Feb 07

Self-Directing Your Solo 401(k) Offers Many Advantages

A Solo 401(k) Plan also called a Self-Directed 401K offers a self employed business owner the ability to use their retirement funds to make almost any type of investment tax-free, including real estate, on their own without requiring custodian consent. Additionally, a Self-Directed 401(k) Plan will allow you to make high contributions to the Plan (up to $55,000 for plan participants under the age of 50 and $61,000 for plan participants over the age of 50) as well as borrow up to $50,000 for any purpose.

Advantages of Using a Self-Directed 401K

The Self-Directed Solo 401K Plan is such a popular retirement solution for small business owners because the IRS designed it specifically for them. Unlike other 401(k) Plans, which restrict plan investments to just stocks and mutual funds, IRA Financial Group’s Self-Directed 401K Plan is designed specifically to allow plan participants to diversify their retirement portfolio by making traditional as well as non-traditional investments such as real estate and precious metals. The Individual 401K Plan can be adopted by a sole proprietorship, LLC, Partnership, or Corporation.

There are a number of features that make the Self-Directed 401K Plan so appealing and popular among self -employed business owners.

High Contribution Limits: Under the 2018 Solo 401(k) contribution rules, a plan participant under the age of 50 can make a maximum employee deferral contribution in the amount of $18,500. That amount can be made in pre-tax or after-tax (Roth). On the profit sharing side, the business can make a 25% (20% in the case of a sole proprietorship or single member LLC) profit sharing contribution up to a combined maximum, including the employee deferral, of $55,000.

For plan participants over the age of 50, an individual can make a maximum employee deferral contribution in the amount of $24,500. That amount can be made in pre-tax or after-tax (Roth). On the profit sharing side, the business can make a 25% (20% in the case of a sole proprietorship or single member LLC) profit sharing contribution up to a combined maximum, including the employee deferral, of $61,000.

Calculate Your Solo 401k Plan Maximum Contribution Limit Please click here to calculate your Solo 401(k) Plan Maximum Contribution Limit.

Tax-Free Loan:   With a Self-Directed 401K Plan, a plan participant is eligible to borrow up to $50,000 or 50% of their account value (whichever is less) for any purpose, including paying personal expenses such as credit card bills, mortgage payments, personal or business investments, a car, vacation, or anything else. The loan has to be paid back over a five-year period at least quarterly at a minimum prime interest rate (you have the option of selecting a higher interest rate). There is no pre-payment penalty.

Checkbook Control”: One of the most popular aspects of the Self-Directed 401K Plan is that it does not require the participant to hire a bank or trust company to serve as trustee. Unlike, an IRA which requires a financial institution to serve as trustee and custodian of the IRA, in the case of a Self-Directed 401K Plan, the plan account can be opened at any local bank or credit union and the plan participant can serve as trustee of the Self-Directed 401K. This flexibility allows the plan participant (you) to gain “checkbook control” over your retirement funds. In essence, all assets of the Self-Directed 401K Plan will be under the sole authority of the 401k participant.  A Self-Directed 401K plan allows you to eliminate the expense and delays associated with an IRA custodian, enabling you to act quickly when the right investment opportunity presents itself. With a Self-Directed 401K Plan, making a 401K Plan investment is as simple as writing a check.

A World of Investment Opportunity: With a Self-Directed 401K, you will be able to invest in almost any type of investment opportunity that you discover, including: Real Estate (rentals, foreclosures, raw land, tax liens etc.), Private Businesses, Precious Metals, Cryptocurrencies, as well as stock and mutual funds; you’re only limit is your imagination. The income and gains from these investments will flow back into your Self-Directed 401K Plan tax-free!

Use Leverage Tax-Free:   When an IRA buys real estate that is leveraged with nonrecourse mortgage financing, it creates Unrelated Debt Financed Income (a type of Unrelated Business Taxable Income) on which taxes must be paid pursuant to Internal Revenue Code Section 514. A Self-Directed 401K plan is generally exempt from UDFI. What this means is that unlike an IRA, Internal Revenue Code Section 514(c)(9), allows a Self-Directed 401K plan to use nonrecourse leverage to make a real estate acquisition without tax or penalty.

Roth Contributions: The Self-Directed 401K Plan contains a built in Roth sub-account which can be contributed to without any income restrictions. A Self-Directed 401K Plan will allow you to make pre-tax and/or after-tax (Roth) employee deferral contributions to your Plan.

Easy Administration:  The Self-Directed 401K Plan is easy to operate and effortless to administer. There is generally no annual filing requirement unless the assets in your Self-Directed 401K Plan exceeds $250,000, in which case you will need to file a short information return with the IRS (Form 5500-EZ).

Roth Conversion: The Self-Directed 401K Plans allows for the conversion of pre-tax 401K funds to an after-tax Roth sub-account. However, the 401K Plan participant must pay income tax on the amount converted.

Offset the Cost of Your Plan with a Tax Deduction: By paying for your Solo 401(k) with business funds, you would be eligible to claim a deduction for the cost of the plan, including annual maintenance fees. The deduction for the cost associated with the Solo 401(k) Plan and ongoing maintenance will help reduce your business’s income tax liability, which will in-turn offset the cost of adopting a self-directed Solo 401(k) Plan. The retirement tax professionals at the IRA Financial Group will help you take advantage of the available business tax deduction for adopting a Solo 401(k) Plan.

Asset & Creditor Protection: In the case of a bankruptcy, the general exemption found in section 522 of the Bankruptcy Code, 11 U.S.C. §522, provides an unlimited exemption for retirement assets exempt from taxation for Section 401(a) (tax qualified retirement plans—pensions, profit-sharing and section 401(k) plans). Thus, ERISA qualified plans as well as Self-Directed 401K plans are afforded full bankruptcy exemption. Outside of bankruptcy, state law will govern whether Self-Directed Solo 401K Plan assets are protected from creditors. Most states will provide protection for Self-Directed Solo 401K Plan assets from creditors outside of the bankruptcy context.

IRA Financial Group will take care of setting up your entire Self-Directed 401K Plan. The whole process can be handled by phone, email, fax, or mail and typically takes between 2-10 days to complete, the timing largely depending on the time it takes your current retirement asset custodian to move the funds to the new Self-Directed 401K Plan account. Our tax and ERISA professionals are on-site greatly reducing the set-up time and cost. Most importantly, each client of the IRA Financial Group is assigned a retirement tax professional to help with the establishment of the Self-Directed 401K Plan.

For additional information on the Self-Directed 401(k) Plan, please contact us at 800-472-0646.

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Feb 05

Need a Recordkeeper for your 401k Plan?

401(k) Administration.com is a new and exciting venture for the IRA Financial Group that focuses on all your 401(k) Plan record keeping and administration.

401k RecordkeeperMost small retirement plans appoint the employer as plan administrator. Management of the entity may designate an individual or an entity to perform these functions. Due to the complexity and timing involved, most small employers appoint an independent third-party to assist with the plan administration and record keeping services.

