Understanding prohibited transactions
The 401k is designed for passive investing, to benefit and grow the 401k.
Prohibited transaction rules prevent the 401k from being used in ways that would benefit the individual, instead of the 401k.
You are considered a disqualified person with respect to the investments of the 401k. Other disqualified persons include a company you own, certain family members, etc.
Certain activities between a disqualified person and the 401k are considered prohibited transactions.
Examples of prohibited transactions
- The 401k buys an asset from a disqualified person
- The 401k sells an asset to a disqualified person
- The 401k receives an asset from a disqualified person, e.g. you transfer your personal property into the 401k
- The 401k invests in a business owned by a disqualified person
- The 401k pays a disqualified person for work done on/for a 401k-owned property, e.g. you pay yourself from the 401k to paint a property owned by the 401k
- The 401k receives “free” services from a disqualified person for work done on/for a 401k-owned property, e.g. your spouse serves as the realtor for the 401k’s purchase of a property
- A disqualified person extends their credit to the Solo 401k, e.g. you personally guarantee a loan made to your 401k
You, as a disqualified person, cannot benefit yourself from the 401k investments. All investments and activities must be for the benefit of the 401k only, not you or any other disqualified person.
Personal involvement with 401k investments
Credit card for my Solo 401k