type of service but that they have heard of such transaction.  

Under the Solo 401k laws pertaining to prohibited transactions and disqualified parties, the proposed trust deed investment by your Solo 401k to your sister does not, on the surface, appear to violate the prohibited transaction rules since your sister is not a disqualified party.

However, please note that the prohibited transaction rules prohibited  Solo 401k to invest in  an investment whose primary purpose is to benefit another party--whether a friend, total stranger, or qualified party (e.g., your sister, brother, aunt, uncle, cousins, etc.) --rather than your Solo 401k.

Specifically, the primary purpose of any Solo 401k investment must be intended for the growth of the Solo 401k not to help your sister purchase a house in Phoenix AZ or in Costa Rica.

If the IRS rules that a party other than the Solo 401k received an unwarranted benefit, it will most likely rule that your Solo 401k has engaged in a prohibited transaction. For instance, if you loan your sister your Solo 401k funds through a promissory note investment secured by real estate but only charge 1% interest when the market rate for this type of loan is 5%, the IRS could very well rule the investment as prohibited. Even though you may have good intention to help out your sister, the details of the transaction should not reflect that this was your primary objective over and above participating in a favorable investment for the Solo 401k.