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.
If you have a Roth IRA and wish to make leveraged investments, then the IRA will be creating Unrelated Debt-Financed Income and have the tax-cost that creates. There is no "workaround". The cost of UDFI is generally nominal, and should erase only a small fraction of the boost in return that the use of leverage creates.
So: Make an all cash purchase and receive 10% return or make a leveraged purchase, pay tax on UDFI, and make 13% return. Which is better? (Just throwing out numbers for the sake of concept.)
I agree with Brian. The Roth IRA cannot be transferred to other account types, unlike other IRAs. This means it must stay a Roth IRA and would be subject to UDFI on leveraged investments. Would the same investment be better in a Solo 401k if that meant it was not subject to UDFI? Sure. But since that is not an option for Roth IRA funds, you have to determine what investments will yield the best result for your account. That might be an investment that subjects the earnings to UDFI or it might not. You would just need to run some numbers for your potential investment opportunities.
Los Angeles · Member since 2018 · 16 posts · 2 votes
7y
@Justin Windham@Brian Eastman Thank you both for the input. Side note, I discovered that of my Roth IRA balance, I am able to pull out the original contribution amounts tax free. To my understanding, it would just be the gains earned since those contributions which are subject to taxes. Curious, if I make an early distribution of those gains, they would be subject to the 10% penalty...now is that in addition to my current income tax bracket or would it be capital gains?
If you take a non-qualified distribution from your Roth IRA (you are not yet 59.5 and/or have not had the account for at least 5 years), then any earnings would generally be subject to the early distribution penalty and income taxes based on your tax bracket.
New Braunfels, TX · Member since 2018 · 9 posts · 3 votes
7y
Hi Dusty. I live nearby in New Braunfels, TX and am interested in TotalControlFinancial.
How long ago did you set up through them and what was your initial cost to set up? If you don't mind sharing. I realize the cost may fluctuate as time goes by. Patrick
My parents live in Spring Branch, just west of you. I recently worked with someone who lives in New Braunfels. I'd recommend contacting a few providers since pricing and service can vary widely.
New Braunfels, TX · Member since 2018 · 9 posts · 3 votes
7y
Thanks Justin for hoping in to comment. Small world. I would love to visit with who you set up in NB to see if we are in alignment and may want to collaborate on new projects. I will also check into your provider service. Thanks again.
San Diego, CA · Member since 2017 · 105 posts · 55 votes
7y
@Bernard Reisz To clarify on your comment regarding rental property ownership and income not qualifying for a Solo 401k, is this the case even if you qualify for "material participation" in your properties? Below is a link that describes passive vs active vs material participation. Although it does state towards the top that rental activities, even if there's material participation, are still classified as passive. Somewhat confusing. So would you essentially need a Property Management-type entity or activity to be able to qualify for a Solo 401k if you're a rental property owner? Would traditional "self management" tend to not qualify?
San Diego, CA · Member since 2017 · 105 posts · 55 votes
7y
To add to this further, would self-employment in terms of qualifying for a Solo 401k be determined by paying self-employment taxes and filing estimated taxes quarterly? I know rental real estate investors have exemptions in this regard, so it still remains unclear to me.
CPA delivering RE Tax Tools: 1031 Exchange, SDIRA, 401(k), Cost Seg · New York City, NY · Member since 2017 · 581 posts · 563 votes
7y
@Keith Meyer The subject you appear to be referencing in the link is Passive Activity Loss Limitations under Sec. 469 of the IRC. The subsequent item you reference is "self-employment income" for purposes of self employment tax under Sec. 1402. 401k has its own definitions and regulations, which are related to - but independent of - those referenced.
Technically, a trade or business can qualify for 401k sponsorship even if it produces income of type that does not generate self-employment tax liability. Nevertheless, in practice, self-employment tax liability remains a fair indicator.
San Diego, CA · Member since 2017 · 105 posts · 55 votes
7y
@Bernard Reisz So in your experience would Schedule E rental income qualify someone for a Solo 401k? Or would it have to be something like Schedule C property management income?
Investor · Detroit, MI · Member since 2016 · 211 posts · 144 votes
6y
"real estate rental income will not qualify one for adopting a Solo 401k Plan",
You will be providing the service of maintaining property in good condition, doing repairs etc., for the purpose of generating income. If you set up and LLC and you are the employee, the LLC is a pass through and you are considered self employed. Most real estate investors will qualify as self employed.
I have a question, I am a self employed - with no full-time employees and have been doing SEP IRA for a while -(5-6- years)R
Recently, I decided to start investing in the real estate using my SEP IRA. My first syndication investment does not have any equity, only returns and I used a Self IRA custodian to do the deal, so no UBIT should be there.