Our IRS approved 401(k) plan and bundled record keeping services are specifically customized to small businesses with less than 50 employees, which allows us to better understand their specific needs and concerns.

The 401k recordkeeper is the person or entity responsible for the general day-to-day plan operations and administration. Record keeping services include the following:

  • Determining when an employee becomes eligible to participate in the plan
  • Providing complete, accurate and timely information and approvals in the manner and within the time frames reasonably requested by the Company
  • Providing all necessary employee census information for new employees and census updates for existing employees
  • Computing plan contribution amounts
  • Maintaining plan records
  • Preparing and filing plan tax forms
  • Preparing IRS Form 5500
  • Performing actual deferral percentage (ADP) test (IRC Sec 401(k)(3) )
  • Performing actual contribution percentage (ACP) (IRC Sec. 401(m) quarterly), if applicable
  • Performing minimum coverage test (URC Sec. 410(b)(1)(A) and (B)) annually, if applicable
  • Performing top-heavy test (IRC Sec. 416) annually, if applicable
  • Monitoring elective deferrals limit (IRC Sec. 401(g)), if applicable
  • Providing employee notices, information, and reports

401(k) Administration Services is pleased to offer services in partnership with several providers who consistently meet and exceed these standards. Additionally, we continually actively observe the quality of services and their ability to meet plan sponsor needs and expectations. We have a very close working relationship with Fidelity, TD Ameritrade and Scottrade who have provided our clients with an individualized well balanced and diversified investment platform.

Let us take care of your Retirement Plan so that you can take care of your business!

Contact one of our Retirement Experts today at 1(800) 401-5762 to learn more or let us contact you.

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Feb 01

Separating Myth And Reality Of How Cryptocurrencies Are Taxed And Regulated

Here’s another Forbes.com article from our own Adam Bergman –

Surfing the web for information on how cryptocurrencies are taxed and regulated can lead to some mystifying and conflicting information. With the IRS and SEC starting to turn attention to the cryptocurrency industry, it is important to have accurate facts. The following are some of the more popular questions I have received from clients seeking clarity on various tax and regulatory matters regarding the taxation and regulation of cryptocurrencies.

Cryptocurrency is treated as a currency for tax purposes: False.

According to IRS Notice 2014-21, for federal tax purposes, cryptocurrency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency. The character of the gain or loss associated with the cryptocurrency investment generally depends on whether the cryptocurrency is a capital asset in the hands of the taxpayer. A taxpayer generally realizes capital gain or loss on the sale or exchange of cryptocurrency that is a capital asset in the hands of the taxpayer. For example, stocks, real estate, and other investment property are typically capital assets. Whereas, a taxpayer generally realizes ordinary gain or loss on the sale or exchange of cryptocurrency that is not a capital asset in the hands of the taxpayer, such as business income from mining or other business activities.

The IRS will never be able to find out if I had taxable gains from cryptocurrency investments. False.

First, a taxpayer failing to maintain adequate records faces serious consequences. The IRS can impose penalties for negligence or fraud or require the taxpayer to use an IRS-prescribed method to determine income.

The IRS has been watching the cryptocurrency industry with some suspicion for years. Because the majority of cryptocurrency transactions have likely resulted in significant gains due to the surge in value of most cryptocurrencies in 2017 coupled with the fact that the gains are likely short-term capital gains (subject to ordinary income tax rates), the IRS has good reason to be concerned.

Separating Myth And Reality Of How Cryptocurrencies Are Taxed And RegulatedAs a result, in a petition filed November 17, 2016, with the US District Court for the Northern District of California, the US Department of Justice (DOJ) asked the court for a John Doe summons to be issued to the Bitcoin exchange Coinbase Inc. The John Doe summons would require Coinbase Inc., the largest Bitcoin exchanger in the United States, to provide the DOJ with information related to all Bitcoin transactions it processed between 2013 and 2015. The DOJ would then share the information received with the IRS to be matched against filed tax returns. In addition, there is a good chance the IRS will be targeting other cryptocurrency exchanges through their John Doe summons power to gather additional taxpayer information on cryptocurrency transactions.

Therefore, it is crucial that any taxpayer that has generated any net gains or losses from cryptocurrencies investments in 2017 be prepared to report them on his or her individual income tax return. It is a good idea to work with a tax professional who can help calculate the aggregate annual net short-term or net long-term capital gains or losses generated from all 2017 cryptocurrency investments.

The SEC is not currently regulating the cryptocurrency industry? True & False

In a statement by the Securities & Exchange Commission (“SEC”) Chairman Jay Clayton on cryptocurrencies on December 11, 2017, Mr. Clayton was clear that the SEC has “interests and responsibilities” with respect to cryptocurrencies. Mr. Clayton did express caution for investors looking to make initial coin offering (“ICO”) investments. In addition, Mr. Clayton was clear that if an ICO shared the same characteristics of a security then it must be subject to securities laws.

In July 2017, the SEC ruled that some of the ‘coins’ for sale in an ICO are actually securities—and are subject to SEC regulation. In its ruling in the DAO case, which involved DAO, an unincorporated organization; Slock.it UG (“Slock.it”), a German corporation, the SEC essentially held that the tokens for sale are simply a new form of shares—and that selling them without a license could violate federal securities laws. The SEC ruling was based on an SEC investigation into a German corporation behind a group called the DAO, which raised $150 million in ICO last year. In addition, in December 2017, the SEC announced that its newly created Cyber Unit has filed a complaint against a Canadian initial coin offering (ICO) fraud. Moreover, state regulatory agencies are also starting to look at cryptocurrency transactions. On January 9, 2018, regulators from the North Carolina Securities Division outlined the temporary cease-and-desist, stating that BitConnect, who was seeking to do an ICO, had not registered to deal or sell securities in North Carolina.

In sum, the SEC has not gone on record holding that cryptocurrencies are securities and are, thus, subject to securities law, however, they have taken the lead in prosecuting various cryptocurrency related cases and it does appear that they are potentially heading in that direction. In any event, anyone looking to raise money through an ICO should be mindful of the SEC securities laws.

Cryptocurrencies are subject to Foreign Bank Account Reporting (“FBAR”) Rules? False

With cryptocurrency investments, taxpayers may find it more difficult to determine whether they own other financial accounts for FBAR reporting purposes. The regulations clarify that bonds, notes, and stocks of foreign issuers directly held by a reporting person aren’t financial accounts. Other financial arrangements aren’t so clear. For example, the IRS maintains that accounts that hold noncash assets, such as gold, are subject to FBAR reporting. However, the IRS has informally stated that taxpayers aren’t required to report cryptocurrency, such as Bitcoin, on an FBAR. The thinking is that cryptocurrency is treated as property for federal income tax purposes and therefore isn’t considered to be an interest in a foreign financial account. However, this could change as the agency’s attention on foreign assets heightens.

