Real Estate Broker · Hartsville, SC · Member since 2015 · 174 posts · 69 votes
After researching different retirement accounts, I've decided that a self directed solo 401k plan is a good fit for me. I have self employment income and no w2 employees. When I search for how to start an account, I get all sorts of information about how great they are... I got that already! Lol. How do I ACTUALLY set one up?
A provider will create the legal framework and put you in control of the plan. The plan is a trust, you will be the trustee, and you will operate the plan out of a bank account at the financial institution of your choosing. It is fully self-directed.
If the plan is setup before December 31st, you may make 2015 contributions to the plan. Whether you could max out with $18K on the Roth portion would depend on your situation and income and would be a matter to discuss with your tax advisor relative to your business tax filing. It is likely if you have decent income in your business.
Investor · Charlotte, MI · Member since 2016 · 37 posts · 21 votes
9y
Fantastic Thread! Thanks to everyone who chipped in! I'm in the process of wrapping up employment with my current organization and becoming the sole employee of a 501c3 as executive director. I also have my llc for rei. Can I set up a 403b for the 501c3, and a solo k for my llc, dump my old 457 between them, and take out a combined loan of $100k to invest? I would dump over the $200k in each to meet the 50 percent rule. And I have no other loans. Separately, what should I look for in a solo k provider to ensure they are legitimate and will be around? Finally, can I charge myself any custodial fees on the solo k?
Real Estate Investor · Tempe, AZ · Member since 2012 · 874 posts · 648 votes
9y
@Michael Lee seems kind of weird that you would mention both the fact that no one has said "where to set up the account" in the same post where you warn that "posters are trying to make money off of you."
The fact that all of these providers gave such freely of their time and advice without once directly soliciting the original poster is both admirable and very typical of how they contribute on all similar threads.
Fantastic Thread! Thanks to everyone who chipped in! I'm in the process of wrapping up employment with my current organization and becoming the sole employee of a 501c3 as executive director. I also have my llc for rei. Can I set up a 403b for the 501c3, and a solo k for my llc, dump my old 457 between them, and take out a combined loan of $100k to invest? I would dump over the $200k in each to meet the 50 percent rule. And I have no other loans. Separately, what should I look for in a solo k provider to ensure they are legitimate and will be around? Finally, can I charge myself any custodial fees on the solo k?
William, I will refrain from commenting on 403b as this is not my area of expertise but would be glad to make some comments about Solo 401k. First, you have to define what you mean by "LLC for REI". If you mean that you have LLC to buy and hold rentals - it won't work. You need legitimate business with earned income to qualify for a Solo 401k plan. Income from rentals is considered passive therefore it won't work. If you have an LLC that you use for active REI business such as flipping or wholesaling - that is a different story, such income is considered earned and it subject to self-employment taxes, such LLC will be able to adopt a Solo 401k plan.
So if you are eligible for a Solo 401k plan then you can take a personal loan from it, which is limited to $50K or 50% of the balance, whichever is less.
Just like with any other service providers I would look to see what other clients are saying about their experience, you want to work with reputable firm who will provide you with the quality service, when you need the help.
I'm not sure if your last question makes sense... You can not charge yourself custodian fees. With truly self-directed Solo 401k plan there is no custodian... And why would you charge yourself custodian fees?? If you can elaborate on where you are coming from perhaps I can give you more detailed answer.
I'll add that you'll be limited to $50k for a participant loan even if you have more than $100k in plan assets. You cannot charge any sort of management or custodial fees to your 401k because of the prohibited transaction rules. As a disqualified person, there are rules against you transacting with or benefiting from your 401k. There is an exemption to these rules for participant loans, given certain requirements are met. Among these requirements is adequate security which is why you hear about the 50% asset value limit for such loans.
... Only un-secured loans are allowed and require a larger down payment, typically. Things like that is why is did not open an account yet. I have seen several people try to get around the obstacles so they could get with that type of account. They always failed. Just in case you did not catch-it most of the people that are commenters are in that business and are hoping to make money off you. Beware of all the bad people are on the internet to take advantage of gullible people.
Michael, when buying invest real estate in a Solo 401k plan the loans are secured, by the property. It is called "non-recourse loan". Yes they do require larger down-payment because the risk for the lender is higher and the only recourse they have is the underlying asset (the property). Those loans are not difficult to obtain, in fact, I would say that they are easier to get comparing to conventional financing. The limitation is with the lenders, only select few nationwide lenders offer such financing to IRA and 401k holders, here is a list of such companies:
Also, many private lenders would do non-recourse loan and in many cases such loans can be closed in a matter of days.
I'm not sure I understand which obstacles you are talking about, I own a financed property in my retirement account (I used one of the lenders from the list above) so are many of my clients, if the property qualifies - getting such loan is easy.
I see that you have been part of BiggerPockets for quite some time and participated in forum discussions more than just a few times so I'm surprised by your comment about people trying to make money off other people. While there is truth that one must be careful with what he finds on the internet, BiggerPockets is not such a place for the most part (you should know that by now). Most of the participants in this forum discussion are well respected members who provide value to the community.
Wholesaler · Dallas, TX · Member since 2017 · 306 posts · 133 votes
9y
No one that works for a profitable company does not give any free time. They may not charge a fee but hopes they will come back and write them a check. They get paid when they are at work. Very few outside of a charitable job works for nothing.
Cranberry Twp, PA · Member since 2016 · 27 posts · 6 votes
9y
Check out "mysolo401k.net." They were very helpful in setting up a solo 401k for my LLC, which is within Fidelity Investments. I am responsible for the management of the funds. Any money loaned (wired from Fidelity to the borrower) must be put back (into the same Fidelity account) with the interest. I actually learned about them from BiggerPockets.
Realtor · PHX AZ · Member since 2017 · 47 posts · 20 votes
9y
Has anyone used the loan for principle residence and what could be the greatest repayment schedule? From the mysolo401k website: If a participant wants a repayment period longer than five years, plan administrators should obtain a sworn statement from the participant certifying that the loan is to be used to purchase the participants principal place of residence (a principal residence, has the same meaning as the term under IRC Sec. 121). As long as you are purchasing 4 less units, can this still be considered principle residence?
The IRS tends to be a bit vague here and just advise along the lines of "The law provides an exception to the 5-year requirement if the employee uses the loan to purchase a primary residence."
Many plan documents allow this to stretch to 10 or 15 years with some going longer. The greatest repayment schedule allowed is likely dependent on the going market allowance for similar loans. If the loan term is not reasonable given the other terms of the loan and relative to the market, problems could arise.