A fine art fund, also known as an art fund or art investment fund, is a privately managed investment fund that pools money from investors to buy and sell art to generate returns. The fund is managed by a professional firm that receives a fee and a portion of the fund's returns.
Isn't investing in art a prohibited transaction?
What investment documents are included in a fine art fund?
Most funds are structured as a Limited Liability Company (LLC) or a Limited Partnership (LP). Depending on the structure of the investment entity, the offering documents may include the following:
Private Placement Memorandum
Limited Partnership Agreement or Operating Agreement
Investor Deck
Accredited Investor letter (typically your attorney and/or CPA will need to verify your assets proving you meet accredited investor status)
Investor Questionnaire – this is typically to fulfill anti-money laundering and Know Your Customer banking and SEC regulations to ensure your money is truly yours and that you’re able to spend it as you see fit
How to invest in a fine art fund with a Solo 401k
Identify the fund and complete your thorough due diligence
Complete the investment paperwork in the name of the 401k trust and use the 401k trust EIN. Do not use your personal or business information (name or SSN). Your 401k trust is the investor.
Complete IRS form W9, if required. See our guide here on how to complete a W9 for your Solo 401k
Wire funds from your 401k trust bank or brokerage account to the fund
Where are dividends paid?
If the painting is sold and the fund begins distributing dividends, have the fund or investment sponsor wire funds back to the Solo 401k trust bank or brokerage account.
Do not receive any dividends or payouts to your personal or business bank account. All investment income must go right to the Solo 401k.
Fine Art Fund Investment Fast Facts
The Solo 401k trust is the investor, not you as the trustee
The Solo 401k trust EIN should be listed on all investor subscription documents
You as the 401k trustee may sign the investor documents on behalf of the 401k trust (e.g. John Smith, Trustee of Smith Consulting Trust
Once your investor documents have been approved, wire the funds to complete the investment from your Solo 401k trust bank account
Collect any dividends or disbursements into your Solo 401k trust bank account (not your personal or business bank account)
As the Solo 401k trustee, you are the fiduciary of the trust. The words fiduciary and trustee may be used interchangeably with respect to completing the investment
Reporting Requirements for a 401k Trust in a Fine Art Fund
Typically, the fund is required to issue certain forms to investors to satisfy their reporting. These forms may include a 1099-R or K-1 (depending on the structure of the investment)
Your Solo 401k trust is a tax-deferred entity and doesn’t need to file a tax return. If the investment was made correctly in the name of the Solo 401k trust, using the 401k trust tax ID number, the IRS would be able to identify the trust as a tax-deferred entity, and no reporting of the forms is required.
Ensure you provide a copy of IRS form W9 as part of your investment, to ensure proper tax filing and reporting.
Disclaimer: Investing inherently involves risk. Nabers Group and its affiliates, subsidiaries, or partners are not investment advisors, and we do not offer investment advice. Always complete your due diligence before executing any investment and check with your CPA, legal counsel, or tax advisor before executing investments using retirement funds.