Dec 27

How to Use a Solo 401k to Flip Homes Tax-Free

Since the creation of the Solo 401(K) Plan back in the early 1980s, the IRS has always permitted a Solo 401(K) Plan to purchase, hold, or flip real estate.  By using a Solo 401(K) Plan, also known as a self-directed 401(K) Plan or Individual 401(K) Plan, to buy real estate, you will be able to purchase raw land, domestic or foreign real estate, residential or commercial property, flip homes, and much more tax-free and without requiring custodian consent!

Flipping a Home is as Simple as Writing a Check

With a Solo 401(K) Plan, flipping homes or engaging in a real estate transaction is as simple as writing a check. As trustee of your Solo 401(K) Plan, you will have the authority to make real estate investment decisions on behalf of your 401(K) Plan on your own without needing the consent of a custodian. One of the true advantages of a Solo 401(K) Plan is that when you want to purchase a home with your Solo 401(K) Plan, you can make the purchase, pay for the improvements, and even sell or flip the property on your own without involving the custodian or any third-party.  In other words, with a Solo 401(K) Plan, you will have the power to flip homes or do multiple real estate transactions on your own without requiring the consent of a custodian. One additional important advantage of purchasing real estate with a Solo 401(K) Plan is that all income and gains are tax-deferred until a distribution is taken (distributions are not required until the 401(K) Plan participant turns 70 1/2). In the case of a Roth Solo 401(K) Plan, all gains are tax-free.

How to Use a Solo 401k to Flip Homes Tax-FreeFlip a Home without Requiring the Consent of a Custodian

A Solo 401(K) Plan is the most efficient and cost effective vehicle for doing house flips with retirement funds.  With a Solo 401(K) Plan, you will be able to use your 401(K) funds to purchase real estate and engage in flipping homes tax-free and without custodian consent.  A traditional 401(K) Plan custodian (financial institution) will not allow you to purchase real estate using your retirement funds.  Therefore, in order to have the ability to engage in house flipping transactions using retirement funds, a Solo 401(K) Plan is the answer.

Control the Entire House Flipping Transaction

Unlike a conventional 401(K) Plan which requires custodian consent and requires high custodian fees, a Solo 401(K) Plan will allow you to buy real estate by simply writing a check.  With a traditional custodian controlled Solo 401(K) Plan, you will have total control to make a real estate purchase, pay for improvements, and then sell the property without ever talking to the custodian.  Since all your 401(K) funds will be held at a local bank in the name of the Solo 401(K) Plan, all you would need to do to engage in a house flipping transaction is write a check straight from the Solo 401(K) Plan account or simply wire the funds from the Solo 401(K) Plan bank account.  No longer would you need to ask a custodian for permission or have a custodian sign the real estate transaction documents.  Instead, with a self-directed Solo 401(K) Plan, as trustee of the Solo 401(K) Plan, you will be able to execute the real estate transaction by simply writing a check.

Use a Solo 401(K) Plan and Flip a Home Tax-Free

One major advantage of flipping homes with a Solo 401(K) Plan is that all gains are tax-deferred until a distribution is taken (distributions are not required until the IRA owner turns 70 1/2). In the case of a Roth Solo 401(K) Plan, all gains are tax-free. In other words, all gains attributable to the house flipping transaction will flow back to your Solo 401(K) Plan tax-free!

IRA Financial Group will take care of setting up your entire Solo 401(K) Plan structure. The whole process can be handled by phone, email, fax, or mail and typically takes between 2-10 days to complete, the timing largely depending on the existing custodian holding your retirement funds. Our 401(K) Plan experts and tax and ERISA professionals are onsite greatly reducing the setup time and cost.

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.

To learn more about the advantages of using a Solo 401(K) Plan to purchase real estate and flip homes tax-free, please call a Solo 401(K) Expert at 800-472-0646 or visit www.irafinancialgroup.com.

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Dec 22

Choosing the Best Self-Directed Solo 401k Provider

Selecting the best Solo 401(k) plan provider is an important decision that should be researched thoroughly.  Below are several tips to help you select the best Solo 401(k) Plan provider for your self-employed or small business retirement plan.

