Sep 28

Watch How the Solo 401(k) Structure Works

Watch how the Solo 401k Plan Structure works

Watch how easy it to establish an IRS compliant Solo 401(k) Plan that will allow you to make high annual tax-deductible or Roth contributions – up to ten times the amount of an IRA, Borrow up to $50,000, and use your retirement funds to invest in real estate, precious metals, tax liens, your business and much more tax free and without custodian consent!

Learn how IRA Financial Group’s self-directed Solo 401(k) Plan will allow you to open your new plan account at any local bank and allow you to make investments by simply writing a check!

See how IRA Financial Group’s Solo 401(k) Plan will help you save for your retirement while allowing you to unlock a world of investment opportunities.

Work directly with our in-house retirement tax professionals to set-up an IRS compliant Solo 401(k) Plan. Our retirement tax professionals have worked at some of the largest law firms in the United States, including White & Case LLP and Dewey & LeBoeuf LLP.

Call us today at 800-472-0646 and learn more about the benefits and tax advantages of establishing a Solo 401(k) Plan. Take control of your retirement funds now! It’s quick and easy and we can have your Plan established in days!

IRA Financial Group Facebook pageIRA Financial Group Twitter pageamazon-logoIRA Financial Group Tumblr pageIRA Financial Group Pinterest page

Sep 26

Are You Restricted by the Prohibited Transaction Rules when Taking a 401k Loan?

No, a 401k loan is permitted at any time and for any purpose using the accumulated balance of the 401k as collateral for the loan. A 401k participant (whether it be a company plan or a Solo 401(k)) can borrow up to either $50,000 or 50% of their account value – whichever is less. This loan has to be repaid over an amortization schedule of five years or less with payment frequency no greater than quarterly. The interest rate must be set at a reasonable rate of interest – generally interpreted as the Prime Interest Rate as per the Wall Street Journal. As of 9/1/16, prime rate is 3.50%. The Interest rate is fixed based on the prime rate at the time of the loan application.

Note, 401(k) loans should usually be utilized as a last resort.

Are You Restricted by the Prohibited Transaction Rules when Taking a 401k Loan?

Please contact one of our 401(k) Experts at 800-472-0646 for more information.

Sep 23

Individual 401(k) Non-Deductible Contribution Tax Strategy

The Secret Way to Boost Your Annual 401(k) Plan Contributions

In the case of an IRA, most people know that IRA contributions can be made in pre-tax, after-tax, or Roth. However, it is not widely known that a Solo 401(k) plan can allow you to make non-deductible plan contributions based off your income on a dollar for dollar basis.

Types of Plan Contributions

A contribution to a pre-tax 401(k) plan is a tax-deductible contribution; however, it is subject to tax when distributed. Unlike pre-tax elective contributions, a Roth 401(k) plan contribution is an after-tax contribution that is currently includible in gross income but generally tax-free when distributed. Whereas, when after-tax plan contributions are made from an employee’s compensation (other than Roth contributions), then an employee must include it as income on his or her tax return.

Non-Deductible 401(k) Plan Contribution Tax Strategy

Individual 401(k) Non-Deductible Contribution Tax StrategyGenerally, when an individual is over the age of 50, he or she is able to make employee deferrals in a pre-tax fund or Roth of up to $18,000 or $24,000. A profit sharing contribution can be made in pre-tax funds in the amount equal to 25% of compensation (20% in case of self-employment or a single member LLC), and both contributions cannot exceed $53,000 or $59,000 in the aggregate for 2016. An after-tax deferral, (neither Roth or pre-tax), is also an option that can go up to $53,000 or $59,000 and include other plan contributions such as employee deferrals and profit sharing. For example, if a 40-year-old self-employed individual earns $100,000 in 2016, he or she would be able to make a maximum employee deferral contribution of $18,000 in pre-tax funds or Roth and make an after-tax contribution dollar-for dollar equal to $35,000. This is the difference between $53,000 (the maximum annual 401(k) contribution for 2016) and $18,000, the maximum employee deferral contributions limit. Those contributions can then be converted to a Roth. The advantage of making after-tax contributions versus a profit sharing contribution is that you can make a dollar for dollar contribution as opposed to a profit sharing contribution, which is based off a percentage of your compensation (20% or 25%). If a profit sharing contribution were made instead of an after-tax contribution, the individual would only be able to make a $20,000 contribution, giving him or her an annual contribution of just $38,000 versus $53,000 if employee deferrals were combined with after-tax contributions.

