Jun 30

Choosing The Right Solo 401(k) Plan For Your Business

The Solo 401(k) plan, also known as an individual 401(k) or self-employed 401(k) plan, is an IRS-approved retirement plan which is suited for business owners who do not have any full-time employees, other than themselves and perhaps their spouse. The Solo 401(k) plan is not a new type of plan; It is a traditional 401(k) plan covering only one employee. However, not all Solo 401(k) plans are the same.

When it comes to deciding what type of Solo 401(k) plan is best for your business, 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, such as Charles Schwab or E-Trade, offer Solo 401(k) Plans, often called individual 401(k) Plans. However, these plan documents, which are often free of charge, will restrict your plan investment options and typically only allow you to buy traditional equities or mutual funds, financial products that generate commissions and fees for the institution. For example, a 401(k) retirement plan established using E-Trade plan documents would not allow you to make any alternative asset investments, such as real estate.

Choosing The Right Solo 401(k) Plan For Your BusinessThe reason behind this is simple – traditional financial institutions and banks make money when you buy stocks and mutual funds, not when you buy real estate. That being said, if the only investments you want to do with your Solo 401(k) plan are stocks or mutual funds, then selecting a financial institutional would likely be a wise and cost-effective choice. However, if you were considering making alternative asset investments, such as real estate, in your Solo 401(k), you would likely want to consider the self-directed Solo 401(k) Plan.

In general, the determination of which of the features addressed below are available in a Solo 401(k) Plan depend on the plan documents. Below is a summary of the most popular features available in a Solo 401(k) plan, which may help you decide between a financial institution-directed Solo 401(k) or an open architecture self-directed Solo 401(k) plan.

High Annual Tax-Deductible Contributions: For all Solo 401(k) Plans, under the 2015 Solo 401(k) contribution rules, a plan participant under the age of 50 can make a maximum employee deferral contribution in the amount of $18,000. That amount can be made pre-tax or after-tax (Roth). On the profit sharing side, the business can make a 25% (20% in the case of a sole proprietorship or single member LLC) profit sharing contribution up to a combined maximum, including the employee deferral, of $53,000, an increase of $1,000 from 2014. For plan participants over the age of 50, an individual can make a maximum employee deferral contribution in the amount of $24,000. That amount can be made pre-tax or after-tax (Roth). On the profit sharing side, the business can make a 25% (20% in the case of a sole proprietorship or single member LLC) profit sharing contribution up to a combined maximum, including the employee deferral, of $59,000, an increase of $1,500 from 2014.

Tax-Free Loan: Most financial institution and bank adopted Solo 401(k) Plan documents offer no loan feature, while the majority of self-directed Solo 401(k) plan documents offer a loan feature. Thanks to the 2001 Economic Growth Tax Relief and Reconciliation Act (“EGTRRA”), a Solo 401(k) plan is able to offer a plan participant the ability 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, personal or business investments, a car, vacation, or anything else. The loan has to be paid back over a five-year period at least quarterly at a minimum interest rate, which as of June, 1 2015 is 3.25%, the Prime interest rate as per the Wall Street Journal (you have the option of selecting a higher interest rate)

Investment Diversification: The most notable benefit of establishing a self-directed Solo 401(k) Plan is that it offers a wide array of investment opportunities, such as real estate, precious metals, hard money loans, private business investments, tax liens, and much more. One lesson of the 2008 financial crisis has been the importance of having some investment diversification in your retirement portfolio.

While I am a tax attorney and not a financial advisor, I think it is safe to say that when one diversifies their retirement assets into other asset classes, any potential investment risk is spread around. The more places one invests their retirement assets, the less chance that the overall retirement portfolio will take a big hit when any single asset class slumps. Furthermore, many alternative assets have an underlying physical value. For example, when you buy stocks and bonds, you ultimately own pieces of paper. Buying real estate or IRS approved precious metals or coins gives you an intrinsically valuable asset that has a use above and beyond its investment value. Of course, one should discuss any investment opportunity with a financial advisor or attorney, but establishing a self-directed Solo 401(k) plan does at least offer an individual investor that ability to make traditional as well as alternative assets with their retirement funds.

