Titling real estate in the Solo 401k trust

The process to purchase real estate (as well as other assets) with your Solo 401k is fairly simple. There is no special real estate contract needed for retirement account purchases, for example.

All assets purchased by the retirement account will be titled in the name of the Solo 401k. Example: ABC Ventures 401k Plan. The main difference between purchasing an asset with your Solo 401k and purchasing an asset personally is that the buyer on the contract (or any other paperwork) will be the Solo 401k trust, instead of you. Earnest money deposit and all expenses must be paid from the Solo 401k bank (or brokerage) account.

Question:

I'm in escrow to purchase a real estate deal in the name of my Solo 401k Trust.  The title company is saying that my Solo 401k Trust cannot legally hold title to real estate.  Have others in the past had experienced similar problems when buying real estate in the name of their Solo 401(k) trust, and if so what was the solution?

Answer:

While it is not a common problem, we do see that employees of title companies and other financial institutions are not familiar with a self-directed, self-administered qualified retirement account trust such as the Solo 401k.

The trust instrument is a private document. It specifically allows the holding of real estate in the trust.  (In the Defined Contribution Trust Document, Article IV, Section 4.2(a)&(f) specifically provides that the trust can own real property).  There are other provisions in the trust instrument instructing the trustee in the proper administration of trust assets.

However, depending on the state or other local jurisdiction, local laws may preclude title to be taken in the name of the trustee, rather than in the name of the trust.

It is acceptable for trust property to be titled in the format of:

[Name of Trustee], as trustee for [Name of Trust]

If the purchase is on behalf of another participant in the Solo 401k who is not listed as a trustee, you can also add the phrase on behalf of [Participant Name] at the end.  In other words, if John Smith was the trustee of DBM Solo 401k Trust, and his wife Mary Smith (also a participant in the 401k) would be acquiring the property in her account, it would be acceptable to title the trust’s real property in the name of John Smith, as trustee for DBM Solo 401k Trust, on behalf of Mary Smith.

If a particular title company will not cooperate, we suggest utilizing the services of a more cooperative title company.

Be sure to check with your local title company about specific laws in your state pertaining to buying real estate in the trust. This is especially important if you are making an offer on a short sale since the title to the property must be listed exactly the same as the offer. Banks will not allow the name to be altered.