Cryptocurrencies can be purchased with retirement funds? True

The Internal Revenue Code does not describe what a retirement account can invest in, only what it cannot invest in. Internal Revenue Code Sections 408 & 4975 prohibit “disqualified persons” from engaging in certain types of transactions, such as collectibles, life insurance, and self-dealing and conflict of interest type transactions. The definition of a “disqualified person” (Internal Revenue Code Section 4975(e)(2)) extends into a variety of related party scenarios, but generally includes the retirement account holder, any ancestors or lineal descendants of the 401(k) plan participant, and entities in which the 401(k) plan participant holds a controlling equity or management interest.

Because the IRS treats cryptocurrencies, such as Bitcoins, as a capital asset, such as stocks or real estate, a retirement account is permitted to buy, sell, or hold cryptocurrencies, subject to the prohibited transaction rules found under Internal Revenue Code Section 4975(c).

Cryptocurrencies gains can be sheltered though the 1031 Like-Kind Exchange Rules? Maybe

In general, Internal Revenue Code (“IRC”) Section 1031 provides an exception to the recognition of gain on a business or investment property transaction and allows one to postpone paying tax on the gain if the individual reinvests the proceeds in similar property as part of a qualifying like-kind exchange. Gain deferred in a like-kind exchange under IRC Section 1031 is tax-deferred, but it is not tax-free. However, IRC Section 1031 specifically excludes stocks, bonds, notes, and other securities or debt from the definition of property under the IRC 1031 exchange exemption. In IRS Revenue Ruling 79-143, the IRS did suggest that gold coins held for investment of the same nature or character can benefit from IRC Section 1031 gain exemption.

IRC Section 1031 does not mention “cryptocurrency” since Section 1031 preceded the arrival of cryptocurrencies and IRS Notice 2014-21 does not reference IRC Section 1031 like-kind exchanges. Moreover, under the Trump tax plan, beginning in 2018, IRC Section 1031 exchanges are now only limited to real property. Therefore, for 2018 and beyond, the like-kind exchange exemption will not be applicable to cryptocurrency investors. But will the like-kind exchange exemption apply to cryptocurrencies for the 2017 taxable year? Some suggest that the fact that the tax plan narrowed the definition of property for purposes of IRC Section 1031, is proof that there was concern about the use of like-kind exchanges for cryptocurrency investments. However, there does not appear to be any evidence of this.

Overall, there is an argument that IRC Section 1031 exchange rules could apply to cryptocurrencies for 2017 so long as the crypto was held for investment purposes and was exchanged for “like-kind property.” For example, a Bitcoin held for investment purposes exchanged for ethereum could be considered a property of the same nature and character. Whereas, cryptocurrencies have not yet been defined as a stock or security or other type of property exempted from the like-kind exchange rules. Nevertheless, satisfying all the IRC Section 1031 rules could prove difficult for some cryptocurrency investors. Accordingly, taking the position that cryptocurrency gains can be sheltered using IRC Section 1031 exchange is risky and may not be respected by the IRS.

The wash rule for stocks likely do not apply to cryptocurrencies? True

Under IRC Section 1091, the IRS prohibits a taxpayer from claiming a loss on the sale or trade of a security in a wash sale. The rule defines a wash sale as one that occurs when an individual sells or trades a security at a loss, and within 30 days before or after this sale, buys a “substantially identical” stock or security, or acquires a contract or option to do so. Currently, cryptocurrencies are treated as property by the IRS and have not been treated as a stock or security by any government agency. Accordingly, the wash sales rules are believed to not be applicable to cryptocurrencies.

The Trump Tax Plan Passthrough Tax Reduction Can Help Cryptocurrency Investors? True & False

Under the Trump tax plan, passthrough entities, such as limited liability companies (“LLC”s), would receive a deduction allowing people with pass-through income — profits from a partnership or sole proprietorship, for instance — to write off 20% of that income before calculating their taxes. Hence, cryptocurrency active traders who wish to treat themselves as a business, could avail themselves of the passthrough income deduction. However, the new passthrough income tax regime will still likely result in a higher tax rate than holding cryptocurrencies for investment or personal purposes, especially if the cryptos are being held for longer than twelve months, thus, being subject to the long-term capital gains regime.

Overall, cryptocurrency is an asset class that is still evolving. The IRS has provided some clarification as to its tax treatment under Notice 2014-21, however, some uncertainty still remains. In addition, the lack of direct guidance by the SEC and state regulatory bodies have only added more confusion.

Taxpayers should be diligent and precise when reporting cryptocurrency gains or losses to the IRS and should be cautious when taking aggressive tax positions, such as the application of like-kind exchange exemption rules. Taxpayers would be best served consulting with a tax professional for more direct guidance on these matters.

For more information about investing in cryptocurrencies with a Solo 401(k), please contact Mr. Bergman @ 800.472.0646.

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Jan 30

Why Should You Choose an Individual 401k Over a Self-Directed IRA if You’re Self Employed

An Individual 401k, also known as a Solo 401(k) plan, is an IRS approved retirement plan, which is suited for business owners who do not have any employees, other than themselves and perhaps their spouse. The “one-participant 401(k) plan” is not a new type of plan. It is a traditional 401k plan covering only one employee. Unlike a Traditional IRA, which only allows an individual to contribute $5500 annually or $6500 if the individual is over the age of 50, a Solo 401k Plan offers the Plan participant the ability to contribute up to $61,000 each year. Before the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) became effective in 2002, there was no compelling reason for an owner-only business to establish a Solo 401(k) Plan because the business owner could generally receive the same benefits by adopting a profit sharing plan or a SEP IRA. After 2002, EGTRRA paved the way for an owner only business to put more money aside for retirement and to operate a more cost-effective retirement plan than a Traditional IRA or 401(k) Plan.

There are a number of options that are specific to Solo 401k plans that make the Solo 401k plan a far more attractive retirement option for a self-employed individual than a Traditional IRA for a self-employed individual.

1. Reach your Maximum Contribution Amount Quicker: A Solo 401(k) Plan includes both an employee and profit sharing contribution option, whereas, a Traditional IRA has a very low annual contribution limit.

Under the 2018 Solo 401(k) contribution rules, a plan participant under the age of 50 can make a maximum employee deferral contribution in the amount of $18,500. That amount can be made in pre-tax or after-tax (Roth). On the profit sharing side, the business can make a 25% (20% in the case of a sole proprietorship or single member LLC) profit sharing contribution up to a combined maximum, including the employee deferral, of $55,000.

Why Should You Choose an Individual 401k Over a Self-Directed IRA if You're Self EmployedFor plan participants over the age of 50, an individual can make a maximum employee deferral contribution in the amount of $24,500. That amount can be made in pre-tax or after-tax (Roth). On the profit sharing side, the business can make a 25% (20% in the case of a sole proprietorship or single member LLC) profit sharing contribution up to a combined maximum, including the employee deferral, of $61,000.

Whereas, a Traditional Self-Directed IRA would only allow an individual with earned income during the year to contribute up to $5500, $6500 is the individual is over the age of 50.

