Tega Cay, SC · Member since 2014 · 213 posts · 74 votes
Has anyone done an eQRP? I am looking into the company Total Control Financial, but wanted to see if anyone has setup up one with the company before. Seems like it may be better control of your money then SDIRA and less fees. If anyone has setup a eQRP please let me know any Pro's or Con's.
There is no such thing as that type of account. That appears to be a marketing term.
However, there is such a thing as a self-directed solo 401k plan which is very popular for those who are self employed.
Following are the similarities and differences between the solo 401k and the self-directed IRA.
The Self-Directed IRA and Solo 401k Similarities
Both were created by congress for individuals to save for retirement;
Both may be invested in alternative investments such as real estate, precious metals tax liens, promissory notes, private company shares, and stocks and mutual funds, to name a few;
Both allow for Roth contributions;
Both are subject to prohibited transaction rules;
Both are subject to federal taxes at time of distribution;
Both allow for checkbook control for placing alternative investments;
Both may be invested in annuities;
Both are protected from creditors;
Both allow for nondeductible contributions;
Both are prohibited from investing in assets listed under I.R.C. 408(m); and
Neither may be invested in your own business.
The Self-Directed IRA and Solo 401k Differences
In order to open a solo 401k, self-employment, whether on a part-time or full-time basis, is required;
To open a self-directed IRA, self-employment income is not required;
In order to gain IRA checkbook control over the self-directed IRA funds, a limited liability company (IRA LLC) must be utilized;
The solo 401k allows for checkbook control from the onset;
The solo 401k allows for personal loan known as a solo 401k loan;
It is prohibited to borrow from your IRA;
The Solo 401k may be invested in life insurance;
The self-directed IRA may not be invested in life insurance;
The solo 401k allow for high contribution amounts (for 2016, the solo 401k contribution limit is $53,000, whereas the self-directed IRA contribution limit is $5,500);
The solo 401k business owner can serve as trustee of the solo 401k;
The self-directed IRA participant/owner may not serve as trustee or custodian of her IRA; instead, a trust company or bank institution is required;
When distributions commence from the solo 401k a mandatory 20% of federal taxes must be withheld from each distribution and submitted electronically to the IRS by the 15th of the month following the date of each distribution;
Rollovers and/or transfers from IRAs or qualified plans (e.g., former employer 401k) to a solo 401k are not reported on Form 5498, but rather on Form 5500-EZ, but only if the air market value of the solo 401k exceeds $250K as of the end of the plan year (generally 12/31);
When funds are rolled over or transferred from an IRA or 401k to a self-directed IRA, the amount deposited into the self-directed IRA is reported on Form 5498 by the receiving self-directed IRA custodian by May of the year following the rollover/transfer.
Rollovers (provided the 60 day rollover window is satisfied) from an IRA to a Solo 401k or self-directed IRA are reported on lines 15a and 15b of Form 1040;
Pre-tax IRA contributions on reported on line 32 of Form 1040;
Pre-tax solo 401k contributions are reported on line 28 of Form 1040;
Roth solo 401k funds are subject to RMDs;
A Roth 401k may be transferred to a Roth IRA (Note that from a planning perspective, it may be advantageous to transfer Roth Solo 401k funds to a Roth IRA before turning age 70 ½ in order to escape the Roth RMD requirement applicable to Roth 401k contributions including Roth Solo 401k contributions and earnings.);
Roth IRA funds are not subject to requirement minimum distributions (RMDs);
The fair market value (FMV) of assets held in a self-directed IRA is reported on form 5498;
The fair market value of assets held in a solo 401k are reported on Form 5500-EZ;
At termination, the solo 401k is required to file a final Form 5500-EZ and 1099-R; and
At termination, the self-directed IRA is only required to file a form 1099-R.
Welcome to Bigger Pockets! Many of our Solo 401k clients are self-employed on a part-time basis as sole proprietorships. No LLC is required and there is not a specific verification process. Your self-employment activity must be legitimate, however. I'd recommend talking with a few Solo 401k providers and looping in your CPA if you're unsure.
Investor · greater Boston and greater Tampa areas · Member since 2013 · 100 posts · 25 votes
7y
@Mark Nolan If you are self employed and open a solo 401k, does it make sense to transfer the money that is in a SDIRA to a solo 401k in terms of tax implication during distribution in the future? Thank you.
moving your SDIRA into Solo 401k would be beneficial for several reasons, but the tax impact on distributions would be the same: you have to pay ordinary income tax on distribution regardless if you pull it out from an IRA or 401k.
CPA delivering RE Tax Tools: 1031 Exchange, SDIRA, 401(k), Cost Seg · New York City, NY · Member since 2017 · 581 posts · 563 votes
7y
@Marina Wong There are multiple reasons why it is beneficial to rollover funds from am SDIRA to a Solo 401k or "QRP", especially if you're using the funds for real estate investment.
