The Best Retirement Plan

46 Replies

IRA/401k plans as they relate to self direction/self administered has been a hot topic lately and as such, I would like to attempt to get a consensus on experienced investors' perspectives to the following question:

What is the best qualified plan for us RE investors who have or want to have some type of self directed retirement plan?

Traditional or Roth IRA? SEP IRA? 401k? Solo K plan? or ????

NOTE: Let's not debate which is better - ROTH or Traditional IRA.

-Will Barnard

Medium be logoWill Barnard, Barnard Enterprises, Inc. | http://www.barnardenterprises.com | Podcast Guest on Show #130

Will,

Excellent question. I personally do Roth 401k up to company's match and then I do Roth IRA. I don't think anyone should miss out on their employer's match, because that's free money!!

For instance, my employer matches 25% of my contribution up to 6% of my income. So if I am only putting 6% of my income into 401k, that's 25% ROI right off the bat. You can't beat that.

I will also say that IMO the most important thing is to use any of these investment plans, doesn't matter which one. It's more important to save your money through any one of these plans than not to not save because you don't understand each one of these plans in great details. The main objective of all of these plans is to get people to start savings.

PS: Besides Roth IRA/401k, my most important retirement plan is my RE investments.

Medium logoSharad M., reSimpli | [email protected] | 619‑786‑3482 | http://reSimpli.com | Podcast Guest on Show #155

This is true Jon, which Is why I noted to eliminate any debate between Roth or other as some may not qualify for ROTH due to income, I am one of them so it is out of the question for me.

I too agree that a solo 401k plan is the best option due to ease of self administration, low costs, checkbook control, higher contribution limits, and borrowing provisions.

Anybody else have opinions to offer?
How about your favorite companies to use for these plans?

Medium be logoWill Barnard, Barnard Enterprises, Inc. | http://www.barnardenterprises.com | Podcast Guest on Show #130

Max, thanks for your comments. I agree that if you are employed by a company who offers company matched contributions up to certain limits, any employee would be a fool not to take advantage of it.

However, in this thread, I was referring to us self-employed people only, sorry if I did not make that clear.

@Jon - I use ETC too, but only have the IRA. I have been meaning to open a solok plan for a year now, but procrastination and busy schedule have gotten the better of me.
I am now committed to rolling over to a 401k plan soon!

Medium be logoWill Barnard, Barnard Enterprises, Inc. | http://www.barnardenterprises.com | Podcast Guest on Show #130

What pushed me over the edge to start my Solo 401K is that I could borrow $50K from it towards buying my personal residence. Another benefit that I saw you just noted on different thread.

great topic here will..i've been meaning to start a topic like this....as more and more post on these IRA's, i've been thinking i should set one up for myself...look forward to hearing yall's input

Bryan A., Carolinas Revitalization, LLC | [email protected] | 704‑905‑6510 | http://www.facebook.com/carolinasrevitalization

First, let’s agree that any plan which allows you to invest tax free for a really long time, is a good plan. The rest comes down to personal need and nuance. It goes without saying that there are many ways to invest in real estate and your plan should fit your needs. Here’s the order, from simplest to most complicated (also simple, as you’ll see), in my opinion.

IRA’s let anyone with earned income invest before-tax income for tax free growth. If you pay the tax in advance, you can invest the after-tax income into a Roth IRA and enjoy the same tax free growth as well. The difference is Roth withdrawals are tax free.

Any business that has a payroll can open a 401k (traditional or Roth). It doesn’t have to be a corporation or LLC. Sole proprietorship's pay payroll and they can open a 401k.

Depending on your age, IRA contributions are currently limited to $6000 per year. Your 401k contributions are limited to $49000 on a relatively high percent of your income so 401k benefits are enormous.

You or your company can open an IRA or 401k, respectively, thru a company like Fidelity Investments or Schwab. Here, you have to invest in their products, which are pretty much limited to stocks, bonds, and mutual funds.