For example, Joe, who is 60 years old owns 100% of an S Corporation with no full time employees. Joe earned $100,000 in self-employment W-2 wages for 2018. If Joe had a Solo 401(k) Plan established for 2018, Joe would be able to defer approximately $49,500 for 2018 (a $24,500 employee deferral, which could be pre-tax or Roth, and 25% of his compensation giving him $49,500 for the year). Whereas, if Joe established a Traditional Self-Directed IRA, Joe would only be able to defer approximately $6,500 for 2018.

2. No Roth Feature: A Solo 401k plan can be made in pre-tax or Roth (after-tax) format. Whereas, in the case of a Traditional Self Directed IRA, contributions can only be made in pre-tax format. In addition, a contribution of $18,500 ($24,500, if the plan participant is over the age of 50) can be made to a Solo 401(k) Roth account.

3. Tax-Free Loan Option: With a Solo 401K Plan you can borrow up to $50,000 or 50% of your account value what ever is less. The loan can be used for any purpose. With a Traditional Self-Directed IRA, the IRA holder is not permitted to borrow even $1 dollar from the IRA without triggering a prohibited transaction.

4. Use Non-recourse Leverage and Pay No Tax: With a Solo 401(k) Plan, you can make a real estate investment using non-recourse funds without triggering the Unrelated Debt Financed Income Rules and the Unrelated Business Taxable Income (UBTI or UBIT) tax (IRC 514). However, the non-recourse leverage exception found in IRC 514 is only applicable to 401(k) qualified retirement plans and does not apply to IRAs. In other words, using a Self-Directed SEP IRA to make a real estate investment (Self Directed Real Estate IRA) involving non-recourse financing would trigger the UBTI tax.

5. Open the Account at Any Local Bank: With a Solo 401k Plan, the 401k bank account can be opened at any local bank or trust company. However, in the case of a Traditional Self Directed IRA, a special IRA custodian is required to hold the IRA funds.

6. No Need for the Cost of an LLC: With a Solo 401(k) Plan, the plan itself can make real estate and other investments without the need for an LLC, which depending on the state of formation could prove costly. Since a 401(k) plan is a trust, the trustee on behalf of the trust can take title to a real estate asset without the need for an LLC.

7. Better Creditor Protection: In general, a Solo 401(k) Plan offers greater creditor protection than a Traditional IRA. The 2005 Bankruptcy Act generally protects all 401(k) Plan assets from creditor attack in a bankruptcy proceeding. In addition, most states offer greater creditor protection to a Solo 401(k) qualified retirement plan than a Traditional Self-Directed IRA outside of bankruptcy.

8. Easy Administration: With a Solo 401(k) Plan there is no annual tax filing or information returns for any plan that has less than $250,000 in plan assets. In the case of a Solo 401(k) Plan with greater than $250,000, a simple 2 page IRS Form 5500-EZ is required to be filed. The tax professionals at the IRA Financial Group will help you complete the IRS Form.

9. IRS Approved: The Solo 401(k) Plan is an IRS approved qualified retirement plan. IRA Financial Group’s Solo 401(k) Plan comes with an IRS opinion letter which confirms the validity of the plan and is a safeguard against any potential IRS audit.

10. Open Architecture Plan: IRA Financial Group’s Solo 401(k) Plan is an open architecture, self-directed plan that will allow you to make traditional as well as nontraditional investments, such as real estate by simply writing a check. As trustee of the Solo 401(k) Plan, you will have “checkbook control” over your retirement assets and make the investments you want when you want.

The Solo 401k plan is unique and so popular because it is designed explicitly for small, owner only business. The many features of the Solo 401k plan discussed above is why the Solo 401k Plan or Individual 401k Plan it so appealing and popular among self employed business owners.

For more information about the Individual 401k plan, please contact us @ 800.472.0646.

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Jan 25

Choosing Between a Regular 401k and a Roth 401k

With tax season in full swing, many people will be seeking advice from their accountants.  This is a good time to start planning how you’ll contribute to your employer-sponsored retirement plan.  More people are allowed to contribute to a Roth 401k, assuming your plan offers it.  Is it better to contribute to a Roth or stick with a traditional 401k plan?

Choosing Between a Regular 401k and a Roth 401kAs you know, no matter what type of plan you choose, contributions are deducted right from your paycheck.  The main difference between the two plans is when you pay taxes.  With a Roth 401k, you pay the taxes right away.  Since you’ve paid the taxes already, come retirement your distributions will be tax-free, not only on your principle, but your earnings as well.  On the other hand, taxes are deferred if you invest in a traditional plan.  You don’t pay taxes until you take distributions during retirement.

Another benefit of the traditional 401k, is that your taxable income is lessened by the amount you contribute to the plan.  If you make $75K per year and contribute $10K, then your taxable income drops to $65,000 for the year and that’s what you’ll owe taxes on.

Choosing which type of plan to invest in will rely heavily on your age and income.  Those well into their working careers and are nearing retirement are usually earning the highest amounts of their lives.  It makes sense to defer taxes until later on and receive the tax break now.  However, if you’re in your 20s and are just beginning your working career, you aren’t earning the type of money you will during your prime.  Your tax bracket is probably low so the immediate tax break won’t be necessary.  Plus, you’ll be paying taxes at a lower rate than you will later on in life.

It gets a bit trickier if you fall in between the two extremes.  You may be in your 30’s but not earning your full potential or in your 40’s and switching careers for example.  One strategy to use is to diversify.  We’re not talking asset allocation, but tax diversification.  You can make both regular and Roth contributions.  The split will best be determined by how much you make (you want to defer more taxes) and how much you have left in your working life.

One final thought is that many plans still don’t offer Roth options.  If you want to stay invested with your work plan (especially when there’s a company match), you can look to a Roth IRA to help diversify and have the best of both worlds.

If you have any questions about which route is best for you, contact the tax experts at the IRA Financial Group at 800.472.0646 today!

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Jan 22

Did You Know You Can Use Your 401(k) Funds to Buy a Business?

Leaving your job or thinking of leaving your job and a have 401(k) qualified retirement plan or other type of retirement plan? Why not use your retirement funds to invest in yourself? Why not use your 401(k) funds on a business you can run, manage, and even earn a salary from? Isn’t it time you placed your retirement future in your hands rather than trust Wall Street bankers?  With IRA Financial Group’s Business Acquisition structure, a new C Corporation is formed which will adopt a 401(k) Qualified Plan. Your existing retirement funds can then be rolled into the newly adopted 401(k) Plan tax-free. The 401(k) Plan will then purchase the stock of the new corporation. The new corporation will then use those funds to purchase a new business or franchise tax-free!

With the IRS compliant Business Acquisition Structure, you can earn a reasonable salary from your new business or franchise. You can also use your new 401(k) Plan to make high tax-deductible contributions – $55,000 ($61,000 if you are over the age of 50) and even borrow up to $50,000 for any purpose.

What does the IRS Say about this?

