Jun 30

Strong Demand for ROBS Structure due to Increase Confidence in U.S. Economy in 2014

IRA Financial Group survey shows optimism from entrepreneurs about business opportunities surged in 2014 creating interest in using retirement funds to buy a business

IRA Financial Group, the leading provider of Business Acquisition “ROBS” solutions, has seen a surge in interest among entrepreneurs looking to use their retirement funds to start a business or franchise. “We have seen a surge in confidence amongst entrepreneurs for starting a business in 2014,” stated Adam Bergman, a tax partner with the IRA Financial Group. “We have seen an increase in demand from entrepreneurs seeking to invest IRA and 401(k) funds in a business in light of a rebounding economy,” stated Mr. Bergman.

Strong Demand for ROBS Structure due to Increase Confidence in U.S. Economy in 2014The rollover as business start-up (“ROBS”) arrangements typically involves rolling over a prior IRA or 401(k) plan account into a newly established 401(k) plan, which a start-up C Corporation business sponsored, and then investing the rollover 401(k) Plan funds in the stock of the new C Corporation. The funds are then deposited in the C Corporation bank account and are available for use for business purposes. “The ROBS strategy has allowed many individuals the ability to use their retirement funds to start a business without incurring tax pr penalty on the rollover ,” stated Mr. Bergman. The ROBS solution is perfect for any entrepreneur looking to use IRA fund to buy a business or franchise without incurring any tax or penalty from a IRA distribution.

Unlike with a self-directed IRA which prohibits an individual to use retirement funds to buy a business they will personally involved in, with IRA Financial Group’s ROBS structure, the individual will be able to rollover IRA or 401(k) funds into the structure and use the funds to buy a business or franchise without tax or penalty, as well as earn a salary from the business.

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 self-directed IRA LLC “checkbook control” 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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Jun 27

Do Solo 401k Plans Differ From Others?

When it comes to determining what type of 401(k) qualified retirement plan is best for a self-employed individual or small business owner with no employees, it is important to look at all the options the plan provides to make sure it will satisfy your retirement planning, tax, and investment goals.

Most financial institutions offer Solo 401K Plans, often called individual 401K Plans. However, if you do not want to be forced to invest all your hard earn retirement savings in the stock market, then these type of financial institution Solo 401(k) Plans are not very attractive. In addition, most financial institution Solo 401(k) Plans will not offer a loan feature or allow you to make Roth Type contributions.

IRA Financial Group’s Solo 401K plan is unique and so popular because it is designed explicitly for small, owner-only business.  There are many features of the IRA Financial Group’s Solo 401K plan that make it so appealing for small business owners.

High Contributions: Like all Solo 401K Plans, for 2014, IRA Financial Group’s Solo 401(k) Plan will allow a plan participant to make annual contributions 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 Solo 401K Plan is the most popular retirement vehicle for the self-employed.

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

Tax and Penalty free loan: Unlike most Solo 401K Plans offered by the traditional financial institutions such as Fidelity, IRA Financial Group’s Solo 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).

It's Time To Let 401(k) Holders Invest Like the Pros Checkbook Control: The most attractive feature of the IRA Financial Group Solo 401k Plan is that it offers the plan participant checkbook control over his or her retirement funds. In the case of a conventional Solo 401K Plan offered by most financial institutions, the plan participant is relegated to making traditional investments such as stocks and or mutual funds. In addition, the Solo 401KPlan account is required to be opened at the financial institution. With IRA Financial Group’s Solo 401K Plan, the plan account can be opened at any local bank, including Chase, Wells Fargo, and even Fidelity. In addition, with IRA Financial Group’s Solo 401K Plan, 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. With IRA Financial Group’s Solo 401K Plan, the Plan participant has the freedom to make the investments he or she wants while at the same time opening the 401K account at any local bank. As trustee of the Solo 401K Plan, the Plan Participant (you) can serve as the trustee providing you checkbook control over your retirement funds. With IRA Financial Group’s Solo 401K Plan, making a Solo 401K Plan investment is as simple as writing a check.

Roth Contributions & Conversion: Unlike a conventional Solo 401K Plan offered by most financial institutions, IRA Financial Group’s Solo 401K Plan contains a built in Roth sub-account which can be contributed to without any income restrictions. In addition, the IRA Financial Group’s Solo 401K Plan allows for the conversion of a traditional 401(k) or 403(b) account to a Roth sub-account. However, the Solo 401K Plan participant must pay income tax on the amount converted.

