Financing for asset purchase in Solo 401k
If I am investing in real estate with my Solo 401k, but don’t have enough funds in my Solo 401k, what are my options?
Funds can be added to your plan via:
- Rolling over additional funds from another retirement account
- Contributing to the plan from your compensation from the adopting business
Or, financing can be obtained by your Solo 401k for its investments, but it must be a non-recourse loan from a non-disqualified party.
What is non-recourse financing?
- The loan is secured by the asset itself
- You, as the 401k participant, do not personally guarantee the loan
- The loan is also not secured by the other assets of the 401k. The 401k cannot serve as collateral for the loan.
- The lender has no recourse in the event of default, other than to foreclose on the property. The lender can only acquire the asset on which the loan was made.
How is non-recourse financing obtained?
- The 401k is applying for and receiving the loan
- The 401k pays back the loan, using funds of the 401k
- Personal funds cannot be used to repay the loan
- A non-recourse loan can be taken from a non-disqualified party (e.g. a non-disqualified relative, a non-disqualified owner who is willing to owner-finance the property) or a non-recourse lender