Solo 401k Plan Asset Rule 29 CFR 2510.3-101
The plan asset rule applies to not only Self-Directed IRA but also Self-Directed Solo 401k since it's a qualified plan. The plan asset rule details that any company that has 25% or more equity ownership by retirement plans, including Solo 401k, is subject to the rules governing retirement plans such as the prohibited transaction rules and the fiduciary and conflict of interest rules. Note, however, that the plan asset rule does not apply to a Solo 401k that loans funds to a company in the form of a promissory note.
Repercussion of violating the Plan Asset Rule: Since all Solo 401k plan investments are subject to the prohibited transaction rules and exclusive benefits rules. For instance, if a Solo 401k owns rental real estate then the prohibited transaction rules apply to that asset an prevent the owner of the Solo 401k from renting out the real estate rental to his daughter, as she falls under Solo 401k disqualified party umbrella. Well, the plan asset rule takes prohibited transaction rules further and details that if a Solo 401k invests into an entity (e.g., a Corporation) by way of purchasing an interest, not loaning funds to the entity, and that entity owns real estate then the assets of the entity are also subject to the retirement plan rules such as the prohibited transaction rules.
When the Plan Asset Rules do not apply to Solo 401k: However, the plan asset rules do not apply If the company that Solo 401k purchases an interest in is a real estate operating company (REOC). To qualify for treatment as a real estate operating company, the company is required to hold real estate valued at 50% of all the company's assets.
Repercussion of violating the Plan Asset Rule: Since all Solo 401k plan investments are subject to the prohibited transaction rules and exclusive benefits rules. For instance, if a Solo 401k owns rental real estate then the prohibited transaction rules apply to that asset an prevent the owner of the Solo 401k from renting out the real estate rental to his daughter, as she falls under Solo 401k disqualified party umbrella. Well, the plan asset rule takes prohibited transaction rules further and details that if a Solo 401k invests into an entity (e.g., a Corporation) by way of purchasing an interest, not loaning funds to the entity, and that entity owns real estate then the assets of the entity are also subject to the retirement plan rules such as the prohibited transaction rules.
When the Plan Asset Rules do not apply to Solo 401k: However, the plan asset rules do not apply If the company that Solo 401k purchases an interest in is a real estate operating company (REOC). To qualify for treatment as a real estate operating company, the company is required to hold real estate valued at 50% of all the company's assets.