Generally a self-directed Solo 401k may invest in practically any investment type. For example, allowable Solo 401k investments include equities, real estate (e.g., rentals, apartment complexes, fixer-uppers and condominiums, and even foreign property), gold, silver, tax liens, deeds of trust and private companies. Nonetheless, a self-directed Solo 401k cannot invest in investments deemed unacceptable and/or prohibited pursuant to IRC 408(m) and 4975(c) respectively.
Disallowed Self-Directed Solo 401k Investments
The following investments may not be held in a Solo 401k pursuant to federal regulations and are found under Internal Revenue Code 408(m):
Stamps
Works of art
Alcoholic beverages
Specific coins
Antiques
However, certain gold or silver coins may be held in a Solo 401k as long as they satisfy purity requirements such as:
Gold: 99.5% quality; Silver: 99.9% quality; Platinum: 99%.95 quality; Palladium: 99.95%
Examples of allowable coins that may be held in a Solo 401k plan are:
American Eagle; Canadian Maple Leaf; American Buffalo; Australian Kangaroo
Examples of disallowable coins restricted from being held in a self-directed Solo 401k are:
Swiss Franc; Italian Lira, Columbia Peso; Britannia; Hungarian Korona
Investment Falling under Solo 401k Prohibited Investments Category
Pursuant IRC 4975(c), a Solo 401k plan, is restricted from investing in any investment that directly benefits the Solo 401k trustee/participant.
An example of a Solo 401k prohibited transaction: the transfer of a promissory note investment owned personally by the Solo 401k trustee to his or her Solo 401k, whether for profit or not.
Further, selling a rental property that you personally own to your Solo 401k would be prohibited because you cannot shift personal assets to a Solo 401k.
How to determine if you are about to participate in a Solo 401k Prohibited Transaction
It’s actually straight forward to determine if you are on the path to engaging in a Solo 401k prohibited transaction. The key is to identify all the parties to the pending Solo 401k investment, which is generally the following: The Solo 401k, which will be making the investment; you as the trustee of the Solo 401k plan, who is defined under IRC 4975(c) as a disqualified party.
Are there other disqualified persons that will in any fashion benefit from your Solo 401k plan’s investment?
Do you stand to receive a personal benefit from the Solo 401k plan’s investment?
For example:
Let’s assume that in preparation of your retirement date 10 years from now, you decide to open Solo 401k, then rollover your SEP IRA to Solo 401k and subsequently invest Solo 401k in a house with in Fort Myers Florida that you plan to rent out to your Son up until you retire.
Will your son’s use of the Fort Myers Florida home owned by your Solo 401k result in a prohibited transaction? Yes because the Solo 401k prohibited transaction rules include a son of the Solo 401k owner as a disqualified party.
Disallowed Self-Directed Solo 401k Investments
The following investments may not be held in a Solo 401k pursuant to federal regulations and are found under Internal Revenue Code 408(m):
Stamps
Works of art
Alcoholic beverages
Specific coins
Antiques
However, certain gold or silver coins may be held in a Solo 401k as long as they satisfy purity requirements such as:
Gold: 99.5% quality; Silver: 99.9% quality; Platinum: 99%.95 quality; Palladium: 99.95%
Examples of allowable coins that may be held in a Solo 401k plan are:
American Eagle; Canadian Maple Leaf; American Buffalo; Australian Kangaroo
Examples of disallowable coins restricted from being held in a self-directed Solo 401k are:
Swiss Franc; Italian Lira, Columbia Peso; Britannia; Hungarian Korona
Investment Falling under Solo 401k Prohibited Investments Category
Pursuant IRC 4975(c), a Solo 401k plan, is restricted from investing in any investment that directly benefits the Solo 401k trustee/participant.
An example of a Solo 401k prohibited transaction: the transfer of a promissory note investment owned personally by the Solo 401k trustee to his or her Solo 401k, whether for profit or not.
Further, selling a rental property that you personally own to your Solo 401k would be prohibited because you cannot shift personal assets to a Solo 401k.
How to determine if you are about to participate in a Solo 401k Prohibited Transaction
It’s actually straight forward to determine if you are on the path to engaging in a Solo 401k prohibited transaction. The key is to identify all the parties to the pending Solo 401k investment, which is generally the following: The Solo 401k, which will be making the investment; you as the trustee of the Solo 401k plan, who is defined under IRC 4975(c) as a disqualified party.
Are there other disqualified persons that will in any fashion benefit from your Solo 401k plan’s investment?
Do you stand to receive a personal benefit from the Solo 401k plan’s investment?
For example:
Let’s assume that in preparation of your retirement date 10 years from now, you decide to open Solo 401k, then rollover your SEP IRA to Solo 401k and subsequently invest Solo 401k in a house with in Fort Myers Florida that you plan to rent out to your Son up until you retire.
Will your son’s use of the Fort Myers Florida home owned by your Solo 401k result in a prohibited transaction? Yes because the Solo 401k prohibited transaction rules include a son of the Solo 401k owner as a disqualified party.
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