Self Directed 401k & SEPP

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kevrm
Posts: 2
Joined: Sat Apr 13, 2019 5:01 pm

Self Directed 401k & SEPP

Post by kevrm » Sat Apr 13, 2019 5:18 pm

Is it possible to use the assets of a Self Directed 401k (Real estate in this case) as the basis for SEPP payments?

Alan S.
Posts: 8340
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Self Directed 401k & SEPP

Post by Alan S. » Sat Apr 13, 2019 6:51 pm

kevrm wrote:
Sat Apr 13, 2019 5:18 pm
Is it possible to use the assets of a Self Directed 401k (Real estate in this case) as the basis for SEPP payments?
If this is a solo K, it's possible but it's not a good match for a SEPP because there are too many needles to thread:

1) The business must stay open or the solo K must be terminated; but the solo K cannot accept any contributions because contributing to a plan with a SEPP will bust the SEPP plan. In other words, no contributions and all distributions must be SEPP distributions.
2) Liquidity - assuming the plan holds individual properties, it needs liquidity (cash) to pay the expenses related to the property such as funds for repairs, property taxes, insurance, legal fees, maintenance costs, etc. On top of that SEPP distributions averaging 5% of the value for 6 years (longer if the SEPP modification date is over 6 years) requires 30% of the value in cash for the SEPP distributions.

It is always more risky to adopt a SEPP in plans other than an IRA or in plans that hold illiquid assets.

Topic Author
kevrm
Posts: 2
Joined: Sat Apr 13, 2019 5:01 pm

Re: Self Directed 401k & SEPP

Post by kevrm » Sun Apr 14, 2019 8:34 am

Thank you Alan, great info -

I have enough to time to liquidate enough for cover payments - I am curious though, how is the value determined of a non-liquid asset for SEPP purposes? Would an appraisal suffice in my case?

Alan S.
Posts: 8340
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Self Directed 401k & SEPP

Post by Alan S. » Sun Apr 14, 2019 6:59 pm

Yes, you will probably need to have an appraisal done periodically with frequency depending on changes to the property and expected value changes. The plan would have to pay for the appraisal, and an appraisal would be needed shortly before starting the SEPP since you need to document the account value within the last 6 months prior to the first distribution.

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