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

Easy Administration: Like all Solo 401K Plans, IRA Financial Group’s Solo 401K Plan is easy to operate. There is generally no annual filing requirement unless your solo 401K Plan exceeds $250,000 in assets, in which case you will need to file a short information return with the IRS (Form 5500-EZ). However, unlike a financial institution, the tax professionals at the IRA Financial Group will assist you in completing this form is required.

To learn more about the advantages of the Solo 401K Plan with Checkbook Control please contact a 401K Expert at 800-472-0646.

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Jun 25

How to Invest in Precious Metals with Your Retirement Plan

Thanks to significant advertising by precious metals dealers, it has become widely known that Gold, Silver and other precious metals (Platinum & Palladium) can be purchased with retirement account funds. By Self-Directing your IRA LLC or 401(k) investments into precious metals, your profits are tax-deferred back into your retirement account. More importantly, if you have full checkbook control over your Self-Directed IRA LLC or act as the trustee for your Roth 401(k), the purchases can be made on the spot as fast as you can write a check. Precious metals are the original currency of early civilizations and therefore a store of value, literally for thousands of years.

Buying Precious Metals with Your Self Directed IRA/LLC or Solo 401(k)The purchase of Bullion is a surprisingly safe investment. The transaction is fast and its characteristics make precious metals a perfect investment for the individual with full checkbook control of an IRA Financial Group IRA LLC or the self-employed business owner serving as the trustee of the Solo 401(k) Plan. In fact, the use of a Self-Directed IRA LLC is one of the most tax efficient ways to finance your Gold/Silver purchase.

Only a handful of institutions are skilled in these specialized account structures and only one has been founded by and is exclusively operated by attorneys – IRA Financial Group. Simply put, we are the “gold standard” for Compliance, Leadership, Customer Service, and Technological Innovation. We carefully advise you on handling this type investment in a manner that places these assets closer to your emergency access while remaining solidly within the spirit and letter of the law.

What Type of Precious Metals and Coins are IRS Approved Investments?

Internal Revenue Code Section 408(m) lists the type of precious metals and coins that are permitted investments using IRA funds:

  • One, one-half, one-quarter or one-tenth ounce U.S. gold coins (American Gold Eagle coins are the only gold coins specifically approved for IRAs). Other gold coins, to be eligible as IRA investments, must be at least .995 fine (99.5% pure) and be legal tender coins.
  • one ounce silver coins minted by the Treasury Department;
  • any coin issued under the laws of any state;
  • a platinum coin described in 31 USCS 5112(k); and
  • gold, silver, platinum or palladium bullion (other than bullion that is made into a coin) of a certain fineness that is in the physical possession of a trustee that meets the requirements for IRA trustees under Code Sec. 408(a).

The Technical and Miscellaneous Revenue Act of 1998 allowed IRA owners to invest their IRA assets in certain platinum coins as well as certain gold, silver, platinum, or palladium bullion provided the precious metals are held in the physical possession of the financial organization or depository. With respect to state minted coins, the coins must be held in the possession of a third-party other than the IRA holder. The Technical and Miscellaneous Revenue Act of 1998 does not state that the third-party holding the state minted coins must be a bank, but the holder must not be the IRA holder. Regarding American Eagle coins, there does not seem to be a “physical possession” requirement as precious metals or a restriction on possession by the IRA holder as in the case of state minted coins.

How do I hold Physical Gold in a Self-Directed IRA LLC?

Internal Revenue Code Section 408(m) identifies what types of coins and precious metals are permitted to be purchased using a Self-Directed IRA.

Section 408(m) also states that bullion (IRS approved gold, silver, or palladium) must be held in the physical possession of a trustee described under subsection (a). The “physical possession” requirement seemingly only applies to bullion not approved coins.

A trustee is defined in Internal Revenue Code Section 408(a) as a bank (as defined in subsection (n)) or such other person who demonstrates to the satisfaction of the Secretary that the manner in which such other person will administer the trust will be consistent with the requirements of this section.

Internal Revenue Code Section 408(n) defines a bank as any bank (as defined in section 581) or an insured credit union (within the meaning of paragraph (6) or (7) of section 101 of the Federal Credit Union Act).