1. Always Make Sure You Are Working With a Tax & ERISA Professional: There are several companies on the internet that advertise themselves to be solo 401(k) plan providers and experts, however, in most cases, the people that would be involved in drafting your Solo 401(k) plan documents as well as advising you are not tax attorneys or even tax professionals. Working with an experienced tax & ERISA professionals when looking for a Solo 401(k) Plan provider is crucial in ensuring that your plan will be properly setup as well as remain in full IRS compliance. The Solo 401(k) plan is based on the rules found in the Internal Revenue Code, which can be quite complicated to the non-tax attorney. Therefore, it is strongly advisable to work with a Solo 401(k) Plan provider, like the IRA Financial Group, to establish your IRS approved Solo 401(k) Plan. Relying on the advice of a document processor or no-tax professional when it comes to establishing and maintaining your retirement plan puts your retirement future at great risk. Too many times, plan participants have unknowingly violated IRS rules when operating their Solo 401(k) Plan because a plan provider representative that was not qualified to provide relevant tax advice gave them inaccurate and incomplete tax advice or drafted the plan documents incorrectly. Make sure this does not happen to you – work only with qualified 401(k) plan tax & ERISA professionals who have been specifically trained on the special tax aspects of the Solo 401(k) Plan to establish and maintain your Solo 401(k) Plan.

Choosing the Best Self-Directed Solo 401k Provider2. Open Architecture Self-Directed Solo 401(k) Plan Is the Way to Go: Not all Solo 401(k) Plans are the same.  Most Solo 401(k) Plans offered by a bank or financial institution are not self-directed.  What that means is that you will be restricted to making the investments offered by the bank or financial institution and will not be permitted to purchase real estate, precious metals, private business investments, option & currency trading, hard money loans, etc.  Once you adopt a Solo 401(k) Plan, you should have a plan that features all the IRS options available for qualified retirement plans, including the ability to make non-traditional investments, such as real estate. IRA Financial Group offers an open architecture Solo 401(k) Plan that allows you to make any IRS approved investment without requiring the consent of a custodian. As trustee of your Self-Directed Solo 401(k) Plan, you will have “checkbook control” over your plan funds and will have total control over plan assets.

3. Take Advantage of Your Right to Borrow up to $50,000 from Your Plan: Not all Solo 401(k) Plans include a loan feature, which is an IRS approved feature. IRA Financial Group’s Solo 401(k) 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, personal or business investments, a car, vacation, or anything else. The loan has to be paid back over a five-year period at least quarterly at a minimum prime interest rate (you have the option of selecting a higher interest rate).

4. Be Sure You Have a Roth Option: Most Solo 401(k) Plan providers do not allow for Roth (after-tax) contributions. IRA Financial Group’s Solo 401(k) Plan contains a built in Roth sub-account which can be contributed to without any income restrictions.  In addition, most Solo 401(k) plan providers do not allow for in-plan Roth conversions or rollovers.  Whereas, IRA Financial Group’s Solo 401(k) Plan allows for in-plan Roth conversions. However, the Solo 401(k) Plan participant must pay income tax on the amount converted.

5. Ongoing Tax & 401(k) Plan Support is a Must: Just because your Solo 401(k) Plan has been established does not mean that you no longer need any ongoing tax and ERISA support.  Most Solo 401(k) Plan providers are headed for the exit once the plan has been established.  As you begin administering your Solo 401(k) Plan, whether it involves making employee deferral or profit sharing contributions, making a non-traditional investment, taking a plan loan, or considering a Roth conversion, you will want to be able to have the ability to consult with a specialized 401(k) Plan tax professionals and get specialized tax and ERISA advice based on your particular retirement or tax question.  The ongoing maintenance of the Solo 401(k) Plan is crucial in making sure your Solo 401(k) Plan remains in IRS compliance and that the IRS respects all your plan contributions and investment gains. Working directly with a 401(k) plan tax professional that has been specifically trained on the special tax aspects of the Solo 401(k) Plan will help keep your Solo 401(k) plan in full IRS compliance.