Roth Contributions & In-Plan Conversions: Most financial institution adopted Solo 401(k) Plans do not allow for Roth (after-tax) contributions or in-plan Roth conversions for fear of complicating plan recordkeeping. The concern is that offering a Roth feature would cause added complexity for purposes of managing pre-tax and Roth account funds in the plan. However, almost all self-directed Solo 401(k) plan documents offer a built in Roth sub-account which can be contributed to without any income restrictions.

For 2015, a plan participant can make a Roth 401(k) plan employee deferral contribution of up to $18,000, or $24,000 if over the age of 50. Any employer profit sharing contributions made can then be converted to Roth. Most self-directed Solo 401(k) plan document providers recommend that the plan participant open two separate plan bank accounts, one for the pre-tax funds and one for the Roth funds. In addition, the majority of Solo 401(k) plans that offer Roth contributions will also provide for in-plan Roth conversions, which allows a plan participant to convert pre-tax 401(k) funds to Roth without any plan-triggering event. However, the Solo 401(k) Plan participant must pay income tax on the amount converted.

“EZ” Administration: One of the primary reasons the Solo 401(k) Plan has become the most popular plan for the self-employed is that they are so easy to operate. There is generally no annual filing requirement unless your solo 401(k) Plan exceeds $250,000 in assets, in which case you will need to file a short information return with the IRS (Form 5500-EZ).

No Tax On Real Estate Financing: Since a financial institution or bank established Solo 401(k) Plan does not allow for real estate investments, you would not be able to benefit from the ability to use non-recourse financing tax-free when making real estate investments with Solo 401(k) retirement funds. A non-recourse loan is a loan that is not personally guaranteed by the borrower and is secured by the underlying asset. A non-recourse loan is the only type of loan that can be used to purchase real estate with retirement funds as using a traditional recourse mortgage would trigger the IRS prohibited transaction rules. In general, a 401(k) plan that uses a non-recourse loan to purchase real estate will not be required to pay any tax on the leverage used. This is in contrast to an IRA that would be subject to the Unrelated Debt Financed Income (“UDFI”) rules – a type of Unrelated Business Taxable Income (also known as “UBTI or UBIT”) on which taxes must be paid. The UBTI tax is approximately 40% for 2015. But, with a Solo 401(k) plan, you can use leverage without being subject to the UDFI rules and UBTI tax. This exemption provides significant tax and investment advantages for using a Solo 401(k) Plan versus an IRA to purchase real estate.

The Solo 401(k) plan is designed explicitly for small, owner only business. Whatever type of Solo 401(k) plan you elect to establish, a Solo 401(k) plan offers self-employed individuals and small business owners with no third-party employees significantly greater retirement benefits than an IRA or even a SEP IRA.

For more information, please contact a 401(k) Expert @ 800.472.0646!

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Jun 29

Solo 401k or Self Directed 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 401k Plan covering only one employee.  Unlike a Traditional IRA, which only allows an individual to contribute $5500 annually or $6500 if the individual is over the age of 50, a Solo 401k Plan offers the Plan participant the ability to contribute up to $59,000 each year.  Before the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) became effective in 2002, there was no compelling reason for an owner-only business to establish a Solo 401(k) Plan because the business owner could generally receive the same benefits by adopting a profit sharing plan or a SEP IRA.  After 2002, EGTRRA paved the way for an owner-only business to put more money aside for retirement and to operate a more cost-effective retirement plan than a Traditional IRA or 401(k) Plan.

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

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

Under the 2015 Solo 401(k) contribution rules, a plan participant under the age of 50 can make a maximum employee deferral contribution in the amount of $18,000. That amount can be made in pre-tax or after-tax (Roth). On the profit sharing side, the business can make a 25% (20% in the case of a sole proprietorship or single member LLC) profit sharing contribution up to a combined maximum, including the employee deferral, of $53,000, an increase of $1,000 from 2014.

For plan participants over the age of 50, an individual can make a maximum employee deferral contribution in the amount of $24,000. That amount can be made in pre-tax or after-tax (Roth). On the profit sharing side, the business can make a 25% (20% in the case of a sole proprietorship or single member LLC) profit sharing contribution up to a combined maximum, including the employee deferral, of $59,000, an increase of $1,500 from 2014.