Section 541 defines a bank as a bank or trust company incorporated and doing business under the laws of the United States (including laws relating to the District of Columbia) or of any State, a substantial part of the business of which consists of receiving deposits and making loans and discounts, or of exercising fiduciary powers similar to those permitted to national banks under authority of the Comptroller of the Currency, and which is subject by law to supervision and examination by State, Territorial, or Federal authority having supervision over banking institutions. Such term also means a domestic building and loan association. The Code seems to suggest that metals cannot be held in a foreign bank account since it would not satisfy the definition of a bank. The question then becomes what does “physical possession” mean.

IRC Section 408(m) clearly states that gold, silver, or palladium bullion must be held in the physical possession of a U.S. trustee, otherwise known as a U.S. bank or financial institution.

Thus, the question then becomes, if a an IRA holder holds precious metals in a safe deposit box at a U.S. bank in the name of the Self-Directed IRA LLC is that in the “physical possession” of a U.S. trustee or bank. Well the argument goes that the precious metals are certainly not in the physical possession of the IRA holder since they will physically be held in a safe deposit box of the bank. Although, an argument can be made that the safe deposit box is constructively in the control of the IRA holder, since he or she has the keys for the box. However, the Internal Revenue Code under Section 408 clearly states “physical possession” and not “constructive control”. From a legal standpoint, possession is not defined to represent control, meaning one can be in possession of an item but not in control or ownership of. Hence, many tax practitioners take the position that holding precious metals in a safe deposit box in the name of the Self-Directed IRA LLC would satisfy the “physical possession” requirement under Internal Revenue Code Section 408(m).

The IRS has not offered any clear guidance on this issue, but what is clear, unlike IRS approved coins, is that precious metals should not be stored in the home or possession of the IRA holder or any person that does not satisfy the definition of a trustee pursuant to the Internal Revenue Code.

How do I hold IRS Approved Coins with a Self-Directed IRA LLC?

Now that you have a clear idea of the types of coins that the IRS allows to be purchased using retirement funds, the next questions becomes how can the coins be held without violating IRS rules.

Unlike precious metals, the Internal Revenue Code and the legislative history does not include a requirement that IRS approved coins be held in the “physical possession of a U.S. trustee.” If so, the requirement would have been so stated in the tax code. Accordingly, it appears that IRS approved coins can be purchased by a Self-Directed IRA LLC and not be held at a depository or U.S. Bank. However, based on conversations between IRA Financial Group tax counsel and representatives of the IRS and Department of Labor, we suggest that our clients try to hold IRS approved coins at a bank safe deposit box, depository, or some sort of third-party vault in the name of the IRA LLC.  The reason for this is that it is another level of separation between the IRA holder – a disqualified person – and the IRA LLC assets (the coins), which the IRS plan asset rules will attribute to the IRA even though the coins will be owned by the LLC. Irrespective of the fact that it appears that IRS approved coins are not required to be held in the “physical possession of a U.S. trustee”, holding the coins in the physical possession of a disqualified person puts the onus on the IRS holder, as the disqualified person, to prove that no self-dealing or conflict of interest event occurred in the case of an IRS inquiry.  For IRA Financial Group clients that wish to hold IRS approved coins in their physical possession, our retirement tax professionals suggest that an affidavit be drafted stating that the IRS approved coins are being held solely for the benefit of the IRA and not for any personal or other benefit.  We also suggest that the affidavit be signed and notarized.

In summary, the “physical possession” threshold seems to only apply to IRS approved precious metals under Internal Revenue Code Section 408(m), although the tax code does not state anywhere that the coins could be held in the possession of a disqualified person.  For this reason, the retirement tax professionals at the IRA Financial Group suggest that individuals seeking to hold IRS approved coins hold the coins at a bank safe deposit box in the name of the LLC or some sort of vault or depository. However, holding the coins personally does not appear to violate Internal Revenue Code Section 408.  That being said, for all individuals wishing to hold IRS approved coins personally, the retirement tax professionals at the IRA Financial Group suggest having some sort of affidavit stating that the coins will not be held for any personal benefit and will, thus, not violate any of the Internal Revenue Code Section 4975 self-dealing or prohibited transaction rules.

Gold & Silver Purchases

Financial professionals across the globe all agree that asset diversification is the key to success. To reduce the risks of investing, they suggest the purchase of precious metals to diversify investments among different securities or asset classes.

Now you can hold precious metals in your individual retirement account.  With a self-directed IRA LLC or Solo 401(k) Plan from IRA Financial Group, you can invest in all types of precious metals, including gold, silver, platinum and palladium.

