May 29

A Little About the History of the Solo 401(k) Plan

401(k) plans are named after the section of the Internal Revenue Code in which they appear, and apply to private sector employers. A solo 401(k) plan, also called an individual 401(k), a one-participant plan, self-employed 401(k) or self-directed 401(k) plan is a qualified retirement plan that was designed specifically for the self-employed or small business owner with no employees. To many peoples surprise, the solo 401(k) plan is not a new type of retirement plan. The solo 401(k) plan is not a term of art or even fond in the Internal Revenue Code. The Solo 401(k) Plan, in general, has the same rules and requirements as company 401(k) plan, but is not subject to the complex ERISA rules which make employee 401(k) plans so costly. In other words, the solo 401(k) Plan is simply a 401(k) plan that is not subject to the ERISA rules because the adopting employer does not have any full-time employees, other than their spouse(s). The growth in the popularity of the solo 401(k) plan began with the enactment of the Economic Growth and Tax Reconciliation Relief Act of 2001 (EGTRRA) which armed the solo 401(k) plan with all the attractive features of the better known employer 401(k) plan.

The Solo 401K Plan has become the most popular retirement plan for the self-employed.The Solo 401K Plan has become the most popular retirement plan for the self-employed. This is exactly what the IRS envisioned when it created the Solo 401K Plan, also known as the Individual 401K or Self-Directed 401K Plan.

Pre-1978 – Deferred compensation arrangements (“cash or deferred arrangements,” known as CODAs) which allowed some compensation (and resulting tax liability) to be deferred, predate 401(k) plans by several decades and are viewed as their precursors.

In the 1950s, a number of companies, particularly banks, added to their profit-sharing plans a new feature that came to be called a “cash or deferred arrangement,” or CODA. Each year, when employees were awarded profit-sharing bonuses, they were given the option to deposit some or all of the bonus into the plan instead of receiving the bonus in cash. Even though the employee had the right to receive the bonus in cash, which normally would trigger immediate income tax, a CODA sought to treat any amount the employee contributed to the plan as if it were an employer contribution, and therefore tax-deferred.

In 1956, the IRS issued the first in a series of rulings allowing profit-sharing plans to include a CODA and still be eligible for the favorable tax treatment accorded employer contributions.

The Employee Retirement Income Security Act of 1974 (ERISA) contained sweeping changes in the regulation of pension plans, and created rules regarding reporting and disclosure, funding, vesting, and fiduciary duties. Although ERISA was aimed mostly at “assuring the equitable character” and “financial soundness” of Defined Benefit pension plans, the Act contained numerous provisions impacting Defined Contribution plans (like profit-sharing plans, and eventually 401(k) plans).

In 1962, after much deliberation, Congress enacted the Self-Employed Individuals Tax Retirement Act of 1962, extending some of the benefits of qualified plan participation to self-employed persons. Plans covering self-employed individuals were often called Keogh or H.R. 10 plans, after the principal sponsor and bill number in the House of Representatives.

The 1962 legislation required plans covering self-employed individuals to satisfy all of the qualification criteria for plans covering only common law employees and imposed numerous additional requirements and limitations.

Is the Solo 401(k) Plan Subject to ERISA?

The DOL regulations provide that a plan that covers only partners or a sole proprietor is not covered under Title I of ERISA. Pursuant to Department of Labor Regulations 2510.3-3(c) –

(1) An individual and his or her spouse shall not be deemed to be employees with respect to a trade or business, whether incorporated or unincorporated, which is wholly owned by the individual or by the individual and his or her spouse, an

(2) A partner in a partnership and his or her spouse shall not be deemed to be employees with respect to the partnership.

The provisions of Title I of ERISA, which are administered by the U.S. Department of Labor, were enacted to address public concern that funds of private pension plans were being mismanaged and abused. ERISA was the culmination of a long line of legislation concerned with the labor and tax aspects of employee benefit plans. The goal of Title I of ERISA is to protect the interests of participants and their beneficiaries in employee benefit plans.

The provisions of Title I of ERISA cover most private sector employee benefit plans. Employee benefit plans are voluntarily established and maintained by an employer, an employee organization, or jointly by one or more such employers and an employee organization. Pension plans–a type of employee benefit plan–are established and maintained to provide retirement income or to defer income until termination of covered employment or beyond. Other employee benefit plans are called welfare plans and are established and maintained to provide health benefits, disability benefits, death benefits, prepaid legal services, vacation benefits, day care centers, scholarship funds, apprenticeship and training benefits, or other similar benefits.