Did You Know You Can Use Your 401(k) Funds to Buy a Business?The Internal revenue Code explicitly permits the purchase of corporate stock by a 401(k) Qualified Plan. The IRS has repeatedly confirmed that the structure is legal but has expressed some concern about the potential for abuse by individuals not being properly advised by tax professionals. For example, the IRS has documented the following instances of abuse when it comes to using retirement funds to invest in a business: (i) the employees of the business are not properly informed that a 401(k) qualified plan has been adopted by the business and that they are eligible to participate, (ii) the individual that established the structure with no intention to use for business purpose and the sole purpose for establishment was to get access to the retirement funds without penalty, or (iii) the structure would be used to purchase assets for personal use with the retirement funds.

Therefore, the IRS has stressed that it is imperative that when using retirement funds to establish or finance a new or existing business or franchise, it is necessary to work with qualified tax professionals who have experience in this area and can make sure the structure is established in full compliance with IRS and ERISA rules and procedures.

IRA Financial Group’s Business Acquisition structure is an IRS compliant legal structure that one can use to invest retirement funds into a business they will operate and be employed by. Work with IRA Financial Group’s in-house tax professionals to help establish your IRS compliant Business Acquisition Solution.

Using IRA Financial Group’s Business Acquisition Solution is the only way you will be able to use your retirement fund to legally start or finance a new or existing business tax-free and penalty free! Whereas, with a self-directed IRA LLC, an individual can invest retirement funds in a private business, but not a business that he or she would be involved in – that would be considered a prohibited transaction pursuant to Internal Revenue Code 4975. While, with a Solo 401K, an individual could only borrow up to $50,000 or 50% of his or her account value whichever is less and use that loan for any purpose, including starting or financing a business. However, if an individual required more than $50,000 for a business, then the Business Acquisition structure is the only solution that will allow one to use their retirement funds to start or finance a business tax-free and without penalty!

To learn more about the advantages of using a Business Acquisition Structure to start or finance a business using retirement funds, please contact a retirement expert at 800-472-0646.

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Jan 19

Advantages of a Roth Individual 401(k) Plan

The Roth Individual 401(k) Plan is the ultimate tax-free retirement solution for the self-employed. With federal and state income tax rates expected to increase in the future, gaining the ability to generate tax-free returns from your retirement investments when you retire is the last surviving legal tax shelter. With a Roth Individual 401(k), also known as a Solo 401(k), you can make almost any investment tax-free, including real estate, tax liens, precious metals, currencies, options, and private business investments and once you hit the age of 59 1/2 you will be able to live off your Roth 401K assets without ever paying tax. Imagine if someone told you that if you started making Roth 401K contributions in your forties and by just generating a modest rate of return, you could have over a million dollars tax-free when you retire. With a Roth 401K, live off the Roth 401K investment income tax-free or take a portion of your Roth 401K funds and use it for any purpose without ever paying tax.

The Roth Solo 401K Plan Advantages

Power of Tax-Free Investing: One of the main attractions to the self-directed Roth Solo 401(k) plan is based on the fact that qualified distributions of Roth earnings are tax-free. As long as certain conditions are met and the distribution is a qualified distribution, the Roth solo 401(k) plan participant will never pay tax on any Roth distributions received. The advantage of contributing to a Roth solo 401(k) plan is that income and gains generated by the Roth 401(k) investment can be tax-free and penalty-free so long as certain requirements are satisfied. Unlike with a pre-tax solo 401(k) plan contributions, contributions to a Roth solo 401(k) are not tax deductible.

High Contributions: A Roth Solo 401(k) combines features of the traditional 401(k) with those of the Roth IRA. Like a Solo 401K Plan, the Roth Solo 401K Plan is perfect for any self-employed individual or small business owner with no employees. The Roth Solo 401K Plan contains the same advantages of a Solo 401(k) Plan, but as with a Roth IRA, contributions are made with after-tax dollars. While you don’t get an upfront tax-deduction, the Roth 401K account grows tax-free, and withdrawals taken during retirement aren’t subject to income tax, provided you’re at least 59 1/2 and you’ve held the account for five years or more.

Advantages of a Roth Individual 401(k) PlanThe Roth Solo 401(k) can offer advantages to self-employed individuals who wish to maximize their ability to generate tax-free retirement savings while receiving the ability to invest in real estate, precious metals, private businesses or funds tax-free and without custodian consent.

Unlike a Roth IRA, which limits individual Roth IRA contributions to $5,500 annually ($6,500 if the individual is 50 years or older), in 2018, with a Roth Solo 401(k) account, an individual can make Roth (after-tax) contributions of up to $18,500, or $24,500 for those 50 or older by the end of the year — allowing individuals to stock away thousands of dollars more in tax-free retirement income than they would through a Roth IRA.

A Roth Solo 401(k) is perfect for sole proprietors, small businesses and independent contractors such as consultants. The Roth Solo 401(k) plan is unique and so popular because it is considered the last remaining legal tax shelter available. There are so many features of the Roth Solo 401(k) plan that make it so appealing and popular among self-employed business owners.

Unlimited Investment Opportunities: With a Roth 401(k) Plan or Roth 401(k) plan sub-account, you can invest your after-tax Roth 401(k) Plan funds in real estate, precious metals, tax liens, private business investments, and much more tax-free! Unlike with a pre-tax 401(k) Plan, with a Roth 401(k) account, all income and gains would flow back tax-free to your account. As long as you have reached the age of 59 1/2 and have had the Roth 401(k) account opened at least five years, you can take Roth 401(k) Plan distributions tax-free. In other words, you can live off your Roth 401(k) Plan assets or income tax-free. With federal income tax rates expected increase, the ability to have a tax-free source of income upon retirement may be the difference between retiring early or not.

Loan Feature: While an IRA offers no participant loan feature, the Roth Solo 401k allows participants to borrow up to $50,000 or 50% of their account value (whichever is less) for any purpose at a low interest rate (the lowest interest rate is Prime which is 4.50% as of 12/14/17). This offers a Roth Solo 401(k) Plan participant the ability to access up to $50,000 to use for any purpose, including paying personal debt or funding a business.

Offset the Cost of Your Plan with a Tax Deduction: By paying for your Solo 401(k) with business funds, you would be eligible to claim a deduction for the cost of the plan, including annual maintenance fees. The deduction for the cost associated with the Solo 401(k) Plan and ongoing maintenance will help reduce your business’s income tax liability, which will in-turn offset the cost of adopting a self-directed Solo 401(k) Plan. The retirement tax professionals at the IRA Financial Group will help you take advantage of the available business tax deduction for adopting a Solo 401(k) Plan.

Cost Effective Administration: In general, the Roth solo 401(k) plan is easy to operate. There is generally no annual filing requirement unless your solo 401(k) plan exceeds $250,000 in assets, in which case you will need to file a short information return with the IRS (Form 5500-EZ).