Is the Nondeductible 401(k) Contribution Option New?

No, Non-deductible 401(k) plan contributions are not new, but new IRS regulations (Notice 2014-54) make after-tax contributions more appealing and allows the retiree to effectively segregate the after-tax assets from the pre-tax funds. The pre-tax funds can be rolled into a Traditional IRA, whereas the after-tax dollars can be converted into a Roth IRA.

Do All Solo 401(k) Plans Allow for Non-Deductible contributions?

No. You must check the 401(k) plan documents to confirm that the plan allows for non-deductible contributions. IRA Financial Group’s Solo 401(k) Plan allows for non-deductible contributions, in addition to pre-tax and Roth contributions.

For additional information on making non-deductible contributions to a Solo 401(k) plan, please contact one of our Solo 401(k) plan experts at 800-472-0646.

IRA Financial Group Facebook pageIRA Financial Group Twitter pageamazon-logoIRA Financial Group Tumblr pageIRA Financial Group Pinterest page

Sep 20

Establishing a Solo 401(k) with Fidelity

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

IRA Financial Group clients will be able to use IRA Financial Group’s IRS approved Self-Directed Solo 401(k) Plan and open the plan account at Fidelity, as well as other partners, such as Charles Schwab, E-Trade, and Wells Fargo. With IRA Financial Group’s Self-Directed Solo 401(k) Plan at Fidelity, 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 Fidelity account and incur no custodian fees.

The IRA Financial Group Difference

By working with IRA Financial Group to establish your Self-Directed Solo 401(k) Plan, you will gain the ability to make high annual 401(k) plan contributions, up to $53,000 ($59,000 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 Fidelity 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 Fidelity, 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 Fidelity 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 Fidelity.

Unlike an IRA where the IRA custodian has specific IRS reporting requirements, with a 401(k) plan the custodian (Fidelity) 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 Fidelity 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 Fidelity 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 Solo 401(k) Plan at Fidelity 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 Fidelity 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 Fidelity can be completed in days:

  1. 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. 2. Within 24 hours, your customized Self-Directed Solo 401(k) Plan will be drafted and sent to you for your review.
  3. 3. Your assigned retirement tax specialist will review the plan documents with you.
  4. 4. We will assist you in establishing your Self-Directed Solo 401(k) Plan with Fidelity or any other financial institution of your choice. In addition to Fidelity, IRA Financial Group has a relationship with Charles Schwab, E-trade, and Wells Fargo.
  5. 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. 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 Solo 401(k) Plan with IRA Financial Group and Fidelity.

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 $53,000 for 2016 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 2016 Solo 401(k) contribution rules, a plan participant under the age of 50 can make a maximum employee deferral contribution in the amount of $18,000. 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 $53,000.

For plan participants over the age of 50, an individual can make a maximum employee deferral contribution in the amount of $24,000. 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 $59,000.

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 Fidelity, 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 Fidelity, 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 3.50% as of 12/21/15). 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 Fidelity, 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 Fidelity, 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 Fidelity, you will be able to make after-tax contributions up to $53,000 (or $59,000 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 Fidelity, 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 2016. 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 Fidelity, 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 12,000 clients establish IRS compliant Self-Directed IRA and Solo 401k Plans and invest over $3.8 billion in alternative assets, such as real estate.

IRA Financial Group proudly announces the latest book titled “The Checkbook IRA – Why You Want It, Why You Need It,” written by tax partner Adam Bergman, which is now available on Amazon. This is the second book in a four-part series on self-directed retirement plans. The first book, “Going Solo,” is also available on Amazon.

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

IRA Financial Group Facebook pageIRA Financial Group Twitter pageamazon-logoIRA Financial Group Tumblr pageIRA Financial Group Pinterest page

Sep 19

Will an Individual 401(k) Benefit You?