In general, ERISA does not cover plans established or maintained by governmental entities or churches for their employees, or plans which are maintained solely to comply with applicable workers compensation, unemployment or disability laws. ERISA also does not cover plans maintained outside the United States primarily for the benefit of nonresident aliens or unfunded excess benefit plans. In addition, ERISA does not cover plans involving self-employed business owners or entity’s with no full-time employees other than the business owner(s) and spouses(s) since the goal of Title I of ERISA is to protect the interests of participants and their beneficiaries in employee benefit plans of owners, for plans that only cover owners, there is no need for ERISA since there are no non-owner employees to protect.

Even though a solo 401(k) plan is not subject to Title 1 of ERISA, the ERISA rules are still looked at as a reference because a solo 401(k) Plan is still a qualified retirement plan.

1978 – The Revenue Act of 1978 included a provision that became Internal Revenue Code (IRC) Sec. 401(k) (for which the plans are named), under which employees are not taxed on the portion of income they elect to receive as deferred compensation rather than as direct cash payments. The Revenue Act of 1978 added permanent provisions to the IRC, sanctioning the use of salary reductions as a source of plan contributions. The law went into effect on Jan. 1, 1980. Regulations were issued in November of 1981.

1981 – The IRS issued proposed regulations on 401(k) plans that sanctioned the use of employee salary reductions as a source of retirement plan contributions. Many employers replaced older, after-tax thrift plans with 401(k)s and added 401(k) options to profit-sharing and stock bonus plans.

Although a tax code provision permitting cash or deferred arrangements (CODAs) was added in 1978 as Section 401(k), it was not until November 10, 1981 that the IRS formally described the rules for these plans. In the years immediately following the issuance of these rules, large employers typically offered 401(k) plans as supplements to their Defined Benefit plans, with few employers offering them to employees as stand-alone retirement plans. November 10, 1981 marks the birth of the modern 401(k) plan. After that date, companies began to add 401(k) contributions to their profit-sharing plans, convert after-tax thrift-savings plans to 401(k) plans, or create new 401(k)-type DC plans.

Within two years, surveys showed that nearly half of all large firms were either already offering a 401(k) plan or considering one.

Over the years, most notably in 1974 and 1981, the rules for plans covering self-employed individuals were liberalized and elaborated, and rules applicable to all plans, including those covering only common law employees, were tightened by subjecting them to some of the restrictions originally applicable only to plans covering self-employed persons.

In 1982, Congress adopted a unified system for all qualified plans, including those covering self-employed persons, finding the logic of a unified system so obvious that only a single sentence was sufficient to justify the change: “Congress believed that the level of tax incentives made available to encourage an employer to provide retirement benefits to employees should generally not depend upon whether the employer is an incorporated or unincorporated enterprise.

In 2001, the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) took another step to spur saving through 401(k) and other DC plans. EGTRRA increased the annual Defined Contribution plan contribution limit, albeit not higher than the $45,475 limit in place in 1982. In addition, the restrictions placed on employee deferrals were loosened as the limit on pre-tax contributions was increased and additional “catch-up” contributions were allowed for employees age 50 and older. With the goal of preserving retirement accounts even when job changes occur, EGTRRA increased the opportunities for rollovers among various savings vehicles (401(k) plans, 403(b) plans, 457 plans, and IRAs). In addition, EGTRRA permitted 401(k) plans to offer a “Roth” feature for after-tax contributions.

Prior to 2002, most self-employed individuals tended to use a SEP IRA or SIMPLE IRA as a retirement vehicle. However, in 2002 the Economic Growth and Tax Reconciliation Act of 2001 (EGTRRA) became effective and generally provided the small business owner with no employees or the self-employed the same advantages/benefits of a conventional 401(k) Plan.

EGTRRA include various reforms that contributed to the growing popularity of the Solo 401(k) Plan versus the SEP IRA and SIMPLE IRA. Below is a list of several key EGTRRA provisions that led to growth in popularity of the Solo 401(k) Plan:

1. EGTRRA increased the deductible profit sharing contribution limit from 15 percent to 25 percent of employees compensation and changed the application of deferrals so that they are not counted against the employer’s maximum deductible contribution amount.

2. EGTRRA increased the annual contribution limit per plan participant to the lesser of an annual maximum dollar amount of 100 percent of the participant’s compensation. Prior to EGTRRA, an eligible participant of a Solo 401(k) Plan was not eligible to make employee deferrals.

3. EGTRRA created the designated Roth contribution option for 401(k) and 403(b) plans. This provision allowed plan participants to designate all or a portion of their employee deferrals as Roth (after-tax) contributions.

EGTRRA modified Internal Revenue Code Section 4975(f)(6) to allow for the expansion of the loan feature to apply to unincorporated business (a sole proprietorship). Legislation passed in August 2006, the Pension Protection Act (PPA), also aims to foster retirement savings and 401(k) plan participation. Among its many provisions, the Act makes the EGTRRA pension rule changes permanent and, additionally, makes some of the rules governing pension plans more flexible. For example, the PPA encourages employers to automatically enroll employees in their 401(k) plans and allows employers to offer appropriate default investments. These measures seek to increase participation in 401(k) plans and facilitate the best use of these plans’ options by workers.