You or your company can also open a self-directed IRA or 401k thru companies like Pensco or Entrust and they will let you invest in almost anything except collectables and insurance and a few others. (I’m not trying to over-simplify, there are many rules you have to comply with behind these investments.) In this case your custodian will write the checks on your behalf. One benefit is that they will vet your investment and prevent you from making an overtly obvious prohibited investment, such as buying a home for yourself with your retirement funds. One detriment is that it can take weeks for them to draw the check. If you’re investing in time sensitive investments, such as hard money lending on REO’s, or paying hungry contractors, this won’t necessarily work. It can be perfect for investing in RE partnerships, syndications, and JV’s.

The next level is a self-directed plan (IRA or 401k) with checkbook access. Here Pensco, for example, will invest your retirement money into an LLC that you manage. The same investing rules apply except you write the checks yourself. You have the benefit of timely control and can write checks or wire money immediately. As a lender to flippers who sometimes call with deals that must be funded tomorrow (I’m not kidding) this can be very handy. The drawback is that an LLC can be expensive, especially in California, and it has to file a tax return. Custodians like Pensco make a lot of money with junk fees so choose your custodian carefully.

Next, and the ultimate plan in my opinion, is a self-directed 401k where you are the trustee. In effect, you become Pensco. Many companies (not Entrust or Pensco) will help you set the plan up. Google self-directed 401k and you’ll hit many. What you pay for is a dishearteningly simple 3-ring binder containing “The Plan.� That’s it. Really. You then open a separate checking account and transfer everyone’s retirement money into one account. There is no LLC. It’s you and your company and you must scrupulously keep track of the retirement roll-overs and contributions from each participant. One drawback is your SD-401k has to file a form 5500 tax return and there are annual fees for paperwork your administrator will likely provide to keep your plan current. One benefit is there are no junk fees. You now have checkbook access over an account that will accept both traditional IRA and Roth rollovers from all employees (my wife and I in this case), can contribute up to $49k tax deferred (or tax free in the case of Roth contributions) for each, and you have immediate control of all funds.

Sorry for the long post but I hope this helps a bit.

Jeff

Jeff, fantastic insight into the variety of options and how you can do it. Much appreciated, I am sure many who are unaware of such options can learn from your post.

For this thread, I was trying to gear more towards which company offers the best 401k options for self direction/self administered as well as who likes IRA or 401k options better.

I think it is crystal clear that the 401k is the better option vs. the IRA and the tow major reasons are ability to contribute more each year and borrowing provisions.

Medium be logoWill Barnard, Barnard Enterprises, Inc. | http://www.barnardenterprises.com | Podcast Guest on Show #130

Coincidently, for those in southern California, David Coe of Freedom Growth will discuss self-directed IRA’s at Matt Owens' real estate meeting in Long Beach this Thursday, March 24, at 6:30. Here’s a link.

I post this because I’m sure the conversation will go well beyond self-directed IRA’s. David is able to set up a self-directed 401k with you as the trustee. This is something you won’t find custodians such as Entrust or uDirect discussing at their presentations.

Jeff

(Also, I get nothing for this and Freedom Growth did not set up my plan.)

I agree that a self directed 401K is going to be the better option for self employed individuals. I will be following this topic though for ideas of who might be the best providers for this type of investment.

So far, for self administered 401k's, I have yet to find a better option than the suggested Sun West Trust. Anybody else know of an option they are pleased with?

@Jeff, thanks for posting the link to Matt's meeting. He is a great guy and a saavy investor.

Medium be logoWill Barnard, Barnard Enterprises, Inc. | http://www.barnardenterprises.com | Podcast Guest on Show #130

Here’s a tip, talk to your CPA. There are a handful of firms who wholesale the retirement plans that administrators such as Pensco, Sunwest, and Guidant use. The value these administrators add is that they work with the public, understand their plans, and can customize them for you – a not so insignificant service if you’ve ever read one. Then, they repackage the documents in fancy binders with colorful tabs using their logo and charge a bundle. You don’t necessarily need the bell and whistles.