The Individual 401(k), also known as a  Solo 401(k) plan, is unique and so popular because it is designed explicitly for small, owner only business. It’s a tax efficient and cost effective plan that offers all the benefits of a Self Directed IRA plan, and includes additional benefits, such as high contribution limits (up to $59,000) and a $50,000 loan feature. There are many features of the Solo 401(k) plan that make it so appealing and popular among self employed business owners. A Solo 401(k) Plan is typically used by owner owned business for the following purposes:

  • High Contribution Limits: Under the 2016 Solo 401(k) contribution rules, a plan participant under the age of 50 can make a maximum employee deferral contribution in the amount of $18,000. 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.For plan participants over the age of 50, an individual can make a maximum employee deferral contribution in the amount of $24,000. 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 $59,000.
  • Loan Feature: While an IRA offers no participant loan feature, the Solo 401k allows participants to borrow up to $50,000 or 50% of their account value (whichever is less) for any purpose.
  • Finance a Business or investment: Borrow up to $50,000 to finance a business or make an investment.
  • Flexible Investment Options: You can invest in almost any type of investment, including real estate, private business entities and commercial paper and channel the gains back into your 401(k) tax free.
  • 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. The Solo 401(k) plan contains a built in Roth sub-account which can be contributed to without any income restrictions.
  • Cost Effective Administration: In general, the 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).
  • Exemption from UDFI: When an IRA buys real estate that is leveraged with mortgage financing, it creates Unrelated Debt Financed Income (a type of Unrelated Business Taxable Income) on which taxes must be paid. A Solo 401(k) plan is exempt from UDFI.

Retirement Saving Consolidation Through Rollovers

A Solo 401(k) plan can accept rollovers of funds from another retirement savings vehicle, such as an IRA, a SEP, or a previous employer’s 401(k) plan.

Please contact one of our 401(k) Experts at 800-472-0646 for more information.
IRA Financial Group Facebook pageIRA Financial Group Twitter pageamazon-logoIRA Financial Group Tumblr pageIRA Financial Group Pinterest page

Sep 15

Rolling Over a Roth 401k to a Roth IRA and Vice Versa

Can I rollover the Roth 401(k) Plan to a Roth IRA?

Yes. You are permitted to roll over your Roth 401(k) plan assets into a Roth IRA. If you elect to do this, the assets can be transferred in a trustee-to-trustee transfer (also known as a direct rollover) to avoid mandatory income tax withholdings on the earnings.

Can I rollover a Roth IRA to a Roth 401(k) Plan?

No. Although you are permitted to roll over the assets of a Roth 401(k) plan to a Roth IRA, you may not do the reverse.

If you have any questions concerning rollovers, please contact us @ 800.472.0646.

IRA Financial Group Facebook pageIRA Financial Group Twitter pageamazon-logoIRA Financial Group Tumblr pageIRA Financial Group Pinterest page

Sep 13

Services Offered for IRA Financial Group’s ROBS Solution

The IRA Financial Group was founded by a group of top law firm tax and ERISA professionals who have worked at some of the largest law firms in the country, including White & Case LLP and Dewey & LeBoeuf LLP.

In developing our Business Acquisition & Compliance Solution Structure (“BACSS”), also known as ROBS, our in-house retirement tax professionals have carefully examined and researched IRS and Department of Labor guidance to design a structure that is fully compliant with IRS and ERISA rules. Each client of the IRA Financial Group is assigned an individual retirement tax professional who will help customize a structure that satisfies his or her financial and retirement needs while ensuring the structure is developed in full compliance with IRS and ERISA rules and requirements. Our services include:

  • Establishment of “C” Corporation including Filing Fees;
  • Filing LLC Articles of Incorporation with the state;
  • Application for Corporation EIN;
  • Drafting all required initial corporate resolutions and minutes;
  • Drafting of customized Stock Purchase Agreement;
  • Drafting of customized Employee Stock Purchase Agreement;
  • Free consultation with in-house retirement tax professional on the BACSS structure;
  • Adoption of 401(k) Plan;
  • Basic Plan Document;
  • EGTRRA Amendment;
  • Summary Plan Description;
  • Trust Agreement;
  • Appointment of Trustee;
  • Beneficiary Designation;
  • Application for Plan trust EIN;
  • Assistance in the establishment of business and 401(k) Plan bank accounts;
  • Assistance with the transfer of funds to your new 401(k) Plan bank account;
  • Assistance in coordinating the completion of all IRS required information returns
  • Assistance in coordinating the acquisition of an independent business appraisal;
  • Free consultation with in-house retirement tax professional on the BACSS structure;
  • Tax support on the BACSS and the 401(K) Plan; and
  • Annual compliance review

We have developed a process that ensures speed and compliance, by using standardized procedures that work via phone, e-mail, fax, and mail. Your funds will typically be ready for investment into your new or existing business within 14-21 days.