6. Take Control of Your Solo 401(k) Plan from the Plan Provider: Most Solo 401(k) Plan providers will require that you hold the plan assets at their institution. With IRA Financial Group’s Self-Directed Solo 401(k) Plan, you can hold the plan assets at the bank of your choosing and gain “checkbook control” over the funds. With IRA Financial Group, making an investment is as easy as writing a check.

7. Stay Away from Plan Providers who Outsource Their Plan Maintenance Services: Most Solo 401(k) Plan providers do not assist or offer advice with respect to the maintenance and administration of a Solo 401(k) Plan, including the completion of the IRS Form 5500-EZ. They generally refer all questions to an outside tax attorney or accountant. IRA Financial Group offers all of its Solo 401(k) Plan clients direct access to its in-house retirement tax professionals and CPAs regarding maintenance or administrative questions concerning the plan. Whether it’s answering a question about a plan feature, investment, an update in the law, or with help completing the IRS Form 5500-EZ, you will work one-on-one with an IRA Financial Group retirement tax professional and CPA who are familiar with your plan and retirement goals.

8. Stay Away from Excessive Annual Fees: Since most Solo 401(k) Plans have less the $250,000 in plan assets, there would be no annual filing requirement for the plan. Hence, why pay excessive annual administration fees to a plan provider who will not be offering you or your plan any value or services. Even if your Solo 401(k) Plan has in excess of $250,000 of plan assets, the IRS Form 5500-EZ is quite simple to complete and should not be too costly.

9. Don’t Take Tax Advice from a Salesperson – Talk Directly with a 401(k) Plan Tax Professional or CPA: Many times a salesperson or representative of a Solo 401(k) Plan provider will offer you tax or ERISA guidance with respect to a 401(k) plan feature or an investment without lacking the adequate knowledge or expertise. Make sure you are only receiving plan related advice or information from a specialized 401(k) plan tax professional. Too many times, plan participants have made improper plan contributions or invested in a prohibited transaction because they were mislead by a plan provider representative that was not qualified to provide proper tax advice regarding the unique features of the Solo 401(k) Plan. Working directly with a 401(k) plan tax professional that has been specifically trained on the special tax aspects of the Solo 401(k) Plan to establish and maintain your Solo 401(k) Plan is the only way you can guarantee your plan will remain in full IRS compliance and that you will not be engaging in any plan activities not approved by the Plan or the IRS.

To learn more about the importance of selecting the right solo 401(k) plan provider, please contact a retirement tax expert at 800-472-0646.

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Dec 19

Why You Need Checkbook Control of Your Individual 401k Plan

An Individual 401(k), also known as a Solo 401(k), is perfect for sole proprietors, small businesses and independent contractors.

A Solo 401(k) plan is generally also referred to as a “checkbook control” Qualified Retirement Plan. In each case, a 401(k) plan is established whereby the participant serves as trustee and administrator of the Plan providing the participant with “checkbook control” over his or her retirement funds.

With a “checkbook control” Solo 401(K) Plan you will never have to seek the consent of a custodian to make an investment or be subject to excessive custodian account fees based on account value and per transaction.

By having “checkbook control” over your retirement funds you will gain the following advantages:

“Checkbook Control”: You’ll no longer have to get each investment approved by the custodian of your account. Instead, all decisions are truly yours. To make an investment, simply write a check and use the funds straight from your Solo 401(k) Plan bank account.

When making a real estate investment or purchasing tax liens, a “checkbook control” Solo 401(k) Plan, will allow you as manager of the LLC the ability to simply write a check from your Solo 401(k) Plan bank account.

Example 1: Joe has a Solo 401(k) set-up by the IRA Financial Group. Joe has established his Solo 401(k) Plan bank account with Bank of America. Joe wishes to use his retirement funds to purchase a home from Steve, an unrelated third-party (non-disqualified person). Steve is anxious to close the transaction as soon as possible. With a “checkbook control” Solo 401(k) Plan, Joe can simply write a check using the funds from his 401(k) Plan bank account or can wire the funds directly from the account to Steve. Joe, as trustee of the plan, no longer needs to seek the consent of the custodian before making the real estate purchase. With a custodian controlled Solo 401(k) Plan without “checkbook control” Joe may not be able to make the real estate purchase since seeking custodian approval would likely take too much time.