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

Solo 401k or Self Directed 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 2015.  If Joe had a Solo 401(k) Plan established for 2015, Joe would be able to defer approximately $49,000 for 2015 (a $24,000 employee deferral, which could be pre-tax or Roth, and 25% of his compensation giving him $49,000 for the year).   Whereas, if Joe established a Traditional Self-Directed IRA, Joe would only be able to defer approximately $6,500 for 2015.

2. No Roth Feature: A Solo 401k Plan can be made in pre-tax or Roth (after-tax) format.  Whereas, in the case of a Traditional Self-Directed IRA, contributions can only be made in pre-tax format.  In addition, a contribution of $18,000 ($24,00, if the plan participant is over the age of 50) can be made to a Solo 401(k) Roth account.

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

4. Use Nonrecourse 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.

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

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

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

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

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

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Jun 26

When NOT to Roll Over Your 401k to an IRA

Here’s an informative article from usnews.com that discusses certain times when it’s not a good idea to roll over your old 401(k) to an IRA:

Many people roll their 401(k) balance over to an individual retirement account each time they change jobs. Transferring your 401(k) balance to an IRA is usually a good financial move, especially if the IRA has better investment options and lower fees. Plus, it simplifies your financial life if you have fewer accounts to keep track of, and you might qualify for lower fees if you keep a large balance with a single financial institution. But there are a few specific cases when it’s better to leave your retirement savings in a former employer’s 401(k) plan.

You are between ages 55 and 59. There’s typically a 10 percent penalty if you withdraw money from a 401(k) or IRA before age 59 ½. However, if you lose or leave your job at age 55 or later (or age 50 or later for public safety employees), you can take withdrawals from the 401(k) plan associated with the job you most recently left without having to pay the 10 percent early withdrawal penalty. If you roll your 401(k) plan balance over to an IRA upon leaving the job, you will have to wait until age 59 ½ to take penalty-free IRA distributions. “As long as the money stays inside of the company plan, you can have access to it without the 10 percent early withdrawal penalty if you were at least age 55 when you left your job,” says Mike Sheehy, a certified financial planner and president of Client First Investment Management in West Bend, Wisconsin. “If you were to roll that over to an IRA, then you are back under the 10 percent early withdrawal penalty.”

You plan to work past age 70 ½. Annual withdrawals from traditional 401(k)s and IRAs are required after age 70 ½, and you must pay income tax on each distribution. But if you remain employed after age 70 ½ and don’t own 5 percent or more of the company you work for, you can continue to delay withdrawals from your current 401(k) plan and the resulting income tax bill until you actually retire. “If the money is inside the 401(k) plan, they are not required to take distributions on that as long as they are still working and not a major shareholder in the company,” Sheehy says. However, you will need to take required withdrawals from IRAs and 401(k) plans from previous jobs after age 70 ½, regardless of your employment status, to avoid a stiff 50 percent tax penalty.

You have company stock in your 401(k) plan. Company stock gets special tax treatment when it is held in an employer-sponsored 401(k). When company stock is distributed from a 401(k) plan the sale may qualify for the long-term capital gains tax rate, which for many people is lower than their ordinary income tax rate. But if the company stock is transferred to an IRA, the appreciation will be taxed at the often higher ordinary income tax rate when it is withdrawn from the account. “There’s a tremendous tax opportunity when you hold company stock in your 401(k),” says Mary Kusske, a certified financial planner and president of Kusske Financial Management in Burnsville, Minnesota. “Instead of the stock coming out as ordinary income, it will be taxed as a capital gain.”

Your 401(k) plan has especially low fees. Many 401(k) plans are plagued by high fees and poor investment choices, and a job change finally allows you to shift your savings into lower cost investments. But some companies carefully select unusually good investment options for their workers and use their bargaining power to negotiate especially low investment fees for participants. If you’re in a best in class 401(k) plan, and you’ve shopped around to see that you can’t reduce your investment costs by switching to an IRA, sticking with a former employer’s 401(k) plan can help your money to grow faster. Just make sure to keep your contact information up to date, including an email address and phone number not associated with your former job, so you don’t lose track of the account. “If the 401(k) has low-cost funds, and maybe the employer is picking up the expenses for administration or a financial adviser, you might want to keep it in the 401(k) because you might have to pay for professional management outside the 401(k),” says JoAnn May, a certified financial planner for Forest Asset Management in Berwyn, Illinois. “If a 401(k) is filled with high-expense mutual funds, that’s a reason to get it out.”