However, be aware that:
Roth IRAs can't be rolled over to Solo 401k
Roth Solo 401k has RMDs at age 70, unlike Roth IRAs
If you're wondering RMD stands for "Required Minimum Distribution." For some tax-sheltered accounts, the IRS requires that the plan assets be distributed over time, beginning at age 70.
Most people with (non-Roth) self-directed IRAs would probably opt to transfer the assets to a Solo 401k, if eligible. Here are some of the reasons why:
Compared to an IRA, Solo 401k contribution limits are roughly ten times higher.
There is no custodial requirement for the 401k.
You don't need the additional expense and administration of an LLC to have checkbook control.
There is a built in-Roth component whereas IRAs are either traditional or Roth, not both.
A spouse can also participate in the same Solo 401k plan.
The Solo 401k has additional tax benefits over an IRA when investing into real estate using leverage.
The penalties for prohibited transactions are less severe, though it's best not to utilize this benefit :)
Specialist · CHICAGO · Member since 2015 · 680 posts · 650 votes
7y
@Winter Jones Sorry I was away from the site for waaay too long. Look at all these brilliant people chiming on. I really like everyone on this post! Collab!
Real Estate Broker · Seattle, WA · Member since 2014 · 1k+ posts · 427 votes
7y
I recently saw them at the Fixated on Real Estate Big Bad *** Real Estate Expo. I told the rep that I have a solo 401k already and was told it's nothing different.
Lender · Oklahoma City, OK · Member since 2017 · 138 posts · 130 votes
7y
Someone mentioned earlier that UDFI taxes were not substantial. From my understanding, UDFI in an IRA is a 35% tax on the debt-financed amount of the investment. So if you invested in syndication with 80% leverage and your profit is $100k you would be taxed $100k x .80 = $80,000 x 35= $28,000. That's substantial!
The leveraged portion of gross income is considered UDFI and therefore taxable. In this case, 80% of gross income on an 80% leveraged deal.
You then apply same debt-financing ratio to allowable expenses such as interest, depreciation, etc. There is also a $1,000 exemption against UDFI. That will pretty significantly reduce the net taxable income amount.
The net taxable income is then run through the trust tax table, which actually tops out at 37%, but on a graduated scale.
Your vague "profit" number makes it impossible to provide an accurate representation in this scenario, but I suspect the net taxable amount would be considerably less than how you are evaluating this.
If you can choose the investment that will most likely provide the best returns for your retirement account and avoid UDFI tax, that would be ideal. Sometimes a Solo 401k can help with this compared to an IRA. In other instances, an investment that generates UDFI may still the best one you can make for your account. I wouldn't say that UDFI taxes are not significant, because they could be if UDFI is substantial. For most SDIRA or 401k investments, UDFI is unlikely to be as substantial as in your example. You would want to compare the returns your retirement account would receive on that investment with other options that may be available.
Very confusing. That's the way it was explained on another Solo 401k advisors webinar. I didn't think my numbers were vague. So if I receive a K1 showing $100k in profit after depreciation and take out the $1,000. exemption there is no way to estimate a ballpark figure for UBIT? My CPA can't even help me with this stuff LOL!
It would be nice to take an apartment syndication deal to your CPA or Tax professional. Give him your estimated profit based on the proforma presented, and get some idea of what the tax implications might be. But no one can seem to do that. Thanks for the information though. I'm gonna keep drilling down.
Thanks, Justin! Unfortunately, I have employees and can't do the Solo401k. I have looked for ways to self direct my group 401k but doesn't seem to be an option.
This is a pretty specialized area. There are very few "self-directed IRA" specialist CPA's out there. However, UDFI also applies to any tax-exempt entity, so if you can find a CPA who works with non-profits, they will have the necessary expertise to handle this.
Depreciation is not the only offset to income, but if you assume you have a net taxable income amount of $100K on an 80% financed deal, then yes there would be a pretty hefty tax bill on that net income of just under $28K. You then look at what a $72K post-tax net return is relative to the initial amount of capital deployed and determine if that is a good enough return to justify the investment.
Very confusing. That's the way it was explained on another Solo 401k advisors webinar. I didn't think my numbers were vague. So if I receive a K1 showing $100k in profit after depreciation and take out the $1,000. exemption there is no way to estimate a ballpark figure for UBIT? My CPA can't even help me with this stuff LOL!
It would be nice to take an apartment syndication deal to your CPA or Tax professional. Give him your estimated profit based on the proforma presented, and get some idea of what the tax implications might be. But no one can seem to do that. Thanks for the information though. I'm gonna keep drilling down.
As a CPA, is that something you could help with too?
Trying to avoid self promo here in the forums. I'll just state that there are many CPAs who could do this and I named two who I'm confident could help.
As someone who is currently researching the QRP from TCF.
According to this video there is more to the (e)QRP that TotalControl when compared to a Solo 401k. Differences include liability protection based on how they build their eQRP's for their customers as well as # of employees they can hire.