If your CPA has a staff, he likely offers a retirement plan to his employees and it’s probably something versatile. In fact, it’s possible he bought his plan from the same company Guidant bought theirs. (Or, perhaps Guidant writes and wholesales their plans. I just don’t know.) If your CPA offers retirement plan advice, as many do, it’s likely he can provide a customized retirement plan to you at a cost that avoids the overhead the big boys above must recoup.

I know my CPA looks at this as just another service he offers in addition to the tax, payroll, and general accounting advice he provides to me over the year. It’s not his only profit center, as it is for some of those I noted above, so the cost is substantially less. Plus, the greatest benefit is that he knows my entire personal finance and business profile and can provide a uniquely customized package. In this case, it’s the same plan he uses at his firm, and that comforts me.

Jeff

I would use my plan to invest in RE in several aspects using my solo 401k plan I set up. Since I am already knowledgable and experienced in such investments, I don't need any custom tailored plan so using the one from Sun West makes sense to me.

I also agree with Jeff that purchasing such plans from others who simply use the same one, add their colorful logos, etc and mark it up 10 fold or charge annual fees is silly to pay for.

Medium be logoWill Barnard, Barnard Enterprises, Inc. | http://www.barnardenterprises.com | Podcast Guest on Show #130

For the Solo-401k, you have to be self-employed, right? It doesn't work if you have a multi-member LLC, does it?

Originally posted by Will Barnard:
I would use my plan to invest in RE in several aspects using my solo 401k plan I set up. Since I am already knowledgable and experienced in such investments, I don't need any custom tailored plan so using the one from Sun West makes sense to me.

I think you missed my point. I don’t know the type of plan you have from Sunwest, or if you’re the trustee or not, but it doesn’t matter; all 401k plans require some form of customization. These include when employees can begin contributing, employee vesting, the types of outside plans from which it will accept a rollover, payment options for the retirees, and so on, and so on. Many of the options, not these, are extremely technical and they really do require professional advice. I'm sure your options are much different than mine.

None of this has anything to do with real estate. In fact, allowable investments are not mentioned at all in my plan, though obviously they’re specified under the law.

Of course, I am glad you’re happy with your plan.


Originally posted by Mike G.:
For the Solo-401k, you have to be self-employed, right? It doesn't work if you have a multi-member LLC, does it?

The key Mike, is that your entity consists of you and your wife only and it must provide you with a payroll from which it can deduct your contributions. The entity can be anything as simple as a sole-proprietorship to a complicated LLC or S- or C-corporation.

If you have, or plan to hire, even part time employees, or there are other members in your LLC, then 401k's rules can get complicated but they’re still worth considering for the immense tax benefits.

Jeff

Originally posted by Jeff S:
I think you missed my point. I don’t know the type of plan you have from Sunwest, or if you’re the trustee or not, but it doesn’t matter; all 401k plans require some form of customization. These include when employees can begin contributing, employee vesting, the types of outside plans from which it will accept a rollover, payment options for the retirees, and so on, and so on. Many of the options, not these, are extremely technical and they really do require professional advice. I'm sure your options are much different than mine.
I am pretty sure I did understand you correctly, perhaps you are missing where I am coming from. I have yet to set up a 401k plan, hence my creation of this thread to get others opinions on which companies were the best to use and confirm that the consensus was that 401k options are better than IRA options.

Since a solo401k plan I would intend to set up would not allow for employees, your mention of the following is not needed as there are no employees ,etc.
"401k plans require some form of customization. These include when employees can begin contributing, employee vesting, the types of outside plans from which it will accept a rollover, payment options for the retirees, and so on"

At Sun West, you can be your own trustee or you can pay them for such services if you choose. What the plan does give you is checkbook access (once you open your bank account with the EIN for the trust).

Again, I would like to get back on topic as to who has references or experiences with companies who provide set-ups for self-administered 401k plans and your thoughts on the ease or difficulty in transfering or roling over from other qualified plan providers.