Advantages

1. Timing & Pricing. In today’s volatile and complex market place, timing and pricing is everything. With a Self-Directed IRA LLC or Solo 401(k), buy and sell orders can be done instantly, leaving no down time for big price swings in between trades.

2. Your Money Grows Tax-Free. By buying Gold in an IRA Financial Group Self-Directed IRA LLC or Solo 401(k) Plan, you can avoid all taxes until the money invested is withdrawn. Equally important, having access in time of crisis or national emergency is in the forefront of many people’s minds these days; we will help you ease that concern with a sound strategy that’s consistent with IRS requirements.

3. The Flexibility to Buy Time Sensitive Investments. IRA Financial Group’s Self-Directed IRA LLC’s allow you to carry a checkbook that is tied to the account while the Solo 401(k) Plan offers the participant the ability to serve in the trustee role. This gives you, the investor, an incredible freedom to buy precious metals at a moment’s notice.

4. Flexible Financing. The Solo 401(k) Plan offers a highly attractive loan feature allowing for the purchase of precious metals. 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 precious metals purchase.

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

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Jun 23

IRA Financial Group Expands Individual 401(k) Plan Annual Services to Include Completion of IRS Form 5500-EZ

Annual tax and compliance services for Solo 401(k) Plan clients to include completion of IRS Form 5500-EZ.

IRA Financial Group, the leading provider of self-directed solo 401(k) plans, announces the expansion of its annual tax and compliance service for individual 401(k) plan clients to include the completion of the annual IRS information form – 5500-EZ. An individual 401(k), also known as a Solo 401(k) is perfect for sole proprietors, small businesses and independent contractors such as consultants. A Solo 401(k) Plan can be adopted by any business with no employees other than the owner(s). The business can be established as a sole proprietorship, LLC, corporation, or partnership. IRA Financial Group offers all its individual 401(k) plan clients the ability to receive annual tax consulting services as well as the promise that their Solo 401(k) Plan will remain in full IRS compliance. “We are excited to expand our annual tax and compliance service to include the completion of the IRS Form 5500-EZ for no additional fee,” stated Adam Bergman, a tax partner with the IRA Financial Group. “We wanted to expand our annual Solo 401(k) compliance fee to include to completion of the IRS Form 5500-EZ,” stated Mr. Bergman.

IRA Financial Group Expands Individual 401(k) Plan Annual Services to Include Completion of IRS Form 5500-EZ There is generally no annual filing requirement unless the individual 401k plan participant’s plan assets exceed $250,000 in assets. In such a case, the Solo 401(k) Plan participant will need to file a short information return with the IRS (Form 5500-EZ). The IRS Form 5500-EZ is due on July 31. Now, IRA Financial Group is offering all its Solo 401(k) Plan clients the service of completing the IRS Form 5500-EZ for no additional fee. “We wanted to make sure our individual 401(k) Plan clients that are required to file an IRS Form 5500-EZ are getting the necessary support they need to make sure the form is completed properly and in a timely manner,” stated Mr. Bergman.

The Solo 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 on their own tax-free and penalty free without requiring the consent of any custodian or person.

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 self-directed solo 401(k) plans and solo 401(k) plan administration. 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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Jun 20

Choosing a Solo 401k Over a SEP IRA

A Solo 401(k) Plan is an IRS approved retirement plan, which is suited for business owners who do not have any employees, other than themselves and perhaps their spouse. The “one-participant 401(k) Plan” or Individual 401(k) Plan is not a new type of plan. It is a traditional 401(k) Plan covering only one employee.  Like a SEP IRA, a Solo 401(k) Plan offers the plan participant the ability to contribute up to $57,500 each year.  Before the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) became effective in 2002, there was no compelling reason for an owner-only business to establish a Solo 401(k) Plan because the business owner could generally receive the same benefits by adopting a profit sharing plan or a SEP IRA.  After 2002, EGTRRA paved the way for an owner-only business to put more money aside for retirement and to operate a more cost-effective retirement plan than a SEP IRA or 401(k) Plan.

 Why Choose a Solo 401(k) Plan Vs. a SEP IRA?There are a number of options that are specific to Solo 401(k) Plans that make the Solo 401(k) Plan a far more attractive retirement option for a self-employed individual than a SEP IRA.