The marketing for this type of plan is aimed at business owners who do not have any employees, other than themselves and perhaps their spouse. Many of the advantages of these Solo 401K plan generally vanish if the employer expands the business and hires more employees since the employer would now be required to adopt a conventional Solo 401K Plan and must include the new employee(s) in the plan. No matter what the plan is called, it must meet the rules of the Internal Revenue Code. If employees are hired and they meet the eligibility requirements of the plan and the Code, they must be included.

Thus, the Solo 401K Plan is an IRS approved plan that was initially established into law in 1962 but was greatly enhanced by the 2002 EGTRRA law. Now, the Solo 401K Plan is the most popular retirement plan for the self-employed or small business owner.

As of 2013, The 401(k) plan retirement system now holds $2.8 trillion in assets on behalf of more than 50 million active participants and millions of former employees and retirees. The number of workers covered by 401(k) plans continues to expand, which has been a result of rules attempted to encourage more employers, small and large, to open 401(k) plans by making them as simple and accessible as possible.

To learn more about the advantages of using a Solo 401(k) Plan, please contact one of our Solo 401(k) Plan experts at 800-472-0646 for more information.

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May 28

The Solo 401k v. the SIMPLE IRA

A SIMPLE IRA plan is similar to a Solo 401(k) Plan in that it is funded by employee deferrals and additional employer contributions. However, unlike a Solo 401(k) Plan, a SIMPLE IRA plan uses an IRA-type trust to hold contributions for each employee, rather than a single plan trust that is typical of a traditional employer 401(k) Plan. A SIMPLE IRA can be opened with a bank, insurance company or other qualified financial institution. However, unlike a Solo 401(k) Plan, the employee owns and controls the SIMPLE IRA.

simple-iraSIMPLE IRA

A SIMPLE IRA plan can be established by any employer who has less than 100 employees, who will receive at least $5,000 in compensation from the employer in the proceeding calendar year. The SIMPLE IRA plan has a lower deferral limit than a Solo 401(k) Plan. However, unlike a Solo 401(k) Plan, the SIMPLE IRA plan uses an IRA-style trust to hold SIMPLE IRA contributions for each employee, rather than the a single plan like a 401(k) Plan or other qualified retirement plan.

Solo 401(k) Plan

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” or individual 401(k) Plan is not a new type of plan. It is a traditional 401(k) Plan covering only one employee.   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 the SEP IRA or SIMPLE 401(k) Plan.

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

1. Higher Contributions: A Solo 401(k) Plan includes both an employee and profit sharing contribution option, whereas, a SIMPLE IRA only offers minimal employee deferral opportunities.

Under the 2014 Solo 401(k) contribution rules, a plan participant under the age of 50 can make a maximum employee deferral contribution in the amount of $17,500. 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 $52,000, an increase of $1,000 from 2013.

For plan participants over the age of 50, an individual can make a maximum employee deferral contribution in the amount of $23,000. 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 $57,500, an increase of $1,000 from 2013.

Whereas, a SIMPLE IRA has a lower deferral limit of $11,500 for 2014, plus a $2,500 catch-up contribution. In addition, the employer must provide either a dollar-for-dollar contribution of up to three percent of compensation to all who defer or a two percent non-elective contribution to all employees who are eligible to participate in the plan and who have earned $5,000 or more in compensation from the employer during the year.

Hence, a participant in a SIMPLE IRA would be significantly limited in the amount of annual deferrals to be made to the retirement account in comparison to a Solo 401(k) Plan participant.

2. Reduced Catch-Up Contribution amount: With a Solo 401(k) Plan, for 2014, a plan participant who is over the age of 50 is able to make a catch-up contribution of up to $5,500. Whereas, with a SIMPLE IRA, the maximum annual contribution limit for 2014 is just $2,500.

3. No Roth Feature: A Solo 401(k) Plan can be made in pre-tax or Roth (after-tax) format.  Whereas, in the case of a SIMPLE IRA, contributions can only be made in pre-tax format.  In addition, a contribution of $17,500 ($23,00, if the plan participant is over the age of 50) can be made to a Solo 401(k) Roth account.

4. Tax-Free Loan Option: With a Solo 401(k) Plan you can borrow up to $50,000 or 50% of your account value, whichever is less.  The loan can be used for any purpose.  With SIMPLE IRA, the IRA holder is not permitted to borrow even one dollar from the SIMPLE IRA without triggering a prohibited transaction.

5. Use Non-recourse Leverage and Pay No Tax: With a Solo 401(k) Plan, you can make a real estate investment using nonrecourse funds without triggering the Unrelated Debt Financed Income Rules and the Unrelated Business Taxable Income (UBTI or UBIT) tax (IRC 514).  However, the nonrecourse 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 SIMPLE IRA to make a real estate investment (Self Directed Real Estate IRA) involving nonrecourse financing would trigger the UBTI tax.