Exemption from UDFI: When an IRA buys real estate that is leveraged with mortgage financing, it creates Unrelated Debt Financed Income (“UDFI”) – a type of Unrelated Business Taxable Income (also known as “UBTI” or “UBIT”) on which taxes must be paid. The UBTI tax is approximately 40% for 2018. Whereas, with a Roth Solo 401(k) plan, you can use leverage without being subject to the UDFI rules and UBTI tax. This exemption provides significant tax advantages for using a Roth Solo 401(k) Plan versus an IRA to purchase real estate.

To learn more about the Roth Solo 401(k) Plan, please contact a 401(k) expert at 800-472-0646.

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Jan 16

Watch This Short Video About How the Solo 401(k) Plan Works

Watch This Short Video About How the Solo 401(k) Plan Works

Adam Bergman, a partner with the IRA Financial Group, discusses the primary Solo 401(k) Plan features. The video highlights the most popular features of the Solo 401(k) Plan, including high Solo 401(k) Plan contributions, $50,000 loan feature, UDFI exemption, ability to use local bank account and gain checkbook control as trustee.

For more information the Solo 401(k) Plan features, please click here.

IRA Financial Group is the market’s leading Self Directed IRA LLC and Solo 401(k) Facilitator. We have helped thousands of clients take back control over their retirement funds while gaining the ability to invest in almost any type of investment, including domestic or foreign real estate, tax liens, precious metals, peer-to-peer lending, new businesses, stocks, mutual funds, foreign currencies, options and much more. We have close working relationships with all the leading custodians making the set-up process seamless.

For more information, please contact us @ 800.472.0646.

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Jan 11

What You Should Know About Taxation Of Cryptocurrencies

Here’s a recent article, from Forbes.com, talking about the taxation of Bitcoin and other cryptocurrencies –

If you spend or invest in virtual currencies, it is crucial to understand how virtual currency transactions are treated for tax purposes.

IRS Notice 2014-21

The IRS addressed the taxation of virtual currency transactions in Notice 2014-21. According to the Notice, virtual currency is treated as property for federal tax purposes. This means that, depending on the taxpayer’s circumstances, cryptocurrencies, such as Bitcoin, can be classified as business property, investment property, or personal property. General tax principles applicable to property transactions must be applied to exchanges of cryptocurrencies. Hence, Notice 2014-21 holds that taxpayers recognize gain or loss on the exchange of cryptocurrency for other property.  Accordingly, gain or loss is recognized every time that Bitcoin is used to purchase goods or services.

Determining Basis & Gain

When it comes to determining the taxation of cryptocurrency transactions, it is important for cryptocurrency owners to properly track basis. Basis is generally defined as the price the taxpayer paid for the cryptocurrency asset.

For example, on June 1 2017, Jane purchased five Bitcoins for $6,000 ($1,200 each Bitcoin). On November 1, 2017, she used one Bitcoin to purchase $2,000 worth of merchandise via an online retailer. Jane recognized an $800 gain on the transaction ($2,000 amount realized – $1,200 basis in one Bitcoin).

What You Should Know About Taxation Of CryptocurrenciesTreating cryptocurrency, such as Bitcoin, as property creates a potential accounting challenge for taxpayers who use it for everyday purchases because a taxable transaction occurs every time that a cryptocurrency is exchanged for goods or services. For example, if Jane purchased a slice of pizza with one Bitcoin that she purchased on June 1 2017, she would have to determine the basis of the Bitcoin and then subtract that by the cost of the slice of pizza to determine if any gain was recognized. There is currently no “de minimis” exception to this gain or loss recognition. Taxpayers must track their cryptocurrency basis continuously to report the gain or loss recognized on each crypto transaction properly. It is easy to see how this treatment can cause accounting issues with respect to everyday cryptocurrency transactions.

On the other hand, the loss recognition on cryptocurrency transactions is equally complex. A deduction is allowed only for losses incurred in a trade or business or on a transaction entered into for profit. If Jane had recognized a $100 loss on her purchase of merchandise from the online retailer, the loss may not be deductible. If Jane uses Bitcoin for everyday transactions and does not hold it for investment, her loss is a nondeductible personal loss. However, if she holds Bitcoin for investment and cashes out of her investment by using Bitcoin to purchase merchandise, her loss is a deductible investment loss. Whether Bitcoin is held for investment or personal purposes may be difficult to determine, and further guidance by the IRS on this topic is needed.

Cryptocurrency values have been extremely volatile since its inception. As illustrated below, this volatility makes a significant difference in gain or loss recognition.

Jane purchased four Bitcoins on February 2, 2017 for $1,120 per Bitcoin, ten Ethereum coins on March 10, 2017 for $320 per coin, and 65 Litecoins on July 5, 2017 for $65 per coin.  Jane would need to keep track of the basis and sales price for each cryptocurrency transaction in order to properly calculate the gain or loss for each transaction.  In addition, if Jane purchased Bitcoins at different dates and at different prices, at sale, Jane would have to determine whether she would be selling a specific Bitcoin or use the first-in, first-out (FIFO) method to determine any potential gain or loss. The default rule for tracking basis in securities is FIFO. Taxpayers can also determine basis in securities by using the last-in, first out (LIFO), average cost, or specific identification methods. The prevalent thought is that these methods should be available for property that does not qualify as a security, and that taxpayers investing in cryptocurrency should use the method that is most beneficial to them. However, no direct IRS authority supports this position.

In sum, taxpayers must track their cryptocurrency purchases carefully. Each cryptocurrency purchase should be kept in a separate online wallet and appropriate records should be maintained to document when the wallet was established. If a taxpayer uses an account with several different wallet addresses and that account is later combined into a single wallet, it may become difficult to determine the original basis of each cryptocurrency that is used in a subsequent transaction.

The details of all cryptocurrency transactions in a network are stored in a public ledger called a “Blockchain,” which permanently records all transactions to and from online wallet addresses, including date and time. Taxpayers can use this information to determine their basis and holding period. Technology to assist taxpayers in this process is being developed currently and some helpful online tools are now available.

Characterization of Gain or Loss for Cryptocurrency Transactions

The character of gain or loss on a cryptocurrency transaction depends on whether the cryptocurrency is a capital asset in the taxpayer’s hands. Gain on the sale of a cryptocurrency that qualifies as a capital asset is netted with other capital gains and losses. A net long-term capital gain that includes gain on crypto transactions is eligible for the preferential tax rates on long-term capital gains, which is 15% or 20% for high net-worth taxpayers. Cryptocurrency gain constitutes unearned income for purposes of the unearned income Medicare contributions tax introduced as part of the Affordable Care Act. As a result, taxpayers with modified adjusted gross incomes over $200,000 ($250,000 for married taxpayers filing jointly) are subject to an additional 3.8% tax on cryptocurrency gain.

For example, on August 1, 2017, Jen, a sole proprietor, digitally accepts two Bitcoins from Steve as payment for services. On that date, Bitcoins are worth $10,000 each, as listed by Coinbase. Therefore, Jen recognizes $20,000 ($10,000 x 2) of business income. A month later, when Bitcoins are trading for $11,500 on the Coinbase exchange, Jen uses two Bitcoins to purchase supplies for her business. At that time, Jen will recognize $23,000 ($11,500 x 2) in business expense and $3,000 [($11,500 – $10,000) x 2] of gain due to the Bitcoin exchange. Since Jen isn’t in the trade or business of selling Bitcoins, the $3,000 gain is capital in nature.