1. Reach your Maximum Contribution Amount Quicker: 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 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 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 $52,000 for 2014. 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 2014.  If Joe had a Solo 401(k) Plan established for 2014, Joe would be able to defer approximately $48,000 for 2014 (a $23,000 employee deferral, which could be pre-tax or Roth, and 25% of his compensation giving him $48,000 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 2014.

2. No catch-up Contributions: With a Solo 401(k) Plan you can make a contribution of up to $52,000 to the plan each tax year ($57,500 if the participant is over the age of 50).  However, with a SEP IRA, the maximum amount that can be deferred is $52,000 since a SEP IRA does not offer any catch-up contributions.

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 SEP 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 a SEP IRA, the IRA holder is not permitted to borrow even $1 dollar from the 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 SEP IRA to make a real estate investment (Self-Directed Real Estate IRA) involving nonrecourse financing would trigger the UBTI tax.

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

7. 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.

8. Better Creditor Protection: In general, a Solo 401(k) Plan offers greater creditor protection than a SEP 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 SEP IRA outside of bankruptcy.

The Solo 401k 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 SEP IRA, please contact a tax professional from the IRA Financial Group at 800-472-0646.

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Jun 19

Purchasing Real Estate with Your Solo 401(k)

Most people mistakenly believe that their 401(k) must be invested in bank CDs, the stock market, or mutual funds. Few Investors realize that the IRS has always permitted real estate to be held inside 401(k) retirement accounts. Investments in real estate with a Solo 401(k) are fully permissible under the Employee Retirement Income Security Act of 1974 (ERISA). IRS rules permit you to engage in almost any type of real estate investment, aside generally from any investment involving a disqualified person.

Advantages of Using a Solo 401(k) to Purchase Real Estate

Income or gains generated by a 401(k) Plan generate tax-deferred/tax-free profits. Using a Solo 401(k) Plan to purchase real estate allows the 401(k) to earn tax-free income/gains and pay taxes at a future date, rather than in the year the investment produces income.

With a Solo 401K, you can invest tax-free and not have to pay taxes right away – or in most cases for many years allowing your retirement funds to grow tax-free! All the income or gains from your real estate deals flow though to your 401(k) account tax-free!

Types of Real Estate Investments

Below is a partial list of domestic or foreign real estate-related investments that you can make with a Solo 401(k):

  • Raw land
  • Residential homes
  • Commercial property
  • Apartments
  • Duplexes
  • Condos/townhomes
  • Mobile homes
  • Real estate notes
  • Real estate purchase options
  • Tax liens certificates
  • Tax deeds

Investing in Real Estate with a Solo 401(k) is Quick & Easy!

Purchasing real estate with a Solo 401(k) Plan is essentially the same as purchasing real estate personally.

  • Set-up a Solo 401(k) Plan with the IRA Financial Group.
  • Identify the investment property.
  • Purchase the investment property with the Solo 401(k) Plan – no need to seek the consent of the custodian with a Solo 401(k) Plan since you serve as Trustee and Plan Administrator.
  • Title to the investment property and all transaction documents should be in the name of the Solo 401(k) Plan. Documents pertaining to the property investment must be signed by you as Trustee.
  • All expenses paid from the investment property go through the Solo 401(k) Plan. Likewise, all rental income checks must be deposited directly in to the Solo 401(k) Plan bank account. No 401(k) related investment checks should be deposited into your personal accounts.
  • All income or gains from the investment flow through to your 401(k) tax-free!

Solo 401K Solution

 

Structuring the Purchase of Real Estate with a Solo 401(k) Plan

When using a Solo 401(k) to make a real estate investment there are a number of ways you can structure the transaction:

1. Use your Solo 401(k) funds to make 100% of the investment

If you have enough funds in your Solo 401(k) to cover the entire real estate purchase, including closing costs, taxes, fees, insurance, you may make the purchase outright using your Solo 401(k). All ongoing expenses relating to the real estate investment must be paid out of your Solo 401(k) bank account. In addition, all income or gains relating to your real estate investment must be returned to your Solo 401(k) bank account.

2. Partner with Family, Friends, Colleagues

If you don’t have sufficient funds in your Solo 401(k) to make a real estate purchase outright, your Solo 401(k) can purchase an interest in the property along with a family member (non-disqualified person), friend, or colleague. The investment would not be made into an entity owned by the 401(k) owner, but instead would be invested directly into the property.

For example, your Solo 401(k) Plan could partner with a family member, friend, or colleague to purchase a piece of property for $150,000. Your Solo 401(k) Plan could purchase an interest in the property (i.e. 50% for $75,000) and your family member, friend, or colleague could purchase the remaining interest (i.e. 50% for $75,000).

