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How to Insure Rental Property Owned by a Self-Directed Solo 401k

Account holders/plan sponsors will need to obtain insurance for their property when using their self-directed solo 401(k) to invest in real estate. According to the solo 401k rules, the account holder will need to keep all transactions (money in and money out) at arm’s length. As a disqualified person, the plan sponsor is not allowed to pay for any investment expenses using personal funds (or funds from another disqualified person). They also cannot extend any credit to the plan.

When it comes to getting an insurance policy for real estate owned by the solo 401(k), the plan sponsor cannot pay for the insurance expenses themselves. The premium must be paid from funds in the solo 401(k). The policy should also be obtained in the name of the solo 401(k) plan since it is the owner of the property.

Sometimes insurance companies insist that the insurance be in your name as individual. If this is the case, you can obtain insurance in your name since you are the trustee of the plan, but you will need to have them add the plan (trust) as a “other interest”.

There are many things to consider and keep in mind to when using a solo 401(k) to invest in real estate. Having money left over in the account to pay for ongoing expenses over time is crucial to staying in compliance.

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