5. Open the Account at Any Local Bank: With a Solo 401(k) Plan, the 401k bank account can be opened at any local bank or trust company.  However, in the case of a SIMPLE IRA or a 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 SIMPLE 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 SIMPLE IRA outside of bankruptcy.

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

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

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May 27

IRA Financial Group Introduces Open Architecture Individual 401(k) Retirement Plan Solution for Small Business Owners with No Custodian Fees

Individual 401(k) Plan will offer self-employed business owners a self-directed retirement and investment solution with no custodian or third-party fees

IRA Financial Group, the leading provider of self-directed individual 401(k) retirement plans, introduces the open architecture self-directed 401(k) retirement plan for self-employed professionals and small business owners with no full-time employees. An individual 401K Plan, also known as a solo 401K Plan or self-directed 401(k) plan offers one the ability to make annual contributions of up to $52,000 ($57,500 for those over the age of 50), borrow up to $50,000, as well as use his or her retirement funds to make almost any type of investment, including real estate, on their own tax-free and penalty free without requiring the consent of any custodian or person. “Establishing an open architecture self-directed individual 401(k) retirement plan offers a self-employed individual a number of exciting tax, retirement, and investment advantages, including the ability to defer up to $57,500 annually as well as make real estate investments” stated Susan Glass, a retirement tax specialist with the IRA Financial Group. “IRA Financial Group’s open architecture self-directed individual 401K plan is unique and so popular because it is designed explicitly for the self-employed professional and small business owners with no full-time employees who want a flexible retirement plan as well as a self-directed investment option,” stated Ms. Glass.

IRA Financial Group Introduces Open Architecture Individual 401(k) Retirement Plan Solution for Small Business Owners with No Custodian Fees There are many features of the IRA Financial Group’s self-directed individual 401K plan that make it so appealing for small business owners.

-High Contributions: IRA Financial Group’s Self-Employed 401K plan will allow a plan participant to make annual contributions in 2014 up to $52,000 annually with an additional $5,500 catch-up contribution for those over age 50. The high contribution feature is one of the reasons a self-employed 401(k) plan is the most popular retirement vehicle for the self-employed.

Tax and Penalty free loan: IRA Financial Group’s Self-Employed 401K plan allows plan participants to borrow up to $50,000 or 50% of their account value (whichever is less) for any purpose, including paying credit card bills, mortgage payments, 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).

-Checkbook Control: With IRA Financial Group’s open architecture self-directed individual 401(k) plan, a plan participant will be granted checkbook control over his or her retirement funds. With IRA Financial Group’s self directed individual 401(k) plan, the plan account can be opened at any local bank, including Chase, Wells Fargo, and even Fidelity. In addition, the plan participant can make almost any traditional as well as non-traditional investments, such as real estate, precious metals, tax liens, and much more.

-Roth Contributions & Conversion: IRA Financial Group’s individual 401(k) plan contains a built in Roth sub-account which can be contributed to without any income restrictions. In addition, the individual 401(k) plan allows for the conversion of a traditional 401(k) or 403(b) account to a Roth sub-account.

-Easy Administration: IRA Financial Group’s individual 401(k) plan is easy to operate. There is generally no annual filing requirement unless the self-employed 401(k) Plan assets exceeds $250,000, in which case a short information return with the IRS (Form 5500-EZ) must be completed.

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 provider of IRS approved self-directed 401(k) plans. IRA Financial Group has helped thousands of clients take back control over their retirement funds while gaining the ability to invest in almost any type of investment, including real estate without custodian consent.

To learn more about the IRA Financial Group please visit our website at http://www.irafinancialgroup.com or call 800-472-0646.

May 22

Guard Against Fraud with Your Solo 401(k) Plan

Fraud Alert Detector

Guard Against Fraud With Your Self-Directed IRA and Solo 401(k) Plan

The IRA Financial Group encourages each investor to review the following questions when considering an investment. Because it is not the responsibility of IRA Financial Group to provide investment analysis or recommendations or to perform due diligence concerning your investment decisions, the questions have been designed to help you in your efforts to evaluate the soundness, prudence and merit of your investments.

Please note that this is not a comprehensive list of questions but simply a starting point. The answers to these questions are not a substitute for your own due diligence. We also strongly encourage investors to make use of legal, tax and financial advisors to support these efforts.

Always take the time you need to understand and evaluate a potential investment. Make sure you understand the investment you will be making and thoroughly understand how the promoter will be able to generate the returns being promised. Also, make sure the promoter of the investment has the necessary qualifications or licenses, if applicable, to offer the investment. Be cautious if a sponsor or advisor uses the affiliation as the reason to make the investment, rather than relying on the underlying merits of the investment or trust in the sales person.