You haven’t had time to carefully evaluate your options. Changing jobs is a hectic period when you need to create a new routine, and you might not have a lot of extra time to shop for the best IRA and compare the investment options and costs in your old employer’s plan to what’s available in your new firm’s 401(k) plan. But you don’t need to move your money immediately upon leaving a job. “There is no reason to make a fast movement,” May says. “Leave it there until you figure out what you want to do.”

For more information about Rollovers, please contact a Retirement Specialist at the IRA Financial Group @ 800.472.0646

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Jun 25

Food Service Industry Most Popular Type of Businesses Being Established with ROBS Structure in 2015

Growth in number of individuals using retirement funds to start food and hospitality type businesses/franchises in 2015.

IRA Financial Group, a provider of Rollover Business Startup Solution (“ROBS”) solutions, has seen a surge in individuals looking to use retirement funds to establish new businesses in the food and hospitality industries. “In 2015 the food and hospitality industry has surpassed retail and manufacturing as the most popular category of new business being started with 401(k) plan funds, “ stated Adam Bergman, a tax partner with the IRA Financial Group. “The relatively low start-up costs for establishing a food service type business is one reason for its popularity with entrepreneurs looking to use the retirement funds to fund a business,“ stated Mr. Bergman.

The rollover 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 solution is a tax efficient way for any entrepreneur looking to use IRA fund to buy a business or franchise without incurring any tax or penalty from a IRA distribution.

Food Service Industry Most Popular Type of Businesses Being Established with ROBS Structure in 2015With IRA Financial Group’s ROBS structure, the limitation imposed using a Self-Directed IRA LLC to buy a business can be sidestepped because the individual retirement account business owner would not be able to be actively involved in the business, earn a salary, or even personally guarantee a business loan. Whereas, if the business owner used a ROBS IRS strategy, that individual would be able to be actively involved in the business, earn a salary, as well as personally guarantee a business loan without triggering the IRS prohibited transaction rules. “IRA Financial Group’s ROBS solution will allow entrepreneurs the ability to use IRA or 401(k) plan funds to help fund a new business or finance an existing business, “stated Mr. Bergman.

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 23

Contribution Limits for a Solo 401k

Under the 2015 Solo 401(k) contribution rules, a plan participant under the age of 50 can make a maximum employee deferral contribution in the amount of $18,000. That amount can be made in pre-tax or after-tax (Roth). On the profit sharing side, the business can make a 25% (20% in the case of a sole proprietorship or single member LLC) profit sharing contribution up to a combined maximum, including the employee deferral, of $53,000, an increase of $1,000 from 2014.

For plan participants over the age of 50, an individual can make a maximum employee deferral contribution in the amount of $24,000. That amount can be made in pre-tax or after-tax (Roth). On the profit sharing side, the business can make a 25% (20% in the case of a sole proprietorship or single member LLC) profit sharing contribution up to a combined maximum, including the employee deferral, of $59,000, an increase of $1,500 from 2014.

One of the main benefits of a Solo 401(k) Plan is the opportunity to make higher contributions. Under most retirement plans that an owner only business could establish, the maximum annual deductible contribution is 25 percent of the business owner’s compensation.

Solo 401(k) Contributions Vs. SEP IRA

A Solo 401(k) Plan includes both an employee and profit sharing contribution option, whereas, a SEP IRA is purely a profit sharing plan. Hence, a participant in a SEP IRA would be limited to 25% (20% in the case of a sole proprietorship or single member LLC) profit sharing contribution up to a combined maximum of $53,000 for 2015. No employee deferral exists for a SEP IRA.

Employee Elective Deferrals

Before the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) became effective in 2002, there was no incentive for an owner-only business to establish a 401(k) plan because the business owner could generally receive the same benefits by adopting a profit sharing plan or SEP IRA. However, EGTRRA changed everything and turned the Solo 401(k) Plan in to the most popular retirement plan for the self-employed. EGTRRA cleared the way for an owner-only business to defer more money into a retirement plan and to operate a more cost-effective, less complex type of plan. One of the key features of EGTRRA was that it added the employee deferral feature founded in a traditional multiple employee 401(k) Plan to the Solo 401(k) Plan. This feature turned the Solo 401(k) Plan into the retirement vehicle that provided the highest contribution benefits to the self-employed.