Please contact one of our Retirement Experts at 800-472-0646 for more information.

IRA Financial Group Facebook pageIRA Financial Group Twitter pageamazon-logoIRA Financial Group Tumblr pageIRA Financial Group Pinterest page

Sep 12

Using a Loan With a Self Directed 401K Plan to Make an Investment

When it comes to using retirement funds, such as a Self Directed 401K Plan, to make investments, the question arises whether a Self Directed 401K Plan can utilize a loan as part of the transaction.

The IRS has always allowed a Self Directed 401K, also known as a Solo 401K Plan, to make traditional as well as non-traditional investments such as real estate. However, the prohibited transaction rules under Internal Revenue Code Section 4975 restrict a Solo 401K Plan participant from engaging in certain transactions – prohibited transactions. Under IRC 4975, one of the categories of prohibited transactions involve a disqualified person personally guaranteeing a loan made to a Solo 401K Plan. A Solo 401K plan participant is treated as a disqualified person pursuant to IRC 4975. As a result, a Solo 401K cannot use a recourse loan to purchase property owned by a Plan because a disqualified person (Solo 401K Plan participant) cannot personally guarantee a loan. However, the IRS does allow for the 401K to use a nonrecourse loan to purchase real estate. A nonrecourse loan is a loan that does not require a personal guarantee on the part of the Solo 401K plan participant. In other words, a loan that would limit a lender’s (bank) ability to go after an individual personally for non-payment of the loan. Instead, the lender’s sole remedy would be to look to the underlying property as satisfaction of the loan. Of course, this type of loan is more difficult to acquire and can be more expensive for a borrower.

In general, Internal Revenue Code Section 514(c)(9) permits a few types of exempt organizations to make debt-financed investments in real property without becoming taxable under Code Section 514. Note – the exemption only applies to real estate and not to other types of nonrecourse financing, such as margin on stock.

Using a Loan With a Self Directed 401K Plan to Make an InvestmentThe Section 514 exemption applies to any “qualified organization,” a term that includes (1) schools, colleges, universities, and their “affiliated support organizations,” (2) qualified pension, profit sharing, and stock bonus trusts, and (3) title holding companies exempt under § 501(c)(25). In general, indebtedness incurred by a qualified organization in acquiring or improving real property is not acquisition indebtedness if the transaction navigates through a long list of prohibitions. In other words, a Solo 401K Plan can use nonrecourse leverage when purchasing real property with Plan assets and not be subject to the Unrelated Debt-Financed Income rules, which in-turn trigger an Unrelated Business Taxable Income (UBTI or UBIT) tax (approximately 40% for 2016). Note – only nonrecourse leverage can be used when acquiring property by a 401K or Solo 401K Plan since, a disqualified person (401(k) plan participant or trustee) cannot personally guarantee the loan (recourse loan) since that would violate the prohibited transaction rules pursuant to Internal Revenue Code Section 4975. It is important to remember that this exemption would not apply to an IRA since an IRA is not a qualified pension, profit sharing, and stock bonus trusts.

To satisfy the exemption under Internal Revenue Code Section 514, the price paid by the organization for the property or improvement must be fixed when the property is acquired or the improvement is completed, neither the amount nor the due date of any payment under the indebtedness can be contingent on the revenue, income, or profits from the property, and the property may not be leased to the person who sold the property to the organization or to any person related to the seller within the meaning of Code Section 267(b) or Code Section 707(b). If the organization is a qualified pension, profit sharing, or stock bonus trust, the property may not be purchased from or leased to the employer of any of the employees covered by the trust or any one of several persons related to the employer. Financing for the property may not be received from the person who sold the property to the organization, a person related to the seller within the meaning of Code Section 267(b) or Code Section 707(b), or, if the organization is a qualified employee trust, an employer or related person who is disqualified from being seller or lessee under the rule described in the preceding sentence. The property must usually be owned directly by the qualified organization, except that an interest in a partnership or other pass-through entity qualifies if all of the partners or other owners are qualified organizations and each partner or other owner is allocated the same distributive share of every item of partnership income, deduction, and credit.