Medium be logoWill Barnard, Barnard Enterprises, Inc. | http://www.barnardenterprises.com | Podcast Guest on Show #130

For future readers of this thread I wanted to let everyone know I beat this to bloody death for weeks to find out that Sunwest Trust and Naber's i401k are pretty much the best options. If anyone has found better options I would love to hear about them.

Sunwest Trust offers a "plan revision" every so often to keep it in compliance with new laws. The fee for this was $200/revision on the form I saw.

Naber's doesn't charge for revisions, but you have to pay a $29/month maintenance fee.

Sunwest Trust's plan is cheaper than Naber's plan. I think the price points are something like $500 versus $2500. I personally chose Naber's plan because you get support if you need it and I found Sunwest to be very unresponsive to inquiries about the product. There was one guy in the whole office that knew anything about it and if he is busy you are SOL. That didn't really signal a good working relationship to me.

Medium realstarter2Bryan Hancock MBA, RealStarter | [email protected] | (512) 827‑9638 | https://www.realstarter.co/Home/BH

Originally posted by Bryan Hancock:
For future readers of this thread I wanted to let everyone know I beat this to bloody death for weeks to find out that Sunwest Trust and Naber's i401k are pretty much the best options. If anyone has found better options I would love to hear about them.

don't know if they're "better" or not Bryan, but this website sure is informational. hadn't even heard about the self-directed IRA LLC's where YOU have checkbook control...:-)
http://www.irafinancialgroup.com/

Our guy...I posted his contact info if that's OK.

401(k)solo
Checkbook control @ your own local bank.
No custodian or third party control...
You're on your own...fast closings & your responsible to avoid prohibited transactions.
Setup was about $1900 no annual fees.
If its a solo the SD-5500 is filed once holdings >$250,000.

Brian Eastman
Safeguard Financial

we have found him very knowledgeable vs many others we researched.

It has been a wealth building experience.

Originally posted by Bryan Hancock:
For future readers of this thread I wanted to let everyone know I beat this to bloody death for weeks to find out that Sunwest Trust and Naber's i401k are pretty much the best options. If anyone has found better options I would love to hear about them.

Sunwest Trust offers a "plan revision" every so often to keep it in compliance with new laws. The fee for this was $200/revision on the form I saw.

Naber's doesn't charge for revisions, but you have to pay a $29/month maintenance fee.

How often is this "revision" done? If it's more than every 7 months than Naber's would be cheaper.

If you open a Solo 401(k), I'm assuming you can roll over some money from a current 401(k) into this account?

I'm not sure what the benefit of keeping money in a 401(k) is as opposed to an IRA. This is one area that I have posted on before, but I still don't understand.

Dawn Anastasi, Core Properties, LLC | http://www.coreprop.biz | Podcast Guest on Show #29

Dawn A. If you have a full-time job and you have a 401k at that job, then no, you can't roll over the funds from your current full-time job 401k.

If you have any 401k rollover plans or if you left money at an old employer's 401k plan, then you can rollover those funds into the i401k. That is what I did with funds that I left at a former employer's 401k plan. I rolled those into my i401k.

The advantage of the i401k versus an SDIRA is that I can add a lot more money each year from my business versus the annual IRA limit on annual contributions. I can also borrow more from the i401k if I need it.

I have a full time job (I would love to free up the money in that 401k plan into my i401k) and I have two sub chapter S businesses. I opened an i401k with one of the businesses. You are allowed to contribute to both a regular 401k and i401k.

These were all good suggestions, but I do believe the best retirement plans are different for different folks & businesses particularly when it comes to income or size. One option that I didn't hear mentioned is for folks with 11 employees or more & paying more than $100K in corporate or personal income taxes by utilizing a TES (Tax Efficiency Strategy- Employer Benefit Plan) This is a financial structure that allows your business to operate on a pre-tax basis while creating a tax-free retirement plan. For more info you can contact www.oldsecuritytrust.com

Medium ppr no taglineDave Van Horn, PPR | 8773951290 | http://www.pprnoteco.com | PA Agent # RS161532A | Podcast Guest on Show #28