All income or gain from the property would be allocated to the parties in relation to their percentage of ownership in the property. Likewise, all property expenses must be paid in relation to the parties’ percentage of ownership in the property. Based on the above example, for a $2,000 property tax bill, the Solo 401(k) would be responsible for 50% of the bill ($1000) and the family member, friend, or colleague would be responsible for the remaining $1000 (50%).

Isn’t Partnering with a family member in a Real Estate Transaction a Prohibited Transaction?

Likely not if the transaction is structured correctly. Investing in an investment entity with a family member and investing in an investment property directly are two different transaction structures that impact whether the transaction will be prohibited under Code Section 4975. The different tax treatment is based on who currently owns the investment. Using a Solo 401(k) Plan to invest in an entity that is owned by a family member who is a disqualified person will likely be treated as a prohibited transaction. However, partnering with a family member that is a non-disqualified person directly into an investment property would likely not be a prohibited transaction. Note: If you, a family member, or other disqualified person already owns a property, then investing in that property with your Solo 401(k) would be prohibited.

3. Borrow Money for your Solo 401(k)

You may obtain financing through a loan or mortgage to finance a real estate purchase using a Solo 401(k). Solo 401(k) participants can also borrow up to either $50,000 or 50% of their account value – whichever is less to help finance a real estate investment.

If using financing through a third-party loan to purchase real estate (other than a loan from the 401(k) Plan), one important point must be considered when selecting this option:

  • Loan must be non-recourse – A “prohibited transaction” is a transaction that, directly or indirectly involves the loan of money or other extension of credit between a plan and a disqualified person. Normally, when an individual purchases real estate with a mortgage, the traditional loan provides for recourse against the borrower (i.e., personal liability for the mortgage). However, if the 401(k) Plan purchases real estate and secures a mortgage for the purchase, the loan must be non-recourse; otherwise there will be a prohibited transaction. A non-recourse loan only uses the property for collateral. In the event of default, the lender can collect only the property and cannot go after the 401(k) Plan itself.

Note: Unlike a Self-Directed IRA LLC, pursuant to Internal Revenue Code Section 514(c)(9), in the case of a Solo 401(k) Plan, the Unrelated Business Income Tax (UBTI) does not apply when using nonrecourse leverage as part of a real estate transaction (unrelated debt-financed income – UDFI). Therefore, unlike a Self-Directed IRA LLC, using a Solo 401K to finance a real estate investment will not trigger UBTI – which imposes a tax in the range of 35% on all income/gains relating to the debt financed portion of the investment.

To learn more about using a Solo 401(k) Plan to invest in real estate, please contact one of our Solo 401(k) Plan Experts at 800-472-0646 for more information.

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Jun 17

Deciding Between a 401k and a 403b Plan

The Motley Fool‘s Dan Caplinger writes about the advantages of both the 401(k) and 403(b) type plans offered by many employers in this article:

Taking advantage of workplace retirement plans is a great way to save money on your taxes and build up your retirement nest egg. Employer plans come in different flavors, with strange names like 401(k) and 403(b). Fortunately, in the battle of 403(b) vs. 401(k), everyone can end up a winner by making smart decisions based on their individual circumstances.

403(b) vs. 401(k): The basics
Most people are relatively familiar with a 401(k) plan, because they’re much more commonly seen than 403(b) plans. Employers that set up a 401(k) plan give their employees the ability to set aside a portion of their paychecks toward retirement, typically on a pretax basis using traditional 401(k) accounts, but also sometimes on an after-tax basis if the plan has a Roth 401(k) option. Ample annual limits apply to the 401(k), with those under age 50 eligible to contribute up to $17,500 in 2014 and those 50 or older allowed to save $23,000. Assets within 401(k) plans grow tax-deferred, sheltering you from taxes on the investment income those assets generate over the course of your career.

On the other hand, 403(b) plans are less common than 401(k) plans. The reason is simple: Section 403(b) of the Internal Revenue Code, on which 403(b) plans are based, limits eligible participants to employees of tax-exempt organizations such as schools, hospitals, and religious groups. The same contribution limits apply to 403(b) plans as 401(k) plans, and 403(b) plans have the same tax-deferral benefits.

403(b) vs. 401(k): How you can invest
Both 401(k) plans and 403(b) plans allow employers to establish menus of investment choices for their employees. However, the permissible range of investments differs between the two types.