For 2015, up to $18,000 per year can be contributed by the participant through employee elective deferrals. An additional $6,000 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% in the case of a Sole Proprietor or a Schedule C Tax Payer).

Total Limit

The sum of both contributions can be a maximum of $53,000 per year (for 2015) or $59,000 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 $106,000 for 2015 or $118,000 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 any time 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 2015, 100% of W-2 earnings up to the maximum of $18,000 or $24,000 if age 50 or older can be contributed to a Solo 401k.

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 2015, 100% of the owner’s self-employment earnings up to the maximum of $18,000 or $24,000 if age 50 or older can be contributed to a Solo 401k.

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 2015, 100% of the owner’s self employment earnings up to the maximum of $18,000 or $24,000 if age 50 or older can be contributed to a Solo 401k.

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.

Example 1: Joe, who is 35, is the sole owner of ABC, Inc. Joe receives $100,000 of compensation from the corporation. The maximum deductible contribution Joe can make to his Solo 401(k) account in 2015 would be a whopping $43,000 [$18,000 + (25% of $100,000)]. That’s a significant amount more than the amount Joe would be able to contribute to a traditional IRA or SEP IRA.

Example 2: Joe, who is 35, is a sole proprietor. Joe earns $100,000 from his sole proprietorship. For 2015, the maximum deductible contribution Joe can make to his Solo 401(k) account would be a whopping $38,000 [$18,000 + (20% of $100,000)]. That’s a significant amount more than the amount Joe would be able to contribute to a traditional IRA or SEP IRA.

Example 3: Joe, who is 42, is the owner of a single member LLC. Joe earns $100,000 from his LLC from self-employment earnings. For 2015, the maximum deductible contribution Joe can make to his Solo 401(k) account would be a whopping $38,000 [$18,000 + (20% of $100,000)]. That’s a significant amount more than the amount Joe would be able to contribute to a traditional IRA or SEP IRA.

Example 4: Joe, who is 55, is the sole owner of ABC, Inc. Joe receives $100,000 of compensation from the corporation. In 2015, the maximum deductible contribution Joe can make to his Solo 401(k) account would be a whopping $49,000 [$24,000 + (25% of $100,000)]. That’s a significant amount more than the amount Joe would be able to contribute to a traditional IRA or SEP IRA.

Example 5: Joe and Kim are married. Joe, who is 35, is the sole owner of ABC, Inc. Joe and Kim each receive $100,000 of compensation from the corporation. For 2015, the maximum deductible contribution Joe can make to his Solo 401(k) account would be $43,000 [$18,000 + (25% of $100,000)] and the maximum deductible contribution Kim can make to his Solo 401(k) account would be $43,000, for a total of a whopping $86,000.

Why Work With the IRA Financial Group?

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. Over the years, we have helped thousands of clients establish IRS compliant Solo 401(k) Plans. With our work experience at some of the largest law firms in the country, our retirement tax professionals’ tax and ERISA knowledge in this area is unmatched.

To learn more about the Solo 401(k) Plan annual contribution rules, please contact one of our Solo 401(K) Plan experts at 800-472-0646 for more information.

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Jun 22

Using Your 401(k) with ROBS to Start a Business

The Business Acquisition & Compliance Solution Structure (BACSS), also known as the “Rollover Business Start-Up” (“ROBS”) Solution, is an IRS and ERISA approved structure that allows an individual to use retirement funds, such as an IRA or 401(k), to purchase a new or existing business or franchise tax-free and penalty-free.

The ROBS arrangement 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 funds in the stock of the new C Corporation.

What is the Difference between using a Self-Directed IRA Vs. ROBS structure to buy a business?

At first glance, using a Self-Directed IRA LLC to purchase stock in a corporation would seem to share many similarities with the ROBS structure.