I am interesting in investing more to different syndication in the future but want to have an equity, so my question is would it be better to set up a Solo 401 and do a roll-over from SEP IRA? My understanding I cannot have both at the same time, is it correct? Or can I have both, but cannot contribute into both in the same year? I do want to keep some money in Vanguard funds.
Is e)QRP the same thing as Solo 401 or not? Looks like there are some differences.
You could have both, and potentially split contributions, but it doesn't make any sense to me. Why would you have to maintain two plans if you can accomplish a lot more with one Solo 401k plan???
You could have both, and potentially split contributions, but it doesn't make any sense to me. Why would you have to maintain two plans if you can accomplish a lot more with one Solo 401k plan???
Sorry, I meant Solo 401K and SEP IRA. Let me read your article, I just started looking into Solo 401 so need to get more educated here :)
There are some key differences between a SEP IRA and a Solo 401k. For example, the SEP IRA does not allow for an employee deferral contribution. This results in a lot of people being able to contribute quite a bit more to a Solo 401k than they can to a SEP IRA. The Solo 401k also allows for participant loans. For this and other reasons, many people make the transition from a SEP IRA to the Solo 401k if they are eligible to do so.
Here are some additional considerations in comparing a Solo 401k vs SEP IRA:
Solo 401k vs Self-directed IRA:
A Solo 401k has several advantages as compared to a Self-Directed IRA including the following which specifically apply to your situation:
Unlike a Self-directed IRA, you can have the account for the Solo 401k at a bank or brokerage that does not charge maintenance fees and where you will have checkbook control.
Unlike a Self-directed IRA, if you use leverage (which must be non-recourse financing in either case) to acquire real estate with your Solo 401k the income will not be subject to Unrelated Debt Finance Income tax
Unlike an IRA, you can take a 401k loan from a Solo 401k.
I read all the posts so far, heard a few podcasts in the subject and I’m still confused. Have a few questions here and hope someone can give me clarity
I think some confusion is because there are more than one terminology
Terms I hear are self directed IRA, checkbook IRA, solo IRA, sep IRA, solo 401k, eQRP (which seems to be the same as solo 401k while setting up in a trust to give liability protection). What's the proper terminology for each product? What's the same term?
Aren't IRA and employer 401k already protected from creditors? What's not Liability protected that warrants setting up in a trust?
I currently have current employer 401k, roth IRA, backdoor roth. My wife has current employer 401k, plus a 1099 job that I'm trying to set up as solo 401k because I like the 55k max. Also I heard I can do this as roth. Please PM me someone can help!
Rental Property Investor · Ambler, PA · Member since 2015 · 2k+ posts · 1k+ votes
6y
@Rodney Miller we have many clients that have group 401ks that self direct. It is fairly easy for business owners to modify their plans to allow it. Talk to plan administrators.
I read all the posts so far, heard a few podcasts in the subject and I’m still confused. Have a few questions here and hope someone can give me clarity
I think some confusion is because there are more than one terminology
Terms I hear are self directed IRA, checkbook IRA, solo IRA, sep IRA, solo 401k, eQRP (which seems to be the same as solo 401k while setting up in a trust to give liability protection). What's the proper terminology for each product? What's the same term?
Aren't IRA and employer 401k already protected from creditors? What's not Liability protected that warrants setting up in a trust?
I currently have current employer 401k, roth IRA, backdoor roth. My wife has current employer 401k, plus a 1099 job that I'm trying to set up as solo 401k because I like the 55k max. Also I heard I can do this as roth. Please PM me someone can help!
Happy to help you sort this out!
Self-directed IRA - an IRA with custodian allowing alternative investments. Any IRA can be set up as self-directed: Traditional, SEP, Roth.
Checkbook IRA - essentially it is also a self-directed IRA on steroids. You still need IRA account with custodian allowing alternative investments, but since this structure requires you to go through this custodian for each investment and investment related transactions some investors find it inconvenient and costly. A special purpose LLC is set up, IRA owns the LLC, account owner is designated as LLC manager. IRA invests into the LLC, funds are transferred into LLC's checking account, giving you "checkbook control". You no longer have to go through a middle man and can make investments as easy as writing a check.
Solo 401k - this plan designed for those who are self-employed or own a small business without full time employees other than owners. This plan does not require a custodian, plan assets are held in a trust, you are designed as the trustee and therefore have full and direct control over the investments. It has some significant benefits over SD IRA such as lower cost to maintain, checkbook control, contribution limit is nearly 10X higher, exempt from tax on UDFI, designated Roth sub-account, and more. When you hear term QRP or eQRP, that is referring to Solo 401k.
Edmond, OK · Member since 2012 · 456 posts · 270 votes
6y
So, I take it that a sole-proprietor LLC used to own title to and operate real estate, where no self-employment salary is taken, is not eligible for a Solo 401(k)?