Question: Can the real estate investment be used in a business operation, such as an event center, if the center is run by an unrelated party?
Yes, the Solo 401k can buy real estate that will have an active business. Make sure that no disqualified persons are involved in the running of the business, or managing the property.
Certain people are considered disqualified to your retirement account. This means that if your retirement account transacts with them, like having any of them run the business on the property owned by the Solo 401k, the IRS will consider that transaction prohibited.
A prohibited transaction can cause major tax consequences and even cost you 115% of the investment!
Here’s a list of people who are disqualified from your retirement account:
Retirement account owner (you)
Spouses of your children (son-in-law/daughter-in-law)
Brothers, sisters, aunts, uncles, nieces and nephews, cousins and your Mother-in-law or Father-in-law are fine to transact with your retirement account.
The best time to stop a Prohibited Transaction is before it starts. Make sure to run your investment through our Prohibited Transaction Checking System™ to make sure it passes initial compliance tests!