Using Your 401(k) with ROBS to Start a BusinessWith IRA Financial Group’s ROBS transactions, the structure typically involves the following sequential steps: (i) an entrepreneur or existing business owner establishes a new C Corporation; (ii) the C Corporation adopts a prototype 401(k) plan that specifically permits plan participants to direct the investment of their plan accounts into a selection of investment options, including employer stock, also known as “qualifying employer securities.”; (iii) the entrepreneur elects to participate in the new 401(k) plan and, as permitted by the plan, directs a rollover or trustee-to-trustee transfer of retirement funds from another qualified retirement plan into the newly adopted 401(k) plan; (iv) the entrepreneur then directs the investment of his or her 401(k) plan account to purchase the C Corporation’s newly issued stock at fair market value (i.e., the amount that the entrepreneur wishes to invest in the new business); and finally (v) the C Corporation utilizes the proceeds from the sale of stock to purchase an existing business or to begin a new venture.

With IRA Financial Group’s ROBS strategy, the newly formed business will also be able to borrow from third parties, pay salaries to employees (including shareholders/plan participants), and engage in other routine business transactions with disqualified persons. Commonly, a corporate officer or shareholder will make or guarantee loans to the business.

With a Self-Directed IRA LLC, an entrepreneur could use retirement funds to purchase business assets like with the ROBS strategy. However, that individual would not be able to be actively involved in the business, earn a salary, or even personally guarantee a business loan.

The recent U.S. Tax Court case Peek v. Commissioner, 140 T.C. No. 12 (May 9, 2013), highlights the risk and limitations involved when using a Self-Directed IRA to purchase business assets. In the Peek case, the taxpayers used IRA funds to invest in a corporation that ultimately purchased business assets. Because Mr. Peek used an IRA and not a 401(k) Plan to purchase the C Corporation stock, Mr. Peek was not able to earn a salary or personally guarantee a business loan, which ultimately was the cause of the IRS prohibited transaction rule violation.

If Mr. Peek had used IRA Financial Group’s ROBS strategy, he would have been able to purchase business assets with retirement funds, earn a salary from the business, as well as personally guarantee the business loan without triggering the IRS prohibited transaction rules.

Legal Foundation for the ROBS Solution

An individual retirement account investor is able to use retirement funds to invest in an active trade or business with tax or penalty because the ROBS solution qualifies for a special exemption set forth under IRC 4975(d) to certain prohibited transaction rules. The exemption to the prohibited transaction rules under IRC 4975(d) is centered around ERISA Section 408(e). It is IRC Section 4975(d) and ERISA Section 408(e) which shields employers from scrutiny of routine (non-abusive) corporate transactions by the plan sponsor and other “disqualified persons,” which might otherwise constitute technical violations of the prohibited transaction rules (due to the employer-sponsored retirement plan’s ownership of employer securities). If the plan sponsor and other fiduciaries’ routine corporate transactions did not fall within the purview of ERISA Section 408(e), the prohibited transaction rules would needlessly prohibit a myriad of legitimate business transactions and would ultimately nullify the exemption that Congress intended to provide. To accomplish its intended effect, ERISA Section 408(e) must be read to exempt the natural and necessary commercial consequences of owning corporate stock, rather than just the stock purchase or divestiture.

Important tax and economic policy considerations also compel a different result for 401(k) plans than IRAs. Congress specifically intended to encourage 401(k) plans to invest in employer securities, within certain limits. The opportunity to invest in employer securities through retirement plans benefits employers and employees alike by aligning their economic interests.

Outside the context of ROBS arrangements, many 401(k) plans permit participants to invest in employer stock. A number of large 401(k) plans, including plans sponsored by Apple and Pepsi, include substantial allocations of employer stock.

To learn more about the benefits of the ROBS strategy, please contact a retirement tax expert at 800-472-0646.

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Jun 19

Administration Services for Your 401k Plan

The all in one 401(k) retirement solution provider and Recordkeeper for your Business

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

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

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

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

Need a Record Keeper for Your 401k Plan?401(k) recordkeeping services should be performed scrupulously to ensure that all IRS and ERISA rules and requirements are satisfied so that the retirement plan remains in full compliance. Recent IRS and ERISA rules require meticulous recordkeeping in order to track the various activities of the retirement plan and its participants. It is important that all retirement plan recordkeeping be coordinated in order to track, separately, employee deferrals and after-tax voluntary contributions as well as employer matching, qualified non-elective and profit sharing contributions. Distributions may occur on separation from service, as loans or hardship withdrawals; since each of these involve different types of transactions, it is vital that a recordkeeping service be in place to track all these activities separately.