Example 2: Joe has a Solo 401(k) set-up by the IRA Financial Group. Joe has established his Solo 401(k) Plan bank account with Bank of America. Joe wishes to use his retirement funds to invest in tax lien certificates via auction. Purchasing tax lien certificates requires Joe make the payment at the auction. With a “checkbook control” Solo 401(k) Plan, Joe can simply bring his 401(k) Plan bank account checkbook to the closing or secure a certified check from the bank in order to make payments at the auction. With a custodian controlled Solo 401(k) Plan without “checkbook control” Joe would not be able to make tax lien certificate investments because he would need custodian approval before each tax lien certificate purchase and would not have sufficient time to seek the consent of the custodian.

No Custodian Fees or Transaction Fees: The most significant cost benefit of the Solo 401(k) plan is that it does not require the participant to hire a bank or trust company to serve as trustee. In other words, there are no custodian fees or transaction fees when establishing a Solo 401(k) Plan with the IRA Financial Group. This flexibility allows the participant to serve in the trustee role. This means that all assets of the 401(k) trust are under the sole authority of the Solo 401k participant.  A Solo 401(k) plan allows you to eliminate the expense and delays associated with an IRA custodian, enabling you to act quickly when the right investment opportunity presents itself.

Speed: You can act quickly on a great investment opportunity. When you find an investment that you want to make with your retirement funds, simply write a check or wire the funds straight from your Solo 401(k) Plan bank account to make the investment. The Solo 401(k) Plan allows you to eliminate the delays associated with using an IRA custodian, enabling you to act quickly when the right investment opportunity presents itself.

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

Cost Effective Administration: In general, the solo 401(k) 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).

Solo 401k Solution

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

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Dec 16

2016 401k Contribution Deadline – December 31

The deadline for making Solo 401K Plan contributions is typically dependent on the type of entity that has adopted the Solo 401K Plan as well as the type of contribution – employee deferral vs. profit sharing contribution.

Sole Proprietorship

Employee Deferral

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

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

Profit Sharing Contribution

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

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

Single Member LLC

Employee Deferral

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

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

Profit Sharing Contribution

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

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

Multiple-Member LLC

Employee Deferral

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

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

Profit Sharing Contribution

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

C Corporation & S Corporation

Employee Deferral

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

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

Profit Sharing Contributions

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

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

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

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Dec 13

Non-Deductible 401k Contribution Strategy

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

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

Types of Plan Contributions

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

Non-Deductible 401(k) Plan Contribution Tax Strategy

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

Is the Nondeductible 401(k) Contribution Option New?

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

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

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

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

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Dec 08

The Individual 401k Plan and UBIT Rules

One of the advantages of using retirement funds, such as a 401(k), Individual 401K or an IRA to make investments is that in most cases all income and gains from the investment will flow back to the Solo 401K tax-free. This is because a 401(k) is exempt from tax pursuant to Internal Revenue Code 401 and Section 512 of the Internal Revenue Codes exempt most forms of investment income generated by a 401(k) and a Solo 401K from taxation. Some examples of exempt type of income include: interest from loans, dividends, annuities, royalties, most rentals from real estate, and gains/losses from the sale of real estate.

The Individual 401k Plan and UBIT RulesHowever, the IRS enacted a set of rules in the 1950s in order to prevent charities and later 401(k) and IRAs from engaging in an active trade or business and, thus, having an unfair advantage because of their tax-exempt status. These rules can be found under Internal Revenue Code Sections 511-514 and have become known as the Unrelated Business Taxable Income rules or UBTI or UBIT. If the UBTI rules are triggered, the income generated from that activities will generally be subject to close to a 40% tax for 2016. Of note, a 401(k) or Solo 401K investing in an active trade or business using a C Corporation will not trigger the UBTI tax.