Now let’s assume the same facts as above, except that Jen uses the two Bitcoins to purchase a new car for her personal use. According to the Coinbase exchange, Bitcoins are now trading at $8000. Jen will realize a loss of $4000 [($8000 – $10,000) x 2]. However, this loss is considered a nondeductible capital loss because Jen didn’t use the Bitcoins for investment or business purposes.  It is important to note that a payment using cryptocurrencies are subject to information reporting to the same extent as any other payment made in property. Thus, a person who, in the course of a trade or business, makes a payment using cryptocurrency with a fair market value of $600 or more is required to report the payment to the IRS and the payee’s cryptocurrency payments are subject to backup withholding. This means that persons making reportable payments with cryptocurrency must solicit a Taxpayer Identification Number (TIN) from the payee. If a TIN isn’t obtained prior to payment, or if a notification is received from the IRS that backup withholding is required, the payer must backup withhold from the virtual currency payment.

In summary, if a taxpayer acquires cryptocurrency as an investment and chooses to dispose of it by purchasing merchandise or services, any loss realized will be treated as a deductible investment loss. However, at times, it may be difficult to determine whether cryptocurrency is held for investment or personal purposes.

Employment Taxes and Information Reporting – Cryptocurrency Mining

According to Notice 2014-21, if a taxpayer’s mining of cryptocurrency is a trade or business, and the taxpayer isn’t classified as an employee, the net earnings from self-employment resulting from the activity will be subject to self-employment tax. Cryptocurrency mining is defined as a computationally intensive process that computers comprising a cryptocurrency network complete to verify the transaction record, called the “Blockchain”, and receive digital coins in return.  Cryptocurrency mining is considered a trade or business for tax purposes, in contrast to investing in cryptocurrencies which is considered an investment.  This is a crucial distinction since the taxation of investment gains or losses are subject to the capital gain/loss tax regime, whereas, business income is subject to a different tax regime.  A taxpayer generally realizes ordinary income on the sale or exchange of a cryptocurrency that is not a capital asset in his hands.

Inventory and property held for sale to customers are not capital assets, so income recognized by a miner of, or broker in, cryptocurrency is generally considered ordinary. If a taxpayer’s mining of cryptocurrency constitutes a trade or business, the net earnings from mining (gross income less allowable deductions) are subject to self-employment tax. Similarly, if an independent contractor receives virtual currency for performing services, the fair market value of such currency will be subject to self-employment tax. If cryptocurrency is paid by an employer to an employee as wages, the fair market value of the currency will be subject to federal income tax withholding, FICA and FUTA taxes, and must be reported on Form W-2 (Wage and Tax Statement).

Questions Remain

The IRS’s guidance in Notice 2014-21 clarifies various aspects of the tax treatment of cryptocurrency transactions. However, many questions remain unanswered, such as how cryptocurrencies should be treated for international tax reporting (FBAR & FATCA reporting) and whether cryptocurrencies should be subject to the like-kind exchange rules.

To learn more about using your retirement funds, including a Solo 401(k) Plan, to invest in cryptocurrencies, please contact a retirement expert from the IRA Financial Group @ 800.472.0646.

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Jan 08

How to Establish a Self-Directed 401(k) with Wells Fargo

IRA Financial Group, the leading provider of Self-Directed 401(k) Plans, and Wells Fargo have worked together to allow IRA Financial Group Solo 401(k) clients to establish a Checkbook Control Solo 401(k) Plan account with Wells Fargo with no custodian fees.

IRA Financial Group clients will be able to use IRA Financial Group’s IRS approved Self-Directed 401(k) Plan and open the plan account at Wells Fargo, as well as other partners, such as Charles Schwab, Fidelity, and E-Trade. With IRA Financial Group’s Self-Directed Solo 401(k) Plan at Wells Fargo, you will be able to make traditional investments, such as stocks, as well as alternative asset investments, such as real estate, precious metals, hard money loans, tax liens, private business investments, and much more and incur NO custodian fees. IRA Financial Group’s IRS approved Solo 401(k) Plan is an open architecture trustee directed plan allowing you, as the trustee of the plan, to have Checkbook Control over your plan funds directly from your Wells Fargo account and incur no custodian fees.

How to Establish a Self-Directed 401(k) with Wells Fargo

The IRA Financial Group Difference

By working with IRA Financial Group to establish your Self-Directed 401(k) Plan, you will gain the ability to make high annual 401(k) plan contributions, up to $55,000 ($61,000 if over the age of 50) in pre-tax, Roth, or after-tax, have a loan option, and gain the ability to make traditional as well as alternative asset investments, such as real estate. Whereas, if you adopted a Solo 401(k) Plan sponsored by Wells Fargo you would only be able to make pre-tax contributions, no Roth or after-tax contribution option, there would be no loan feature, and you would be only allowed to make traditional investments offered by Wells Fargo, such as mutual funds, and no real estate or other alternative asset investments would be permitted. So how is this possible?

With a Solo 401(k) Plan, the plan documents set forth the rules governing your Solo 401(k) Plan. IRA Financial Group’s Solo 401(k) Plan documents are open architecture trustee directed and not custodian directed giving you, as the trustee of the plan, Checkbook Control over the plan and its assets. IRA Financial Group would be the Solo 401(k) Plan document sponsor and Wells Fargo would be your 401(k) plan custodian, giving you the power to have Checkbook Control over your plan assets and make traditional as well as alternative asset investments. Using IRA Financial Group’s plan documents will allow you to take advantage of a special type of non-prototype plan account offered by Wells Fargo.

Unlike an IRA where the IRA custodian has specific IRS reporting requirements, with a 401(k) plan the custodian (Wells Fargo) has no IRS reporting requirements, since you as the plan administrator would be responsible for any IRS reporting, such as filing the IRS Form 5500-EZ (if your plan assets are greater than $250,000). This is the reason Wells Fargo will allow you to open your Solo 401(k) Plan account with them and make alternative asset investments using a special type of non-prototype account and not with an IRA, since the 401(k) plan custodian would have no IRS reporting requirements with a trustee directed Solo 401(k) Plan using IRA Financial Group plan documents.