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May 20

Purchasing Tax Liens With a Solo 401(k)

It’s a little-known fact that tax liens can be purchased with retirement account funds. By Self-Directing your Solo 401(k) Plan investments into tax liens, your profits are tax-deferred back into your retirement account. More importantly, if you have full checkbook control over your Solo 401(k), the purchases can be made on the spot as fast as you can write a check. Tax Liens have been a lesser known and under-appreciated money-maker, however learning how they can magnify your earnings in a tax-deferred 401(k) will make them one of the soundest investments in your retirement account.

The purchase of tax lien certificates is a surprisingly safe investment. The transaction is fast and its characteristics make tax liens a perfect investment for the individual with full checkbook control of an IRA Financial Group Solo 401(k) Plan.

Buying Tax Liens With Your IRA Financial Group Solo 401(k) PlanThe Solo 401(k) Plan offers a highly attractive loan feature allowing for the purchase of tax liens. Under the Solo 401(k) Plan, a participant can borrow up to either $50,000 or 50% of their account value – whichever is less. The IRA Financial Group Solo 401(k) Plan documents will allow you to use a loan from your Solo 401(k) to finance your tax lien purchase.

These unique IRS approved structures are created by IRA Financial Group’s in-house tax and ERISA professionals who personally customize your account structure to suit your needs. Only a handful of institutions are skilled in these specialized account structures and IRA Financial Group is the “gold standard” for Compliance, Leadership, Customer Service, and Technological Innovation.

Facts & Opportunities Surrounding Tax Liens

Real estate has long been considered one of the best (and safest) investment opportunities for both the large and small capitalist. Savvy investors know that the trick to making money in a downward spiraling market is to purchase properties for a fraction of their value. The question is…How? Many are finding the perfect answer in the high-profit possibilities of investing in Tax Lien Sales.

When a property owner falls behind on their taxes, failing to pay for one or more years, the local taxing authority has the legal right to place a lien or repossess the property and sell it at auction to recoup the lost tax revenue. How long local authorities wait to seize individual properties, and how much they allow to be owed on it before one of these events is up to the lien laws in their particular area. In many cases properties may be acquired for a few thousand dollars, regardless of how much it’s actually worth! Similarly, paying off the lien on others may cost more than the house or land is worth. A savvy investor takes the time to research each property carefully prior to sale day.

Tax Lien Sales

Tax lien sales usually happen at public auctions once or twice a year, depending on the area in which it is located, and how many properties the government may seize annually for back taxes. Larger urban areas may hold monthly auctions, while smaller rural ones might only have one a year.

Types of Tax Liens

There are two types of tax lien sales through auction: the tax lien certificate; and the tax lien deed. Both can be a safe yet profitable opportunity for investors with check book control.

Tax Lien Certificate sales offer the delinquent homeowner one last chance to retain ownership of their property, by using third-party investment money to pay off the taxes and give them a bit more time to collect the money needed to pay their debt without the risk of losing their home. When an investor bids on a tax lien certificate, he is in essence agreeing to loan the homeowner the money needed to pay all taxes due. The homeowner, in turn, agrees to pay back the tax lien certificate holder – with interest – by a specified date. If the homeowner fails to pay the debt on time, the deed to the property is transferred to the investor for the amount paid on the taxes. Either way the investor makes a profit: either on the interest he earns on the loan; or by obtaining the property for a fraction of its value through the tax lien sale, and then reselling it.

Tax Lien Deed sales are handled a bit differently, since the investor is actually bidding (or buying), the complete property at the time of auction, with no responsibility to give the homeowner more time to pay his/her tax debt. Once the selling price is approved, the deed is automatically transferred to its new owner, giving the investor full reign as to what to do with the property next: renovate it; sell it as-is; or raze the existing house and build anew.

Investors usually pay more for properties in this type of tax lien sale, which may lower their profit margins compared to the acquisition of tax lien certificate properties. But, many investors prefer outright purchases to eliminate problems with current homeowners. Either way, investing in tax liens is a profitable and easy way to enter the real estate market in virtually any area.

How Much Money Can I Make and How?

1. Double Your Money Quickly. A Solo 401(k) plan can be supercharged when you buy tax lien certificates. Example: A tax lien certificate can earn up to 16% annually in your Solo 401(k). When you buy tax lien investments you generally receive the amount invested plus interest within 12 months. If you continue to reinvest in tax liens year after year at 16%, you can double your money in about 4.4 years.

2. Your Money Grows Tax-Free. By buying tax liens in an IRA Financial Group Solo 401(k), you can avoid all taxes until the money invested is withdrawn from 401(k), which is usually around age 59 1/2. The money can be invested once, twice or a thousand times and continue to grow tax-free, so long as it is not withdrawn for personal use. If you use a Roth Solo 401(k), your investment will grow tax-free and you can withdraw the funds tax-free once you reach the age of 59 1/2.

