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Using both spouse’s accounts under the same 401k

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Both my wife and I have separate accounts under our Solo 401k. Can I use funds from my account together with my wife’s account to make the investment?

Yes, you can pool funds together from different accounts under the same 401k into single investment, e.g. the husband's account and the wife's account under the same 401k, or the pre-tax account and the Roth account under the same 401k.

The key is that all of the expenses and profits of the investment must be distributed according the ownership percentage for each individual account. 

For example, if the 401k makes an investment using 60% from the husband's rollover account and 40% from the wife's rollover account, then the expenses and profits must be distributed back to the respective accounts 60%-40%.

Mechanics of investing with separate accounts under the Solo 401k

Do I write two separate checks from respective accounts towards the investment?

This would depend on the type of investment that is made.
  • If it is a single transaction in a passive investment (e.g. a trust deed) which will not have any expense payments, then two separate checks can work
  • If it is an investment with ongoing expenses (e.g. a rental property with recurring rent deposits), then a separate operating bank account might be a better option

To establish this separate operating bank account, please contact our preferred bank for assistance 

Bank Account Set Up

Paying for marketing to find a seller

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Can my Solo 401k pay for marketing to find sellers to buy a home to rehab within the plan, such as Google PPC, website, direct mail, hiring someone to put out bandit signs, etc?  Can the plan pay for an "advisor" - who is not a disqualified person - to mentor/advise on all aspects of acquisition/rehab/sales of a real estate asset the plan would be owning?  If this is a gray area, how would I make this work to the satisfaction of the IRS?  Again, I would never jeopardize the legality of the plan, however, I would like to use it to its max.

Answer:

The activities that you are describing seem like an running active business in your plan. Your 401k can invest in passive investments.  However, if you engage in an active business with your plan, you are opening yourself up to issues such as Unrelated Business Income Tax (UBIT) and more. If you intend to pursue this, you will need a knowledgeable CPA to guide you through the complexities of running an active business within your 401k.

I suggest you keep with the main purpose of the plan- investing for the long term. You can work with a wholesaler and have someone else do the marketing, etc. Acquiring the property and holding on to it as long term rental would be the safest and simplest for the plan.

Property expenses which cannot be paid using trust name

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How do I pay real estate property expenses which cannot be paid using the trust name, like utilities.  Do I write myself a check after paying those expenses from my personal account?

Answer:

All expenses related to investments owned by your retirement account must be paid from the retirement account. You cannot pay those expenses with personal funds and then reimburse yourself from the 401k.

Most utility companies will allow you to open the account in the name of the trust.  The bills can then be paid with your Solo 401k Trust checking account, using a check, debit card, or online banking.

If for some reason you are unable to open the account in the name of the trust, then you as the trustee can open the account in your name.  However, payment still must come out of the 401k trust's account using the methods described above.