401(k) plans can choose from a wider range of investments, ranging from mutual funds and exchange-traded funds to individual securities. Most employers are more restrictive in their investment selections, typically emphasizing funds but sometimes making a brokerage-account option available to those who want more investment flexibility.

403(b) plans, on the other hand, can only invest in annuities and mutual funds. Originally, 403(b) plans could only offer annuities, leading to their alternative name of tax-sheltered annuity plans. But 40 years ago, lawmakers expanded the rules to allow registered investment company shares — that is, mutual funds — as permitted options employers could give their employees.

403(b) vs. 401(k): What to watch out for
403(b) participants need to be careful about the extent to which their employers actually participate in the plan administration. Many 403(b) plans aren’t subject to the same regulation as 401(k) plans, allowing employers to step back and put more of the onus on participants to oversee their accounts. Although they’re allowed, employer matches and other employer contributions aren’t necessarily as common for 403(b) plans as they are for 401(k) plans. That said, private employers with 401(k) plans tend to be stricter about vesting requirements than 403(b) plan providers, which means 403(b) participants who are fortunate enough to get a match often reap the rewards sooner than 401(k) participants do.

Most important, it’s essential to know the characteristics of investment options in 403(b) plans. Make sure you know how much in annual expenses you’ll pay to invest in a particular fund or annuity. Ask whether any surrender charges or other fees apply if you sell your investment or switch to another type of fund or annuity. These charges can be extremely high, wiping out most or all of the tax benefit of using the 403(b) plan. Also watch out for different classes of mutual funds, which can have big disparities in annual charges. Lastly, make sure the insurer issuing any annuities you decide to buy has a strong insurance rating for financial security.

Most of the time, in comparing 403(b) vs. 401(k), you as the employee won’t have a choice. But don’t let the unfamiliarity of 403(b) plans keep you from taking advantage of their benefits.

If you have any questions, please contact a 401(k) expert at the IRA Financial Group @ 800.472.0646 today!

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Jun 16

Solo 401k Contribution Limits

Unlike an IRA, a Solo 401k plan allows a plan participant to make high annual contributions to the Plan. The contributions can be in the form of pre-tax or Roth type contributions (after-tax).

The annual Solo 401k contribution consists of 2 parts, an employee salary deferral contribution and an employer profit sharing contribution. In 2014 the total contribution limit for a Solo 401k is $51,000 or $56,500 if age 50 or older. The total allowable contribution limits are combined to get the maximum Solo 401k contribution limit.

Employee Elective Deferrals

Up to $17,500 per year can be contributed by the participant through employee elective deferrals. An additional $5,500 can be contributed for persons over age 50. These contributions can be up to 100% of the participant’s self-employment compensation.

Employer Profit Sharing Contributions

Through the role of employer, an additional contribution can be made to the plan in an amount up to 25% of the participant’s self- employment compensation (20% if you are a Sole Proprietor or a Schedule C Tax Payer).

Total Limit

The sum of both contributions can be a maximum of $51,000 per year (for 2014) or $55,500 for persons over age 50.

If the business owner’s spouse elects to participate in the Solo 401(k) and earns compensation from the business, the spouse is allowed to make separate and equal contributions increasing the couples’ annual total contribution to $102,000 for 2014 or $113,000 if both spouses over age 50.

Solo 401k contributions are flexible. Both the salary deferral and the profit sharing contributions are optional and can be changed at anytime based on business profitability.

A Solo 401k participant can contribute to the plan as an employee and as employer.

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

 

Solo 401k Contribution Calculations

The calculation of how much can be contributed to a Solo 401k Plan is based on whether your business is taxed as a corporation and you receive a W-2 or if you are taxed as an LLC, partnership, or sole proprietorship.

C Corporation or S Corporation

Salary Deferral Contribution: In 2014, 100% of W-2 earnings up to the maximum of $17,500 or $23,000 if age 50 or older can be contributed to a Solo 401k. The employee contribution election must be made prior to December 31.

Profit Sharing Contribution: Internal Revenue Code Section 401(a)(3) states that the amount of employer contributions is limited to 25 percent of the compensation paid. Accordingly, a profit sharing contribution up to 25% of W-2 earnings can be contributed into a Solo 401k. In other words, in the case of company, the employer profit sharing contribution must be based on the compensation paid by company not the overall profits earned by the company.