3. The Flexibility to Buy Time Sensitive Investments. IRA Financial Group’s Solo 401(k) Plan allows the participant to serve in the trustee role. This means that all assets of the 401(k) trust are under your sole authority (“checkbook control”). This gives you incredible freedom to fund the investment at a moment’s notice. In this arrangement, you can buy tax liens with the stroke of the pen, without a custodian or other bureaucrat saying no or otherwise trying to slow down the process.

Tax liens are backed and leveraged by real estate and guaranteed by the governmental taxing authority. In most states, they are a first lien on real estate, and when foreclosed, they wipe out all junior liens, including mortgages. This allows you to potentially receive a valuable piece of real estate for pennies on the dollar!

Time to Act

Real property has been the cornerstone of wealth for thousands of years. While ill-informed speculators have fled real estate because of the housing bust, intelligent real estate investors are enjoying immense profits by expanding their geographic scope and investing for predictable income.

Why are we significantly less than everyone else and “The best in the business”?

Establish a Solo 401(k) with IRA Financial Group and have immediate “checkbook control” to make tax lien investments.  Our in-house tax and ERISA professionals will take care of setting up your Solo 401(k) Plan. Our tax and ERISA professionals are onsite greatly reducing the setup time and cost. You will find that our fee for this service is significantly less than other companies that perform the same or similar services.

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

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May 19

Growing Number of First Time Home Buyers using Solo 401k Plan Loan as a Way to Help Finance their Home Purchase

Solo 401(k) Plan $50,000 loan feature helping home buyers finance their new home.

IRA Financial Group, the leading provider of Solo 401(k) plans for self-employed and small business owners, has seen a growing number of first time home buyers using the Solo 401(k) Plan loan feature as a means of helping buy a home in light of the difficult credit market for first time home buyers. “First-time home buyers are increasingly looking to use the Solo 401(k) plan loan feature as a way of securing financing for the purchase of a new home in light of the tight credit market, “ stated Susan Glass, a tax specialist with the IRA Financial Group.

Internal Revenue Code Section 72(p) allows a Solo 401(k) Plan participant to take a loan from his or her 401K Plan so as long as it is permitted pursuant to the business’s 401(k) Plan documents.

Growing Number of First Time Home Buyers using Solo 401(k) Plan Loan as a Way to Help Finance their Home PurchaseA solo 401k loan is permitted at any time using the accumulated balance of the Solo 401(k) as collateral for the loan. A Solo 401(k) participant 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 5 years or less with payment frequency no less than quarterly. The lowest interest rate that can be used is Prime as per the Wall Street Journal, which is currently 3.25%.

An exception to the five-year payback rule exists for loans used to purchase a principal residence of the plan participant. If a participant wants to repay the loan over a period of greater than five years, the plan administrator should seek some proof from the participant that the loan is to be used to purchase the plan participant’s principal residence. The plan administrator, in general, may set the maximum term as long as it is reasonable when compared to the average terms for other residential loans local financial institution, which is typically either 15 or 30 years.

With IRA Financial Group’s Solo 401(k) plan loan feature, a plan participant can borrow up to $50,000 tax-free and penalty free and use the funds to purchase a primary residence and have the opportunity to pay back the loan over 15 years. There are no penalties or taxes due provided loan payments are paid on time. “The Solo 401(k) loan has proved to be an attractive financing option for home buyers looking to secure financing for the purchase of a primary residence and are having difficulty navigating the traditional mortgage market,“ states Ms. Glass.

As a result of the recent economic meltdown, banks and other financial institutions have significantly limited their lending capacity to first time home buyers. IRA Financial Group’s Solo 401k Plan is a perfect structure for any self employed business owner with retirement funds looking to financing options to purchase a primary residence.

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 leading provider of Solo 401(k) Plan solutions. IRA Financial Group has helped thousands of clients take back control over their retirement funds while gaining the ability to invest in almost any type of investment, including real estate and private business investments without custodian consent.

To learn more about the IRA Financial Group please visit our website at http://www.irafinancialgroup.com or call 800-472-0646.

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May 16

Who will receive the most benefits from a Solo 401(k) Plan?

The 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 $49,000) 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 2014 Solo 401(k) contribution rules, a plan participant under the age of 50 can make a maximum employee deferral contribution in the amount of $17,500. 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 $52,000, an increase of $1,000 from 2013.For plan participants over the age of 50, an individual can make a maximum employee deferral contribution in the amount of $23,000. 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 $57,500, an increase of $1,000 from 2013.
  • 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.

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May 15

Using Your 401k 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 instead of a falling stock market? With the recent turmoil in the U.S. stock market and the downward trend expected to continue, 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?