The UBTI generally applies to the taxable income of “any unrelated trade or business…regularly carried on” by an organization subject to the tax. The regulations separately treat three aspects of the quoted words—“trade or business,” “regularly carried on,” and “unrelated.”

Trade or Business: In defining “unrelated trade or business,” the regulations start with the concept of “trade or business” as used by Internal Revenue Code Section 162, which allows deductions for expenses paid or incurred “in carrying on any trade or business.”

Regularly Carried On: The UBIT only applies to income of an unrelated trade or business that is “regularly carried on” by an organization. Whether a trade or business is regularly carried on is determined in light of the underlying objective to reach activities competitive with taxable businesses. Short-term activities are exempted if comparable commercial activities of private enterprises are usually conducted on a year-round basis.

Before it can be determined whether an activity is seasonal or intermittent, the relevant activity must be identified and quantified, a step that is often troublesome.

Interestingly, unlike an IRA, using nonrecourse financing to purchase real estate will not trigger the UBIT/UBTI tax since it will not be treated as Unrelated Debt Financed Income or UDFI (exception exists for 401(k) qualified retirement plans but not IRAs under Internal Revenue Code Section 514(c)(9).

The type of income that generally could subject a 401(k) or Solo 401K to UBIT or UBTI is income generated from the following sources:

  • Income from the operations of an active trade or business through a passsthrough entity (i.e. LLC or partnership). For example, a store, restaurant, manufacturing business, real estate development company.
  • Using margin on a stock purchase.

For more information about the UBIT rules, please contact a Solo 401(k) Expert @ the IRA Financial Group @ 800.472.0646.

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Dec 06

Trump Tax Plan May Boost Attractiveness Of Rollover Business Start-Up Solution (ROBS)

This article originally appeared on Forbes.com

The subject of business taxes was a popular theme during President-elect Trump’s election campaign and will surely become a hot topic during his first year as president.  President-elect Trump has stated that he favors a 15% corporate rate as part of his tax plan as well as eliminate the corporate alternative minimum tax. This rate would be available to all businesses, both small and large, that want to retain the profits within the business.

When it comes to using retirement funds to invest in a business involving the retirement account holder or any of his or her lineal descendants (“disqualified persons”) there is generally only one legal way to do it and it involves the purchase of “C” corporation stock (qualifying employer securities) by a 401(k) qualified retirement plan.  The structure is known as a “rollover business start-up” or “ROBS”.

Trump Tax Plan May Boost Attractiveness Of Rollover Business Start-Up Solution (ROBS)The Internal revenue Code explicitly permits the purchase of corporate stock by a 401(k) qualified plan.  Nevertheless, the ROBS structure remains somewhat controversial. Although the Internal Revenue Service (“IRS”) has repeatedly confirmed its legality, it continues to be on the radar of the IRS and Department of Labor (DOL) due to a lack of compliance in some cases.

The ROBS arrangement typically involves rolling over a pre-tax IRA or 401(k) plan account into a newly established 401(k) plan, which is sponsored by a “C” corporation and then investing the rollover funds in the stock of the “C” corporation.  The individual retirement account holder can then earn a reasonable salary as an employee of the business.

The advantage of the ROBS solution is that it does allow one to use all their pre-tax IRA or 401(k) funds to buy a business that they will be involved in personally as an employee without tax or penalty.

The primary downside of the ROBS structure is the use of a C corporation as the business entity, an independent legal entity owned by shareholders. This means that the corporation itself, not the shareholders that own it, is held legally liable for the actions and debts the business incurs. Corporations are known to have double tax, first, when the company makes a profit, and then to the shareholder on their personal return when dividends are paid. The highest corporate income tax rate is currently at 35%. A sole proprietorship, LLC, or “S” Corporation is treated as a pass-through entity for tax purposes.  In other words, a “C” Corporation would impose two taxes on corporate earnings: a corporate level tax and a shareholder tax on the dividends received.

