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.
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)?
In your example this would not be considered sole-proprietor, the LLC is just a holding entity. Yes, to qualify for Solo 401K you need legitimate self employment activity.
If you have self-employment activity in addition to your real estate holdings, you may still be eligible for a Solo 401k plan. Also, if you happen to have self-employment income from your real estate operations, this could work, though it sounds like your income may instead be passive. If you are not eligible for a Solo 401k, a self-directed may work well for you.
Rental Property Investor · NY · Member since 2019 · 46 posts · 10 votes
6y
This thread has been very informative. I am currently employed full time and have both a Traditional IRA and 401k. I do want to rollover funds from both the Traditional IRA and 401k into either a Self Directed IRA or solo 401k to invest part time in REI. I do have some questions if anyone can provide some insight:
What is considered to be part time self employment activity in order to qualify for a solo 401k?
What is considered earned income from my part time REI activity to qualify for a solo 401k? Would this be buy and flip profits? What else qualifies since to my understanding, I cannot use my current passive income on a rental property I own.
I have recently set up an LLC for my REI business with a partner. Can I invest into the LLC from a checkbook IRA (SDIRA) if the LLC has a partner?
Will I still need to be considered a passive investor if I invest funds into REI from a SDIRA even when I contribute these funds into an LLC that was formed under the checkbook IRA (SDIRA)?
Am I considered only a passive investor under a solo 401k?
Would really appreciate anyone's expert advice on this. Thank you in advance!
Flipping activity would qualify you for Solo 401k, but it must be ongoing. For more details refer to the link above.
No, you can not invest your retirement funds into the LLC that you personally own (with or without a partner), this would be considered prohibited transaction per IRS:
Regardless if you use an IRA or 401k - all investments you make with your retirement funds must be passive in order to avoid taxation.
It seems to me from the last two of your questions that you may not be fully understanding the concept. When investing using your IRA/401k it is not you that is investor, but your retirement account, which is a separate entity from you. You control but not the owner of the investments.
Since I am unable to invest retirements funds from a SDIRA or solo 401k into an LLC I personally own, how else would I be able to do so without any tax implications? Would there need to be a specific type of LLC or trust set up for this instance?
In all instances, all profits gained from a flip must be deposited back into the retirement plan to avoid tax implications?
I'm confused by the definition of passive investor when investing into a flip for instance. To my understanding, I cannot take part in any activities involving the flip such as rehabbing and so on if I'm investing from a solo 401k. Is this true?
Rental Property Investor · USA · Member since 2018 · 325 posts · 222 votes
6y
I’m in the process of starting operations in a new entity and there is no profit from 2019. I want to establish a solo 401k prior to filing taxes. Does a company need profits or can I fund the plan anyway?
It is too late to set up a Solo 401k plan for 2019, the deadline for 2019 was 12/31.
Profit is not required to establish the plan, but you must have legitimate business in place with the expectations of profit. Contributions to the plan can only be made from the net earnings.
Lender · Oklahoma City, OK · Member since 2017 · 138 posts · 130 votes
6y
@Carl Fischer I haven’t found that the case. I have spoken with several companies and have hit a brick wall. If you have any companies that you suggest I am all ears! Thanks!
It seems, when comparing, that Total Control Financial charges far heavier fees. Why is that? Isn't this just a solo 401 plan?
I'm wondering this as well. TCF mentioned setting up a Wyoming LLC other companies are mentioning a using a trust as the entity which the investments are made by. Wondering what the difference is.
It seems, when comparing, that Total Control Financial charges far heavier fees. Why is that? Isn't this just a solo 401 plan?
My understanding is that the eQRP plan that they are offering is not a solo 401k.
There are multiple type of Qualified Retirement Plans (QRP). The solo 401(k) is one of them. 401(k), 403(b), 457(b) are also QRP. Profit sharing plans are other types too. IRAs are not.
A solo 401(k) can only be used if your business has no other employee (the definition of employee having been extended recently with the SECURE act). A solo 401(k) also is not ERISA protected (no asset protection from creditors)
The QRP that this company offers, and markets under the name eQRP, let you have employees and is also ERISA compliant. So it is not a solo 401(k).
CPA delivering RE Tax Tools: 1031 Exchange, SDIRA, 401(k), Cost Seg · New York City, NY · Member since 2017 · 581 posts · 563 votes
6y
@jim hiler
There's lots of misinformation and misdirection on this subject, and the following should help you navigate:
All "Qualified Retirement Plans" ("QRPs") are trusts set up for the benefit of "employees."
A QRP can hold investments in its own name, much like any other trust.
A QRP can also hold assets indirectly through an LLC. This is analogous to a "Checkbook IRA" that uses an IRA-owned LLC to hold SDIRA assets.
Within an SDIRA, the only way "checkbook control" is achievable is through the use of an IRA-owned entity.
With QRPs, in contrast, "checkbook control" does not require the use of a QRP-owned entity to hold assets.
