Real Estate Investment in Plan

[Jilliandiz]

Client gave a Mortgage Note to someone for $100,000 out of their profit sharing plan. The lender is paying $500 a month in interest into the plan, but the prinicipal is not required to be paid until 2011....are you allowed to do this type of investing?

[JanetM]

Hmmm. If the person given the mortgage in not a party in interest you have crossed one hurdle to being allowable. Now you have to ask is this a prudent investment of plan assets. Using simple interest, the rate being charged is only 6%. Lower than mortgage rates via other sources. I would argue this isn't a prudent investment of plan assets.

[Guest Pensions in Paradise]

If this is a small plan (less than 100 participants) make sure the fidelity bond is sufficient since the Note is a non-qualifying asset.