Multiple Member LLC or Partnership

Salary Deferral Contribution: In 2014, 100% of the owner’s self employment earnings up to the maximum of $17,500 or $23,000 if age 50 or older can be contributed to a Solo 401k. The election for making salary deferral contributions is December 31.

Profit Sharing Contribution: Internal Revenue Code Section 401(a)(3) states that the amount of employer contributions is limited to 25 percent of the entity’s overall self-employment earnings. In other words, the 25% employer contribution amount is based on the K-1 income attributable to self-employment earnings, not necessarily the overall income of the entity if income is attributable to passive types of investments not considered self-employment earnings (i.e. passive business income).

Single Member LLC or Sole Proprietorship

Salary Deferral Contribution: In 2014, 100% of the owner’s self employment earnings up to the maximum of $17,500 or $23,000 if age 50 or older can be contributed to a Solo 401k. The election for making salary deferral contributions is December 31.

Profit Sharing Contribution: 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. Single member LLCs or 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 Pub 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 prior to the date the business files its annual Federal Income Tax Return.

For additional information on the advantages of using a Solo 401(k) Plan with “checkbook control” to make investments, please contact one of our 401K Experts at 800-472-0646.

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Jun 13

What Can You Invest in with a Solo 401k?

A Solo 401(k) offers a self-employed business owner the ability to use his or her retirement funds to make virtually any type of investment on their own without requiring the consent of a custodian. The IRS only describes the type of investments that are prohibited, which are very few.

The following are some examples of types of investments that can be made with your Solo 401K:

  • Residential or commercial real estate
  • Raw land
  • Foreclosure property
  • Mortgages
  • Mortgage pools
  • Deeds
  • Private loans
  • Tax liens
  • Private businesses
  • Limited Liability Companies
  • Limited Liability Partnerships
  • Private placements
  • Gold
  • Stocks, Bonds, Mutual Funds
  • Most currencies

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

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Jun 12

Why Use the IRA Financial Group to Establish Your Solo 401(k)?

Excellence: Our in-house retirement tax professionals have worked at some of the largest law firms in the United States, including White & Case LLP and Dewey & LeBoeuf LLP. Their tax and ERISA experience is unmatched in the industry and is the reason we are considered the leading facilitator of true “Checkbook Control” Solo 401K Plan structures.

The IRA Financial GroupWork directly with our in-house retirement tax professionals to set-up an IRS compliant Solo 401K Plan. Our clients have direct access to our in-house retirement tax professionals to ensure that the Solo 401K Plan is customized to satisfy the client’s retirement and investment objectives. In fact, we encourage our clients to contact our in-house retirement tax professionals with any tax and ERISA questions concerning the structure or a proposed investment to ensure full IRS compliance.

Our Solo 401K experts will take care of the entire set-up of your IRS compliant Solo 401k Plan. Our Solo 401k Plan experts and tax and ERISA professionals are on site greatly reducing the set-up 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.

Leader: IRA Financial Group is the markets leading provider of Solo 401(k) Plans. We have helped thousands of clients take back control over their retirement funds while gaining the ability to invest in almost any type of investments.

Value: We strive to offer our clients customized Solo 401(k) Plans at a fair and reasonable price. Whereas our competitors are forced to outsource much or all of their tax work and consultation, each client of the IRA Financial Group is assigned to one of our in-house retirement tax professionals allowing us to offer customized Solo 401(k) Plans for significantly less than our competitors.

We provide the following all for one low price:

  • Free tax consultation with our in-house tax and ERISA professionals
  • Adoption Agreement
  • Basic Plan Document
  • EGTRRA Amendment
  • Summary Plan Description
  • Trust Agreement
  • Appointment of Trustee
  • Beneficiary Designation
  • Loan Procedure
  • Loan Promissory Note
  • Free tax updates
  • Free tax and ERISA support
  • Satisfaction Guaranteed!

Integrity: We are guided by the rules of ethical conduct in all that we do. Our relationships with clients are built on trust, respect, and confidentiality.

Innovate: We anticipate the changing tax and financial needs of our clients and creatively adapt our Solo 401(k) Plan tax solutions to address them.

Results: We are committed to our clients’ satisfaction and strive to meet and exceed our clients’ expectations.

IRA Financial Group will take care of everything. The whole process can be handled by phone, email, fax, or mail. Our expert tax and ERISA professionals are on site greatly reducing the set-up time and cost. Most importantly, 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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