Notwithstanding, when correctly implemented, there are benefits to investing within a QRP-owned LLC.
TCF appears to take a "one-size fits all" approach by requiring that (a) every client establish an 401k-owned entity and (b) that entity be a Wyoming LLC or Colorado LLC.
A Wyoming LLC can, potentially, be a great thing - as part of comprehensive investment entity structuring. But without the proper structuring of your plan & particular investment, that Wyoming LLC can do more harm than good.
So, when you hear some talking about investing through a "QRP trust" or "retirement plan trust" - that's for investing through a plan directly. Talk of investing through a Wyoming LLC refers to QRP/401k investments done through a QRP/401k-owned LLC.
Both Solo 401k and EQRP (a registered trademark of Total Control Financial LLC) are "marketing terms" - but only one of them was created to convey specific and targeted info. Neither EQRP, nor Solo 401k, are a type of plan. With a bit of generalizing, the following should be helpful:
The ultimate difference between a full ERISA plan and "non-ERISA plan" are the nature of eligible plan participants. Are they only business owners and spouses? Or, do they include non-owner employees?
A Solo 401k plan is a 401k plan, is a 401k plan, is a 401k plan. Just that a 401k/QRP for an owner-only business is able to sidestep much of the complexity to which 401k plans are subject.
In other words "Solo 401k" does not describe the type of plan; it describes the type of business that adopts the 401k plan.
When you get a "Solo 401k," you're being given an honest description of the limits of the compliance support you'll be getting - adequate for businesses that don't have non-owner employees.
EQRP doesn't describe anything. It's just a trademark, not a type of plan described in the tax or labor code.
A 401k/QRP-plan is just a piece of paper. With the proper compliance awareness and support, it's a very powerful financial tool. Without the proper compliance awareness and support, it's a ticking bomb.
There's a limit to what can be put in a BP post, but if you'll be setting up a QRP/401k that will cover employees you must perform substantial due diligence - and it would be prudent to work with credentialed professionals that have a background in tax/401k compliance.
CPA delivering RE Tax Tools: 1031 Exchange, SDIRA, 401(k), Cost Seg · New York City, NY · Member since 2017 · 581 posts · 563 votes
6y
@Mike S. Worth noting that the impact of the SECURE Act on "Solo 401k plans" is being grossly misrepresented by a certain promoter (whose qualifications and experience do not include tax/401k compliance). As much of the other misinformation being disseminated, it's leading to ill-informed decisions by investors.
I've read through all of the previous discussions related to eQRPs and SDIRAs and I'm totally confused. I too am interested in rolling over my IRA into a eQRP with Total Control, but I'm not sure if I qualify as self employed. I own rental real estate, but otherwise work on a full time job.
Be very cautious about establishing a Solo 401(k) or any other type of employer sponsored retirement plan without speaking with your licensed tax advisor first. Such plans have qualification requirements today and for the long term. Operating a plan you do not qualify to sponsor can result in serious issues with the IRS.
Some providers aggressively try to push folks towards plans they do not necessarily belong in, because that is most profitable for them.
Rental property produces passive investment earnings and is not considered self-employment compensation necessary to establish and sponsor a qualified employer retirement plan.
Investor · Broward County, FL · Member since 2018 · 1k+ posts · 938 votes
6y
@Terry Lawson
One setup that may be used for real estate is to create a corporation that will manage your properties. This Corp will get a fee for the management.
That would be a way to convert some passive income to active income.
As active income does not have the same tax advantages as passive income you need to carefully weight the benefits that you can gain from a Corp (Many more deductions available, retirement plan contribution) versus the additional cost and taxes. It may also be beneficial in some situations with lenders who prefer to see W2 income than passive income.
Rental Property Investor · Member since 2019 · 18 posts · 9 votes
6y
In regards to the Solo 401k, How does this apply to some of us that are holding rentals, wholesailing, and doing flips all in the same S-Corp, and paying ourselves a small salary? In my example, I'm 100% owner, and the only employee of the company. (an actual S-corp, not an LLC being taxed as an S-corp).
Next, What if you're holding rentals in an LLC, but have another LLC thats doing the wholesail deals? Or what if you're selling things on Ebay regularly? Would This would be a source of active income from business activity?
What if one LLC has several employees, but the other has none? Can you still qualify for the Solo 401k?
And finally, on a Zoom meeting today as part of a nation-wide Asset-managment, week-long seminar, a "eQRP" provider mentioned being able to borrow $50k as a loan from the plan and pick your own interest rate. He only covered high-level bullet points (left out a lot of detail), but is that a normal part of a Solo 401k plan?
Any business can adopt a Solo 401k plan: S-corp, C-corp, LLC, LLC taxed as an S-corp, etc. It must be legitimate business with earned income, LLC with rentals would not be sufficient since rental income is passive.
If you have full time employees in any of the businesses that you own - you would be disqualified from setting up Solo 401k.
If the plan documents allow it - you can take a participant loan up to $50K or 50% of the balance, whichever is less.