QUESTION:
Once I buy a property with my solo 401k trust, can I hire my brother as general
contractor to do the rehab on the property? I will still be the property
manager, he would be the one doing the actual work on the property. I will pay
him from the trust.
ANSWER: While a sibling is not technically a
disqualified party under IRC 4975—the
code section dealing with solo 401k prohibited transactions—if the solo 401k owner’s brother is the general
contractor for the solo 401k owned real estate property, it is important not to
overpay the brother. In other words, the brother must receive a similar payment
for his services as any other person performing the same service would charge.
Lastly, yes rehab payments are required to be paid with solo 401k funds since
the property is owned by the solo 401k.
Thank you,
Josh in South Carolina
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