How to Use My 401(k) Retirement Funds to Buy a Business 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 – $52,000 ($57,500 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?

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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May 14

Can a business or individual adopt a separate Solo 401(k) plan for another entity or business?

One must first determine whether adopting the additional Solo 401(k) would violate the CONTROLLED GROUP RULES set up by the IRS and Department of Labor.

The Controlled Group Rules were created essentially to protect employees from a business owner or executive establishing a separate 401(k) plan for another business and thereby not offering those employees the benefits inherent in participating in a 401(k) qualified retirement plan.

The IRS and Department of Labor were concerned that business owners wanting to establish a qualified retirement plan, but not wanting the burden of having to provide benefits to all eligible employees, would create a new separate business which would have no employees other than the owner or executive and then adopt a solo 401(k) plan for that company. Since the new company would be wholly owned by the business owner and would not have any full-time employees, the business owner could establish his or her own solo 401(k) plan and, thus, enjoy all the benefits of having a qualified retirement plan without having to provide any benefit to the employees from the other company.

WHAT IS A CONTROLLED GROUP OF CORPORATIONS?

As per Internal Revenue Code Section 414, a controlled group is any two or more corporations connected through stock ownership in any of the following ways:

Parent-subsidiary group

  • 80% of stock of each (subsidiary) corporation is owned by another member of the group
  • Parent corporation must own 80% of the stock of at least one of the other members of the group
  • The rules are subject to the stock attribution rules under Internal Revenue Code Section 318

Brother-sister group

  • The same five or fewer individuals own at least 80% of the stock of the corporations
  • “Individual” includes ownership by an estate or trust
  • “Ownership” includes having a controlling interest and effective control of the corporations
  • The rules are subject to the stock attribution rules under Internal Revenue Code Section 318

Combined group

  • Combination of a Parent-subsidiary and a Brother-sister group

HOW DOES ONE DETERMINE WHO IS PART OF A CONTROLLED GROUP?

To determine whether one is part of a controlled group, one must take into account the stock attribution rules.

The purpose of the stock attribution rules is to attribute shares, or interest in a company held by certain family members, to the person in question and determine whether that person is part of a controlled group. Internal Revenue Code Section 318 governs the stock attribution rules. Pursuant to Internal Revenue Code Section 318,an individual shall be considered as owning the stock, owned directly or indirectly, by or for –

(i) his/her spouse (other than a spouse who is legally separated from the individual under a decree of divorce or separate maintenance)

(ii) his/her children, grandchildren, parents

CAN THE COMPANIES IN A CONTROLLED GROUP BE TREATED AS SEPARATE COMPANIES?

IRS does have a procedure through which a company can request to be treated as a Separate Line of Business. (see IRC §414(r)) . Following are limitations for these requests:

  • Must have a valid business purposes
  • Must have at least 50 employees within each line of business
  • Restrictions on HCE ratios in each separate line of business
  • Must notify IRS to request their approval

DO ALL MEMBERS OF A CONTROLLED GROUP HAVE TO PARTICIPATE IN ONE PLAN?

No. Members of a controlled group may each have a different plan. Similarly, two or more members of the controlled group may adopt a single plan. In either case, all employees of the controlled group must be taken into account for testing purposes.

For example, if one company is owned by a shareholder with greater than 80% and has no employees, but that same person also has ownership of over 80% in another company with full-time employees, a single plan may be adopted for both companies. However, the adopted plan must provide benefits to the eligible employees from the second company.

In other words, the rules are in place to restrict the owner(s) of a business with full-time employee from establishing a new company with no employees and adopt a Solo 401(k) plan that would exclude the full-time employees from the other company. The IRS and Department of Labor wanted to make sure that all eligible employees of a company that is part of a controlled group receives all available retirement benefits.

Controlled Group Examples:

Example 1: Joe owns 90% of Company A that has 3 employees. Joe wants to adopt a qualified retirement plan, but does not want to offer any benefits to his employees. Joe decides he will establish a new company that has no employees and adopt a Solo 401(k) Plan through that new company. Before proceeding, Joe talks with a tax attorney about his idea. Joe’s tax attorney quickly points out that since Joe would own more than 80% of Company A and the newly established company, both companies would be part of a controlled group. This would prohibit Joe from establishing a plan for the new company without offering the employees from Company A the same plan benefits.

Example 2. Joe owns 45% of Company A and Joe’s son, Mike, owns the remaining 55% interest. Company A has 5 full-time employees. Joe and Mike want to establish a 401(k) plan so they make tax-deferred contributions, but don’t want to provide the employees with any plan benefits. Joe and Mike come up with the idea of forming a new company that will have no employees other than themselves and adopt a 401(k) plan through the new company. Joe talks this over with his tax attorney and learns that since Joe and Mike are father and son, under Internal Revenue Code Section 318 they will be treated as owning each other’s shares, giving them each over 80% interest in Company A and, thus, triggering the controlled group rules. Hence, Joe and Mike would be limited from opening a 401(k) plan for the new business and not offering plan benefits to the employees from Company A. Joe and Mike could establish a plan for the new company, but the controlled group rules would require that the plan benefits be provided to all eligible employees from both companies.