In comparison, for a pass-through entity, such as an LLC, the profits bypass taxation at the corporate level and are distributed and taxed at the owner’s level.  For example, assuming a corporate and personal income tax rate of 25%, a C Corporation earning $100 would be subject to a tax of 25% ($25) at the corporate level and then the individual shareholder would be subject to a tax of $18.75 on the dividend received ($75 dividend multiplied by a 25% tax rate) for an overall tax of  $43.75. In the case of an LLC, there would be no corporate tax rate and the individual member would be required to pay just $25 in taxes ($100 of allocated profits multiplied by a tax rate of 25%).  Therefore, clearly the use of a C Corporation has been a big reason why many individuals have walked away from using a ROBS solution to buy a business with retirement funds and have instead opted for a taxable distribution.  However, that may all change in 2017 and beyond.

A reduction in the corporate tax rate to 15% as President-elect Trump has promised would certainly make C Corporations a more attractive form of doing business from a tax standpoint than before and should make the ROBS solution a far more attractive option for people looking to use retirement funds to buy a business in 2017 and beyond.

For more information about using your retirement funds to start a business, please contact us @ 8900.472.0646.

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Dec 02

Using Your Solo 401k to Invest in Foreign Currencies, also known as Forex Trading

The foreign exchange market, also known as Forex, allows someone to exchange currencies around the world. Currency trading is one of the safest investments since fluctuations in the price of currency are very small (less than one cent per day). You can open and close positions in hours or hold them for as long as you want. Trading is done electronically and the market is open 24 hours a day for five and a half days. It is also the largest market in the world, much bigger than the stock exchange.

A Solo 401(k) gives you the ability to invest in currencies at your leisure. Solo 401(k) plans from traditional financial institutions do not usually let you trade currencies. They push their products on you (typically stocks, bonds, mutual funds). However, with a Checkbook Control Self-Directed Solo 401(k) plan from IRA Financial Group, you are not limited in your investment options. You have the ability to use your retirement funds any way you see fit, such as Forex trading.

Using Your Solo 401k to Invest in Foreign Currencies, also known as Forex TradingA Solo 401(k) is perfect for sole proprietors, small businesses and independent contractors. With a “checkbook control” Solo 401(k) Plan you will never have to seek the consent of a custodian to make an investment or be subject to excessive custodian account fees based on account value and per transaction.

By having “checkbook control” over your retirement funds you will gain the following advantages:

“Checkbook Control”: You’ll no longer have to get each investment approved by the custodian of your account. Instead, all decisions are truly yours. To make an investment, simply write a check and use the funds straight from your Solo 401(k) Plan bank account.

When making a real estate investment or purchasing tax liens, a “checkbook control” Solo 401(k) Plan, will allow you as manager of the LLC the ability to simply write a check from your Solo 401(k) Plan bank account.

No Custodian Fees or Transaction Fees: The most significant cost benefit of the Solo 401(k) plan is that it does not require the participant to hire a bank or trust company to serve as trustee. In other words, there are no custodian fees or transaction fees when establishing a Solo 401(k) Plan with the IRA Financial Group. This flexibility allows the participant to serve in the trustee role. This means that all assets of the 401(k) trust are under the sole authority of the Solo 401k participant. A Solo 401(k) plan allows you to eliminate the expense and delays associated with an IRA custodian, enabling you to act quickly when the right investment opportunity presents itself.

Speed: You can act quickly on a great investment opportunity. When you find an investment that you want to make with your retirement funds, simply write a check or wire the funds straight from your Solo 401(k) Plan bank account to make the investment. The Solo 401(k) Plan allows you to eliminate the delays associated with using an IRA custodian, enabling you to act quickly when the right investment opportunity presents itself.

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

Cost Effective Administration: In general, the solo 401(k) 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).

IRA Financial Group does not advise you on investments you should or should not make. We do, however, give you the freedom to invest in what YOU want to invest in. For a thorough tutorial about Forex trading, check out this article on Investopedia to see if it’s right for you.

If you have any questions about the Solo 401(k) plan or how it works, please contact one of our 401(k) Experts @ 800.472.0646.

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