Investor · Pleasanton, CA · Member since 2015 · 28 posts · 11 votes
Has anyone invested in a syndication investing in an ongoing business, not real estate, using their SD Solo 401K & what was the UBIT impact on the returns? Any other factors to consider to minimize the UBIT impact? Thanks
Since UBIT is generally assessed at trust tax rates for these investments, the tax schedule ramps up pretty quickly. By $12,400 in income, the tax rate is 39.6%. Compare that to the tax schedule for an individual which doesn't reach 39.6% until over $400k in income, and you can see how fast the schedule advances for UBIT. The effect is potentially quite significant, but that doesn't mean that the proposed investment is not the best one you can make for your plan despite the taxes. It's just something to consider when making your decision. As George mentioned, there may be other ways to structure this or similar investments that will not trigger UBIT.
Has anyone invested in a syndication investing in an ongoing business, not real estate, using their SD Solo 401K & what was the UBIT impact on the returns? Any other factors to consider to minimize the UBIT impact? Thanks
You heard from the solicitors of SDIRAs and Solo 401ks. As an accountant I'm going to talk about the actual impact financially and what you can do to minimize it. There is not much you can to do minimize it as a partner in the business. You are going to pay UBIT on the financed percentage or the ordinary income of the business. I would avoid that type of investment for an IRA or solo 401k. The tax bill is harsh.
Investor · Pleasanton, CA · Member since 2015 · 28 posts · 11 votes
9y
After checking further, syndications typically don't seem to want to use promissory notes, since they are looking for equity partners not lenders. I agree with what folks have said, that UBIT is not necessarily a bad thing, but you definitely want to take that into acct while analyzing the deal to make sure that after-tax returns are still what you are looking for.
Agreed. Although I do consider UBIT "bad" in that having to pay it is worse than not having to pay it, it all comes down to the analysis and total return compared to any other available investments for your money.