All Collections
Solo 401k Investments
Prohibited Transactions
Can I receive income personally from my Solo 401k investment?
Can I receive income personally from my Solo 401k investment?
Updated over a week ago

No. This violates the prohibited transaction rules. The main purpose of these prohibited transaction rules is to prevent you from benefiting from your Solo 401(k) without paying taxes. 401k plans have special tax benefits that allow us to save and invest money for retirement. Because of this singularity in purpose, there are restrictions on what can be done with this tax-favored money before retiring and taking the money out in the form of a distribution.

Keep in mind that you are the first person on your list of disqualified persons. Although you are able to manage your 401(k) plan and you decide how you would like to invest it, you cannot benefit yourself with any of these investments or their returns. All retirement account investments must be for the benefit of the retirement account.

Things you can do:

Solo 401(k)s can be used to make passive investments for the purpose of benefiting and growing the Solo 401(k). There are infinitely more investments you can make than there are investments you cannot make. Simply put, you can do anything that is not illegal. Read on for more.

Things you cannot do:

Prohibited transactions. Examples include:

  • buying an asset with the Solo 401(k) from a disqualified person

  • selling an asset in the Solo 401(k) to a disqualified person

  • extending credit to a disqualified person

  • a disqualified person extending credit to the Solo 401(k), such asYou guaranteeing a loan made to your plan

  • Pay any disqualified person for work done on plan-owned assets, such asYou receiving income for managing real property in your Solo 401(k)Paying your mother or son or daughter-in-law to mow the lawn on Solo 401(k)-owned property

  • Investing 401(k) funds into your business (or the business of any other disqualified person)

It is helpful to understand the reason behind prohibited transaction rules when you are making investments. Ask yourself, “Who do I intend to benefit with this investment?” If your motives aren’t clearly for the benefit of the retirement account, not only might you be making a bad investment for the account, but you also might be breaking the law. Steer clear of these prohibited transactions to enjoy the more cheerful and positive aspects of investing- the opportunities these accounts are so wonderful at opening up.

Did this answer your question?