Investing With Yourself or Others in Your Self-Directed IRA or Solo 401(k)
There is a way to partner with others or with yourself, for
that matter, with your solo 401(k) or IRA (Roth or regular). Others can mean any entity, individual or
plan, related or not.
The trick is to do a simultaneous purchase and funding
arrangement so all investment is made in one transaction. Each party to the transaction receives their prorate
share of the investment depending upon the amount of their invested
dollars.
Say you are Jane Doe, real estate agent. The target investment is a $5,000,000 apartment
building. The purchase and sale
agreement and subsequently, the deed would spell out:
1.
Jane Doe, as an individual, $500,000, or a 10% undivided
interest
2.
Custodian Inc, FBO Jane Doe Roth IRA, $500,000,
or a 10% undivided interest
3.
Jane Doe Real Estate Solo 401(k) Plan Trust,
$1,000,000, or a 20% undivided interest
4.
Brother Doe, as an individual, $500,000, or a 10%
undivided interest
5.
Jane and John Partnership, $500,000, or a 10%
undivided interest
6.
Custodian Inc, FBO Brother Doe IRA, $2,000,000,
or a 40% undivided interest
Profits must be shared in an identical manner as the vested
ownership. For instance, Jane Doe as an
individual could not transfer some of her profits to her Solo 401(k) plan. After the profits have been distributed to
the various plans, those plans with a common owner could transfer funds between
them. Another important point is that
funds transferred from a regular IRA to a Roth IRA would be subject to tax and
other regulations.
In our example, the Jane Doe and the Jane and John
Partnership would pay their federal taxes currently on any profits. The solo 401(k) plans and IRAs (except the Roth) would of
course, defer their taxes until withdrawal.
This is a convenient and legal way to partner with yourself
and others for a large self-directed retirement investment. The bookkeeping could be somewhat
complicated, but of course you would outsource that tedious little chore to the
property manager.
