Solo 401k: Tenants in Common Scenarios
Buying real estate with Solo 401k under a tenants in common arrangement is slowly gaining in popularity. The key to purchasing real estate under tenants in common arrangement is to correctly list each party to the transaction percentage of ownership.
EXAMPLE 1: 60/40 split between a Self-Directed IRA and a Self-Directed Solo 401k
How deed is recorded: Pensco Trust Company, Custodian FBO Jane Smith IRA, an undivided 60% interest and XYZ Solo 401k Trust, an undivided 40% interest
-All expenses are divided 60/40 between the self-directed IRA and self-directed Solo 401k.
-Any profit is divided 60/40 between the self-directed IRA and self-directed Solo 401k.
-Tenants in Common (TIC) afford retirement accounts to purchase real estate without obtaining a loan.
EXAMPLE 2: 50/50 split between John Smith and his Self-Directed Solo 401k ("Smith Solo 401k Trust")
How deed is recorded: John Smith, an undivided 50% interest and "Smith Solo 401k Trust, an undivided 50% interest
-All expenses are divided 50/50 between John Smith and "Smith Solo 401k Trust".
-Any profit is divided 50/50 between John Smith and "Smith Solo 401k Trust".
-Tenants in Common (TIC) afford retirement account holder to partner with his or her Solo 401k to purchase real estate without obtaining a loan.
EXAMPLE 3: 75/25 split between Jane Smith and her husband's Self-Directed Solo 401k ("Smith Solo 401k Trust")
How deed is recorded: Jane Smith, an undivided 75% interest and "Smith Solo 401k Trust, an undivided 25% interest
-All expenses are divided 75/25 between Jane Smith and "Smith Solo 401k Trust".
-Any profit is divided 75/25 between Jane Smith and "Smith Solo 401k Trust".
-Tenants in Common (TIC) afford retirement account holder to partner with his or her Solo 401k to purchase real estate without obtaining a loan.
IMPORTANT: You will notice that under examples 2 and 3 above disqualified parties, Jane and John, are co-investing in the real estate property using personal funds. This is not prohibited under tenants in common transaction provided the real estate property is purchased at the same time and debt financing is not brought to the table. Further the property cannot be purchased from a disqualified party. For example, if Smith Solo 401k buys the property from John Smith's son it would be prohibited even if purchased under a tenants in common scenario.
Additional Information
Solo 401k Real Estate
Non-Recourse Loan
EXAMPLE 1: 60/40 split between a Self-Directed IRA and a Self-Directed Solo 401k
How deed is recorded: Pensco Trust Company, Custodian FBO Jane Smith IRA, an undivided 60% interest and XYZ Solo 401k Trust, an undivided 40% interest
-All expenses are divided 60/40 between the self-directed IRA and self-directed Solo 401k.
-Any profit is divided 60/40 between the self-directed IRA and self-directed Solo 401k.
-Tenants in Common (TIC) afford retirement accounts to purchase real estate without obtaining a loan.
EXAMPLE 2: 50/50 split between John Smith and his Self-Directed Solo 401k ("Smith Solo 401k Trust")
How deed is recorded: John Smith, an undivided 50% interest and "Smith Solo 401k Trust, an undivided 50% interest
-All expenses are divided 50/50 between John Smith and "Smith Solo 401k Trust".
-Any profit is divided 50/50 between John Smith and "Smith Solo 401k Trust".
-Tenants in Common (TIC) afford retirement account holder to partner with his or her Solo 401k to purchase real estate without obtaining a loan.
EXAMPLE 3: 75/25 split between Jane Smith and her husband's Self-Directed Solo 401k ("Smith Solo 401k Trust")
How deed is recorded: Jane Smith, an undivided 75% interest and "Smith Solo 401k Trust, an undivided 25% interest
-All expenses are divided 75/25 between Jane Smith and "Smith Solo 401k Trust".
-Any profit is divided 75/25 between Jane Smith and "Smith Solo 401k Trust".
-Tenants in Common (TIC) afford retirement account holder to partner with his or her Solo 401k to purchase real estate without obtaining a loan.
IMPORTANT: You will notice that under examples 2 and 3 above disqualified parties, Jane and John, are co-investing in the real estate property using personal funds. This is not prohibited under tenants in common transaction provided the real estate property is purchased at the same time and debt financing is not brought to the table. Further the property cannot be purchased from a disqualified party. For example, if Smith Solo 401k buys the property from John Smith's son it would be prohibited even if purchased under a tenants in common scenario.
Additional Information
Solo 401k Real Estate
Non-Recourse Loan