Example 3. Joe owns 78% of Company A and Tim, his friend, owns the remaining 22%. Company A has 12 full-time employees. Company A does not have a 401(k) Plan. Tim does some consulting on a part-time basis and wants to establish a new corporation for his consulting business as well as establish a Solo 401(k) plan. Tim speaks with his tax attorney to inquire whether he could adopt a Solo 401(k) plan for his new business without being required to offer benefits to the 12 full-time employees with Company A. Tim’s tax attorney told Tim that because he owns less than 80% of Company A, his new consulting company would not be part of a controlled group and, thus, he would not be required to offer 401(k) benefits from his new company to the Company A employees.

Example 4. Joe and Tim each own 50% of Company A, which has 4 full-time employees. Company A currently offers its employees 401(k) plan benefits. Joe and Tim are each over the age of 59 ½ and are interested in using some of their retirement funds to purchase real estate. Unfortunately, Company A’s retirement plan does not allow for non-traditional investments, such as real estate. Joe and Tim decide to establish a new corporation, which they will each own 50% of and then have that new company adopt a new 401(k) plan. Before proceeding, Joe and Tim decided to speak with their tax attorney to make sure this strategy would work. Joe and Tim’s tax attorney advised them that as the new company will be owned by the both of them, just like Company A, the controlled group rules would be triggered since the same five or fewer individuals own at least 80% of the stock of the two corporations. Thus, Jim and Tim would not be able to adopt a new 401(k) plan without offering the same benefits to the employees from Company A.

To learn more about how the controlled group rules as they apply to the establishment of a Solo 401(k) plan, please contact a tax expert at 800-472-0646.

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May 12

IRA Financial Group Introduces Third-Party Recordkeeping Services for Self-Directed Solo 401(k) Plans

Third-party recordkeeping services will help self-directed solo 401(k) plan clients administer their plan

IRA Financial Group, the leading provider of self-directed solo 401(k) plans announces the introduction of the specialized third-party recordkeeping services for self-directed solo 401(k) plans. The self-directed solo 401(k) plan is a qualified retirement 401(k) plan that is established by a sole proprietorship or business owner that has no full-time employees. IRA Financial Group’s new self-directed solo 401(k) Plan was designed to offer self-employed retirement investors a diverse and wide array of investment opportunities for their retirement funds, specifically real estate. However, small business owners that have adopted a self-directed solo 401(k) plan can purchase stocks, mutual funds, precious metals, real estate, and much more. In addition, the self-directed 401(k) Plan account can be opened at any local bank and financial institution, including Fidelity, Scottrade, TD Ameritrade and more. “When it comes to using a self-directed solo 401(k) plan as a retirement and investment vehicle, it is crucial that the 401(k) plan be properly administered and satisfy all IRS and ERISA rules, “ stated Joel Baum, a CPA with the IRA Financial Group.

IRA Financial Group Introduces Third-Party Recordkeeping Services for Self-Directed Solo 401(k) Plans According to Mr. Baum, IRA Financial Group’s self-directed 401(k) plan third-party recordkeeping services provides an affordable, comprehensive retirement program backed by knowledgeable 401(k) professionals who ensures a self-directed 401(k) plan runs smoothly and remains in full IRS compliance. “Our experienced retirement services professionals will manage many of the daily operations of your plan, relieving much of the stress of adopting a self-directed 401k plan,” stated Susan Glass, a retirement tax professional with the IRA Financial Group.

The IRA Financial Group’s in-house retirement tax professionals spent a number of years carefully studying IRS guidance in order to design an IRS compliant 401(k) plan program using retirement funds to make traditional as well as non-traditional investments, in addition to gaining all the advantages of having a 401(k) plan, including high deferral and the ability to borrow up to $50,000.

According to Mr. Baum, because the IRS has stressed the importance of compliance when adopting a self-directed individual 401k Plan, it is crucial to work with a company that is operated by a team of in-house tax and ERISA professionals who have worked at some of the largest law firms in the United States, including White & Case LLP and Dewey & LeBoeuf LLP, to ensure a company adopted self-directed 401(k) plan remains in full IRS compliance..

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 provider and administrator of self-directed solo 401(k) plan retirement solutions. IRA Financial Group has helped thousands of clients take back control over their retirement funds while gaining the ability to invest in almost any type of investment, including real estate without custodian consent.

To learn more about the IRA Financial Group please visit our website at http://www.irafinancialgroup.com or call 800-472-0646.

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