Beacon, NY · Member since 2013 · 41 posts · 6 votes
Looking to open a solo 401k under my current Home Improvement business which is a LLC. Need checkbook control and ability to take loans. Any recommendations from those that currently have the same.
Self Directed IRA & 401k Advisor · Wenatchee, WA · Member since 2014 · 2k+ posts · 2k+ votes
11y
Steven,
Not exactly a recommendation - or a very biased one anyway. My firm implements and supports the Solo 401(k), and have done so since 2005. All of our advisors are seasoned real estate investors, and of course all plan legal work is done by our tax attorney with more than 20 years experience in this field. In addition to plan setup, we provide ongoing expert guidance. Please feel free to contact me.
Although you can contribute to both 401k plans, each plan can only accept income earned from its respective adopting employer. W2 income still needs to go into the 401k at work and self-employment income would go into the Solo 401k.
Investor · Cincinnati, OH · Member since 2012 · 506 posts · 331 votes
9y
So I have a Solo 401(k) but haven't been able to find a bank located in Cincinnati that will open the Trust account needed to have checkbook control. Any recommendations? I've been to JP Morgan Chase, US Bank and Stock Yards.
Investor · Gilbert, AZ · Member since 2014 · 2 posts · 0 votes
9y
Thanks to everyone who has contributed to this discussion. I had a question on what income qualifies to put into a Solo 401k. I have a LLC that receives all my rental income (currently 1 property) and I don't touch that income (I own the property in my own name). Can I use the income I receive from my rental to contribute to my Solo 401k? I assume I would be limited to my gross taxable income received from the rental? Could I match that amount by buying shares in my LLC?
Rental income is passive investment earnings and does not qualify as self-employment income capable of sponsoring or contributing to a Solo 401(k) plan.
Investor · Gilbert, AZ · Member since 2014 · 2 posts · 0 votes
9y
Thanks @Brian Eastman I will have to partner in some fix and flips for some more active investments. I suppose note investing would also be considered passive.
Developer · New York, NY · Member since 2016 · 50 posts · 7 votes
9y
@Mark Nolan under whose name can the brokerage account to use checkbook control need to be in? Also, aside from earned income, can proceeds from a property sold be placed into a solo 401k?
if your question is regarding 401k plan then the account is opened in the 401k Trust's name. If the property is owned by the 401k all income and gains belong to the 401k. It is not a question of "can it go back to 401k?" - the proceeds must go back to the 401k.
The brokerage account would be opened in the name of the solo 401k and list your name as the trustee. We have had a lot of clients use Vanguard for this recently and it comes with a checkbook for investing in real estate. Other popular firms are Fidelity, Schwab and TD Ameritrade as they all issue checkbooks.
Lastly, all gains on solo 401k investments flow back to the solo 401k and they are not counted towards the annual contribution limit.
if your question is regarding 401k plan then the account is opened in the 401k Trust's name. If the property is owned by the 401k all income and gains belong to the 401k. It is not a question of "can it go back to 401k?" - the proceeds must go back to the 401k.
So that includes rental income as well right? From what I understand, it is supposed to go back into the solo 401k regardless of it being passive income.
Investor · Kingston, WA · Member since 2008 · 1k+ posts · 1k+ votes
9y
Adding to this thread, I'm in the process of preparing to get a Solo 401K set up for one of my businesses where I have earned income and am the sole member of the LLC with no employees, and have a few questions below from my findings.
Is my 'employee contribution' limited to match the 'employer' contribution or can I contribute the max $18K+catch up into the Roth component, while my 'employer' contribution is only, lets say $5K?
Do I need to set up separate bank accounts for each employer and employee contributions or are these pooled into one account and just tracked in my accounting software for reporting purposes?
Also, being >59-1/2, are there any min. waiting periods to take distributions from the K account? I thought I read somewhere that there is a 5 year waiting similar to my traditional Roth.
Employer and employee contributions are generally independent. You can contribute up to the employee maximum of $18K + catch up ($24K total) as Roth and/or tax-deferred as you choose.
The employer will do a profit sharing contribution of up to 25% of your wage compensation from the business.
Since you are considering Roth contributions, you will want separate bank accounts for the tax-deferred and Roth funds. Employer/employee do not need to be segregated but Roth/Trad do.
You will have the ability to take distributions at any time. Roth contributions are immediately available tax-free. Income from funds that have been converted from tax-deferred to Roth status is what requires 5-year seasoning.
Investor · Kingston, WA · Member since 2008 · 1k+ posts · 1k+ votes
9y
Got it, thanks for the prompt reply @Brian Eastman. One more question-- is there any requirement for the employer to make a contribution or can I just set up an account to hold my Roth contributions?
Both employer and employee contributions are elective and flexible from year to year.
The requirement is that you have a self-employment activity with the intent to make a profit and the potential to make new contributions. Whether, how, and how frequently you make contributions is not proscribed by the code.
It is a best practice to make some form of contributions on a regular basis to show the viability of the plan, so just setting up a SoloK for rollovers only is not a good idea.
Yes you can just make Roth 401k contributions. You are not required to make profit sharing contributions. To further clarify, Roth 401k designated contributions are only made up of employee contributions; however, if you are trying to sock away more Roth 401k funds, this can be done by making after-tax contributions to the solo 401k and then immediately converting them to the Roth 401k designated account.
The overall limit for 401(k) plans including solo 401k plans for 2017 is $54,000, or 100% of compensation, whichever is less.
Any transaction (including a loan) between your plan and a disqualified person is prohibited according to the rules. While not all family members are disqualified persons, a mother is. The disqualified persons list includes spouses, lineal ascendants (parents, grandparents, etc), lineal descendants (children, grandchildren), and spouses of lineal descendants.
You could take a participant loan from a Solo 401k and lend that money to a disqualified person without violating any rules. There could be several reasons not to do this however, and you would be limited to borrowing $50k from your plan.
CPA delivering RE Tax Tools: 1031 Exchange, SDIRA, 401(k), Cost Seg · New York City, NY · Member since 2017 · 581 posts · 563 votes
9y
@Bill Yozipovich Are you referring to a SEP-IRA or an index mutual fund that tracks the S&P 500? If referring to the latter, is the mutual fund an asset of a retirement account?
SEP-IRAs can be rolled-over to other IRAs. IRAs accept only cash contributions, not in-kind contributions of other assets.