Can I manage properties owned by my retirement account? And if so, what can I do and not do when it comes to managing my property?
Answer:
The answer is going to be vague as there are no clear cut guidelines when dealing with prohibited transactions. There are different views on this issue.
If you are paid for your services by your retirement account, that would clearly be a prohibited transaction. However, even without payment, there would still be a concern that you are receiving indirect compensation because you are performing services that would otherwise have to be paid for. On the other hand, it can be argued if you are performing minimal services, e.g. collection of rent, etc., it should not be considered at the level of a prohibited transaction.
Unfortunately, you will not know this until the IRS/DOL walks in the door and tries to find a problem. It depends on how conservative you wish to be. However, if you do decide to manage the property, you should not receive compensation for your services as a manager.
The easiest way to think of managing your account AND any property you buy is this: white collar activity is fine; blue collar activity is prohibited.
For your plan, white collar activity would include:
- Managing your account
- Making transfers
- Consulting your accountant
- Writing checks
- Paying bills
As long as you are not reimbursing yourself for the above activities, you are fine.
The same holds true for the properties your plan may own. You can hire and negotiate with contractors, you can fire them when they don't perform, etc. You can place ads in the Penny Saver and Craig's List. (Note that if you buy ads anywhere, the money must come from your 401(k) Plan). You can screen tenants, collect rent, and do evictions. Consequently, your 401(k) can hire a property manager, and you can then interact with the property manager the same way you do your contractors.
You cannot participate in blue collar activity for your 401(k) investments. For example, you cannot paint the property personally, fix the plumbing, mow the lawn, or any other repair or maintenance activities. These would be considered Non-Cash Contributions to the plan, and they are restricted.
Remember: white collar activity is fine; blue collar activity is prohibited.