You’re right to be cautious — anytime a 401(k) (especially a self-directed one) starts leveraging plan-owned real estate, prohibited transaction (PT) and UBIT issues immediately come into play. A loan secured solely by plan assets can be permissible if it’s a true non-recourse loan (no personal guarantees, no outside collateral, no indirect benefit to disqualified persons). But if the owners personally guarantee the loan, pledge outside assets, receive indirect benefit, or the brokerage firm earns fees/commissions tied to plan property, that would likely trigger a prohibited transaction under IRC §4975.
Even if structured correctly, debt-financed real estate inside a qualified plan can generate Unrelated Debt-Financed Income (UDFI), which may create UBIT filing and tax obligations. Given they’re the only participants (and disqualified persons), the scrutiny risk is higher.
This is absolutely a situation where a qualified ERISA attorney or specialized TPA review is essential before proceeding — the structure matters more than the concept.