When § 514(c)(9) was enacted in 1980, it applied only to qualified pension, profit sharing, and stock bonus plans, but its scope was broadened in 1984 to include schools, colleges, and universities.

Many people ask why this exemption only applies to 401K Plans and not IRAs. The only reason given in the committee reports for the exemption is that some people wanted it: “Trustees of these plans are desirous of investing in real estate for diversification and to offset inflation. Debt-financing is common in real estate investments.”  The provision was originally limited to qualified employee trusts on the theory that the income would eventually be taxed to employees and their beneficiaries.

To learn more about the rules surrounding using a loan with a Solo 401K Plan to make an investment please contact a Solo 401K Expert at 800-472-0646.

IRA Financial Group Facebook pageIRA Financial Group Twitter pageamazon-logoIRA Financial Group Tumblr pageIRA Financial Group Pinterest page

Sep 09

Can You Contribute to Both a Solo 401k and SEP IRA?

Yes. You can make contributions to both a SEP and a Solo 401K Plan. In other words, a business can have both a SEP IRA and a Solo 401(K) Plan, although, there is generally no advantage for a business to have both active at the same time.

A Solo 401(k) Plan includes both an employee and profit sharing contribution option, whereas, a SEP IRA is purely a profit sharing plan.

Under the 2016 Solo 401(k) contribution rules, a plan participant under the age of 50 can make a maximum employee deferral contribution in the amount of $18,000. 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 $53,000.

For plan participants over the age of 50, an individual can make a maximum employee deferral contribution in the amount of $24,000. 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 $59,000.

Whereas, a SEP IRA would only allows for a profit sharing contribution. Hence, a participant in a SEP IRA would be limited to 25% (20% in the case of a sole proprietorship or single member LLC) profit sharing contribution up to a combined maximum of $53,000 for 2016. No employee deferral exists for a SEP IRA.

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 2016. If Joe had a Solo 401(k) Plan established for 2016, Joe would be able to defer approximately $49,000 for 2016 (a $24,000 employee deferral, which could be pre-tax or Roth, and 25% of his compensation giving him $49,000 for the year). Whereas, if Joe established a SEP IRA, Joe would only be able to defer approximately $25,000 (25% if his compensation) for 2016.

In other words, having both a SEP IRA and a Solo 401(k) Plan will not allow a business owner to defer more than $53,000 ($59,000 if the individual is over the age of 50) for 2016. Most individuals will use a Solo 401(k) Plan vs. a SEP IRA since you can reach the maximum annual contribution limit quicker than a SEP IRA since the Solo 401(k) Plan includes both an employee deferral and profit sharing component, whereas, a SEP IRA includes just a profit sharing component.

To learn more about the benefits of a Solo 401(k) Plan vs. a SEP IRA, please contact a tax professional at 800-472-0646.

IRA Financial Group Facebook pageIRA Financial Group Twitter pageamazon-logoIRA Financial Group Tumblr pageIRA Financial Group Pinterest page

Sep 06

Deadline for Individual 401(k) Contributions

The deadline for making Individual 401(k), also known as a  Solo 401(k) Plan, contributions is typically dependent on the type of entity that has adopted the Solo 401(k) Plan as well as the type of contribution – employee deferral vs. profit sharing contribution.

Sole Proprietorship

Employee Deferral

In the case of a sole proprietorship, a business owner under the age of 50 may make employee deferral contributions up to $18,000 for 2016 (an employee over the age of 50 may make a $6,000 annual catch-up contribution for an annual deferral contribution imitation of $24,000). An Employee must elect to make the employee deferral contribution by December 31 of the year. However, the employer deferral contribution can be made up until the tax-filing deadline.

The employee deferral contribution can be made using pre-tax and/or after-tax (Roth) funds.