In general, plan recordkeeping services can be performed by various types of service providers. They can be performed in-house, by a third-party administrator, a separate recordkeeping firm or a bundled service provider. Basically, in-house recordkeeping will be feasible only for larger employers. In the case of small or mid-size businesses with less than a 100 employees, it is far more cost effective to have a third-party perform all plan recordkeeping services.

401K Administration Services works directly with numerous investment providers committed to superior service. By combining our core recordkeeping expertise with investment specialists who complement those strengths, we are able offer an “unbundled” investment approach.

By offering an “unbundled” approach, these investment providers are able to offer the following high quality options without any conflict of interest:

  • A high quality – well diversified investment programs
  • No fee and load fund options
  • Easy to operate online account platform
  • Helpful communication and education tools
  • Dependable advisor support

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

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

Contact one of our Retirement Experts today @ 800.472.0646 to learn more or let us contact you.

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Jun 18

The Business Acquisition Flow Chart

THE BUSINESS ACQUISITION & COMPLIANCE SOLUTION STRUCTURE (BACSS)

(Click the image below to view the chart)

Business Acquisition Solution

Contact us today at 800-472-0646 to learn more about how you can use your retirement funds to start a new business or grow an existing business tax-free, in full IRS compliance, and without penalties!

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Jun 15

IRA Financial Group Introduces Additional Features To Solo 401(k) Annual Contribution Calculator Tool for 2015

Newly Revamped Solo 401(k) Plan Contribution calculator will allow individuals to calculate their maximum solo 401(k) Plan annual capital contributions for 2015

IRA Financial Group, the leading provider of self-directed Solo 401K Plans, announces new features and a revamped look to its online Solo 401(k) contribution calculator. The freshly deigned online Solo 401(k) contribution calculator is a valuable tool that will allow an individual to calculate the maximum annual contribution to a solo 401K Plan, including employee deferrals and employer profit sharing contributions for 2015. The improved 401k online contribution calculator tool will allow a Solo 401(k) Plan participant the ability to calculate their maximum annual Solo 401(k) contribution based on ones age as well as the type of entity they have (i.e. sole proprietorship, LLC, partnership, or corporation). “The newly designed Solo 401(k) contribution calculator is free of charge and offers a more user friendly experience for individuals looking to determine their maximum 401(k) contribution amount for 2015,” stated, Susan Glass, a 401(k) retirement specialist with the IRA Financial Group. “The freshly designed and improved Solo 401(k) Plan calculator offers a new feature, which will provide a detailed breakdown of the total amount of employee elective and profit sharing contributions that can be made to a Solo 401(k) Plan, annually,” stated, Ms. Glass.

IRA Financial Group Introduces Additional Features To Solo 401(k) Annual Contribution Calculator Tool for 2015The annual Solo 401k contribution consists of two parts, an employee salary deferral contribution and an employer profit sharing contribution. In 2015 the total contribution limit for a Solo 401k is $53,000 or $59,000 if age 50 or older. The total allowable contribution limits are combined to get the maximum Solo 401k contribution limit.

Up to $18,000 per year can be contributed by the participant through employee elective deferrals. An additional $6,000 can be contributed for persons over age 50. 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 one a Sole Proprietor or a Schedule C Tax Payer).

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 “checkbook control” Self Directed IRA LLC 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 contact us at 800-472-0646.

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Jun 12

Solo 401(k) Services Offered by the IRA Financial Group

The IRA Financial Group will take care of the entire set-up of your IRS compliant Solo 401k Plan. The whole process can be handled by phone, email, fax, or mail and typically takes between 5-14 days to complete, the timing largely depending on the state of formation and the custodian holding your retirement funds. Our Solo 401k experts and tax and ERISA professionals are on site greatly reducing the set-up time and cost. Most importantly, each client of the IRA Financial Group is assigned a tax professional to help customize the Solo 401k Plan based on the financial and retirement goals of the participant. You will find that our fee for this service is significantly less than other companies that perform the same or similar services.

Our Solo 401(k) establishment service includes:

  • Free tax consultation with our in-house tax professionals IRA Financial Group
  • Adoption Agreement
  • Basic Plan Document
  • EGTRRA Amendment
  • IRS Determination Letter
  • 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!

For additional information on the tax advantages of using a Solo 401k Plan, please contact one of our 401k Experts at 800-472-0646.

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