IRA Financial Group has developed a relationship with Wells Fargo in order to allow you to open a Self-Directed Checkbook Control Solo 401(k) Plan with no custodian fees. Your IRA Financial Group assigned retirement tax specialist will assist you in opening your new Self-Directed 401(k) Plan at Wells Fargo or any other financial institution of your choice quickly. Using IRA Financial Group’s plan documents will allow you to take advantage of a special type of non-prototype 401(k) plan account offered by Wells Fargo allowing you to make traditional as well as alternative asset investments, such as real estate, as the trustee of the plan – with full Checkbook Control. The process for establishing a Self-Directed Solo 401(k) Plan with IRA Financial Group and Wells Fargo can be completed in days:

  1.  Complete a short New Client Intake Form allowing us to customize your IRS approved Self-Directed Solo 401(k) Plan to satisfy your retirement, investment, and tax needs.
  2. Within 24 hours, your customized Self-Directed Solo 401(k) Plan will be drafted and sent to you for your review.
  3. Your assigned retirement tax specialist will review the plan documents with you.
  4. We will assist you in establishing your Self-Directed Solo 401(k) Plan with Wells Fargo or any other financial institution of your choice. In addition to Wells Fargo, IRA Financial Group has a relationship with Charles Schwab, Fidelity, and E-Trade.
  5. Once your new Self-Directed Solo 401(k) Plan has been opened, we will assist you in making a contribution or rolling over existing retirement funds into the plan.
  6. You are ready to take advantage of all the benefits your Self-Directed Solo 401(k) Plan has to offer, including making high annual contributions in pre-tax, Roth, or after-tax, borrowing up to $50,000, and making traditional as well as alternative asset investments, such as real estate, by simply writing a check or sending a wire from your new plan account.

See the many advantages of establishing a Self-Directed 401(k) Plan with IRA Financial Group and Wells Fargo.

High Annual Contribution Limits

While an IRA only allows a $5,500 contribution limit (with a $1,000 additional “catch up” contribution for those over age 50), the Solo 401(k) annual contribution limit is $55,000 for 2018 with an additional $6,000 catch-up contribution for those over age 50. In addition, if your spouse generates compensation from the business, he or she can also make high contributions to the plan.

Under the 2018 Solo 401(k) contribution rules, a plan participant under the age of 50 can make a maximum employee deferral contribution in the amount of $18,500. That amount can be made in pre-tax or after-tax (Roth). On the profit sharing side, the business can make a 25% (20% in the case of a sole proprietorship or single member LLC) profit sharing contribution up to a combined maximum, including the employee deferral, of $55,000.

For plan participants over the age of 50, an individual can make a maximum employee deferral contribution in the amount of $24,500. That amount can be made in pre-tax or after-tax (Roth). On the profit sharing side, the business can make a 25% (20% in the case of a sole proprietorship or single member LLC) profit sharing contribution up to a combined maximum, including the employee deferral, of $61,000.

Calculate Your Solo 401k Plan Maximum Contribution Limit Please click here to calculate your Solo 401(k) Plan Maximum Contribution Limit.

A World of Investment Opportunities

By establishing a Solo 401(k) Plan with IRA Financial Group and opening the plan account with Wells Fargo, you will be able to invest in almost any type of investment opportunity that you discover, including real estate (rentals, foreclosures, raw land, tax liens etc.), private businesses, precious metals, hard money & peer to peer lending as well as stock and mutual funds; your only limit is your imagination. The income and gains from these investments will flow back into your Solo 401(k) Plan tax-free. Making an investment with your Solo 401(k) Plan is as simple as writing a check. As trustee of the Solo 401(k) Plan, you will have total control over your retirement assets to make real estate and other investments tax-free and without custodian consent.

Loan Feature

While an IRA offers no participant loan feature, by establishing a Solo 401(k) Plan with IRA Financial Group and opening the plan account with Wells Fargo, you will gain the ability to borrow up to $50,000 or 50% of the account value (whichever is less) for any purpose at a low interest rate (the lowest interest rate is Prime which is 4.50% as of 12/14/17). This offers a Solo 401(k) Plan participant the ability to access up to $50,000 for use for any purpose, including paying personal debt or funding a business.

“Checkbook Control” and No Custodian Fees

By establishing a Solo 401(k) Plan with IRA Financial Group and opening the plan account with Wells Fargo, you can serve as trustee of the plan giving you “Checkbook Control” over the plan’s funds. To this end, making an investment with your Solo 401(k) Plan is as easy as writing a check. Another significant benefit of the Solo 401(k) Plan is that it does not require the participant to hire a bank or trust company to serve as trustee. This flexibility allows the participant to serve in the trustee role. This means that all assets of the 401(k) trust are under the sole authority of the Solo 401k participant. A Solo 401(k) Plan allows you to eliminate the expense and delays associated with an IRA custodian, enabling you to act quickly when the right investment opportunity presents itself. Also, because the Solo 401(k) Plan trust account can be opened at any local bank or credit union (i.e., Chase, Wells Fargo, Citibank, etc.), you will not be required to pay custodian fees for the account as you would in the case of an IRA.

Roth Type Contributions

With IRAs, those who earn high incomes are disallowed from contributing to a Roth IRA or converting their IRA to a Roth IRA. By establishing a Solo 401(k) Plan with IRA Financial Group and opening the plan account with Wells Fargo, your Solo 401(k) Plan contains a built-in Roth sub-account which can be contributed to without any income restrictions. With a Roth Solo 401(k) sub-account, you can make Roth type contributions while having the ability to make significantly greater contributions than with an IRA.

After-Tax Contributions

By establishing a Solo 401(k) Plan with IRA Financial Group and opening the plan account with Wells Fargo, you will be able to make after-tax contributions up to $55,000 (or $61,000 if over the age of 50). Unlike pre-tax employee deferral contributions, after-tax contributions can be made on a dollar-dollar basis and can be immediately converted to Roth without tax.

Cost Effective Administration

In general, the Solo 401(k) Plan is easy to operate. By establishing a Solo 401(k) Plan with IRA Financial Group and opening the plan account with Wells Fargo, there is generally no annual filing requirement unless your Solo 401(k) Plan exceeds $250,000 in assets, in which case you will need to file a short information return with the IRS (Form 5500-EZ).

Exemption from UDFI

When an IRA buys real estate that is leveraged with mortgage financing, it creates Unrelated Debt Financed Income (“UDFI”) – a type of Unrelated Business Taxable Income (also known as “UBTI or UBIT”) on which taxes must be paid. The UBTI tax is approximately 40% for 2018. But, with a Solo 401(k) Plan, you can use leverage without being subject to the UDFI rules and UBTI tax. By establishing a Solo 401(k) Plan with IRA Financial Group and opening the plan account with Wells Fargo, you can buy real estate and use a nonrecourse loan without triggering the UBTI tax. This exemption provides significant tax advantages for using a Solo 401(k) Plan versus an IRA to purchase real estate.

Work with the Leaders

The IRA Financial Group was founded by a group of top law firm tax and ERISA lawyers who have worked at some of the largest law firms in the United States, such as White & Case LLP, Dewey & LeBoeuf LLP, and Thelen LLP. IRA Financial Group is the market’s leading* Self-Directed IRA and Solo 401K Plan provider. We have helped over 15,500 clients establish IRS compliant Self-Directed IRA and Solo 401k Plans and invest over $4.9 billion in alternative assets, such as real estate.

If you would like to learn more about establishing a Self-Directed 401(k) Plan with IRA Financial Group and opening your plan account with Wells Fargo, please contact a Solo 401(k) Plan specialist at 800-472-0646.

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