Profit Sharing Contribution

The sole proprietorship business may make annual profit sharing contributions for the business owner and spouse annually. Internal Revenue Code Section 401(a)(3) states that the amount of employer contributions is limited to 25 percent of the entity’s income subject to self-employment tax. Schedule C sole-proprietors must do an added calculation starting with earned income to determine their maximum contribution, which, in effect, brings the maximum 25% of compensation limit down to 20% of earned income. A step-by-step worksheet for this calculation can be found in IRS Publication 560. In general, compensation is your net earnings from self-employment. This definition takes into account both of the following items: (i) the deduction for one-half of your self-employment tax, and (ii) the deduction for contributions on your behalf to the plan.

The profit sharing contribution must be made by the business’s tax-filing deadline.

Single Member LLC

Employee Deferral

In the case of a single member LLC, the single member LLC owner under the age of age 50 may make employee deferral contributions up to $18,000 for 2016 (an employee over the age of 50 may make a $6,000 annual catch-up contribution for an annual deferral contribution limitation of $24,000). The single member LLC owner must elect to make the employee deferral contribution by December 31 of the year. However, the employer deferral contribution can be made up until the tax-filing deadline.

The employee deferral contribution can be made using pre-tax and/or after-tax (Roth) funds.

Profit Sharing Contribution

The single Member LLC business may make annual profit sharing contributions for the business owner and spouse annually. Internal Revenue Code Section 401(a)(3) states that the amount of employer contributions is limited to 25 percent of the entity’s income subject to self- employment tax. Schedule C single member LLC owners must do an added calculation starting with earned income to determine their maximum contribution, which, in effect, brings the maximum 25% of compensation limit down to 20% of earned income. A step-by-step worksheet for this calculation can be found in IRS Publication 560. In general, compensation is your net earnings from self-employment. This definition takes into account both of the following items: (i) the deduction for one-half of your self-employment tax, and (ii) the deduction for contributions on your behalf to the plan.

Profit-sharing contributions must be funded by the business’s tax-filing deadline.

Multiple-Member LLC

Employee Deferral

In the case of a multiple member LLC, the multiple-member LLC owners under the age of age 50 may make employee deferral contributions up to $18,000 for 2016 (an employee over the age of 50 may make a $6,000 annual catch-up contribution for an annual deferral contribution limitation of $24,000). The multiple-member LLC owners must elect to make the employee deferral contribution by December 31 of the year. However, the employee deferral contribution can be made up until the tax-filing deadline.

The employee deferral contribution can be made using pre-tax and/or after-tax (Roth) funds.

Profit Sharing Contribution

The multiple-member LLC business may make annual profit sharing contributions for the business owners annually. Internal Revenue Code Section 401(a)(3) states that the amount of employer profit sharing contributions is limited to 25 percent of the entity’s income subject to self-employment tax. Profit-sharing contributions must be funded by the business’s tax-filing deadline.

C Corporation & S Corporation

Employee Deferral

An employee of a corporation will receive a W-2. When it comes to making employee deferral contributions, the employee must make the deferral contribution during the year. The timing of the deferral contribution will typically depend on the business. In the case of a corporation that uses a payroll company, the employee deferral will typically be deducted from the employee’s paycheck. If the company does not use a payroll system, the employee can elect to make deferral contributions at anytime during the year. Once the election is made the Department of Labor safe harbor is that the funds are deposited into the Solo 401(k) Plan account within 7 days. The employee making the employee contribution should make sure that he or she has earned enough compensation during the pay period to cover the employee contribution. For example, if the employee wishes to make a employee deferral contribution of $18,000 on December 30th, the employee will need to be sure that he or she has earned sufficient compensation during the pay period to cover the deferral contribution.

The employee deferral contribution can be made using pre-tax and/or after-tax (Roth) funds.

Profit Sharing Contributions

The corporation may make profit sharing contributions for corporation’s owner(s)/employee(s) annually. Internal Revenue Code Section 401(a)(3) states that the amount of employer profit sharing contributions is limited to 25 percent of the entity’s income subject to self-employment tax.

Profit-sharing contributions must be funded by the business’s tax-filing deadline.

Please contact one of our Solo 401k Experts at 800-472-0646 for more information.

IRA Financial Group Facebook pageIRA Financial Group Twitter pageamazon-logoIRA Financial Group Tumblr pageIRA Financial Group Pinterest page