The Best Retirement Plan

46 Replies

Originally posted by Jerry K.:
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.

Okay, but if one leaves their current job, can you split your current 401k into a self-directed 401k that you can borrow from, as well as an IRA? Or is it in one's best interest tax-wise when you roll over to go only one way?

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@Dawn A. you can definitely split your 401k into multiple entities including a Solo401k(make sure your company of choice allows loans) and a Self-Directed IRA at whatever percentages you wanted to do and leave some in your original 401k as well if you wanted diversity with an index fund for example.

Hello everyone, I am new to BiggerPockets. I joined specifically for the Solo 401k topic. I have spent the last month reading everything I can find on the subject. While the amount of information is vast there are still so many questions left unanswered. My biggest concern at the moment, tax right offs, for my individual return. I am a sole proprietor and I need the write offs. If I have a solo 401k purchase a property what happens to the write offs? I have a deal that I am closing in three weeks and I am afraid if I close in my name then that will preclude ever getting it into the 401, but on that I am not 100% sure. Great forum by the way really appreciate all the knowledge, kudos to you all!

@Jim Biggs what write offs are you asking about? I have self directed retirement plans and have researched a lot about them, however the below is in no way legal or tax advice so consult with a professional for your specific situation.

Your i401K and you are two separate taxable entities, as such anything bought in the i401K has no bearing on your tax situation. So if you are wondering about the depreciation deductions then no you will not be able to pass those onto your personal return if the i401K holds the property. This is one reason many (here and elsewhere) do not recommend holding RE in a retirement plan, instead they recommend holding RE backed investments like notes and tax liens ect.

Now if you mean you need the retirement plan contribution deduction then yes you would be able to claim that by contributing to your i401K. As far as if you were to close in your name, no you will never be able to place it into your i401K later. Once you or your i401K buy something, anything really, you can never buy or sell to a disqualified person. So if you want to invest in something make sure you are buying it where you want it because you can't just close it in and out of retirement plans.

412i, you can have an indexed annuity linked to market gains without any of the negatives of investing in the market (some indexed annuities are bonusing 5-10%) with a combination of permanent whole life insurance that you can take streams of income from.

Here are some great items about this plan

Something to think about...

Thanks @Matt Devincenzo! Makes a lot of sense, guess I could not see the forest for the tree.

Originally posted by @Jim Biggs :
Hello everyone, I am new to BiggerPockets. I joined specifically for the Solo 401k topic. I have spent the last month reading everything I can find on the subject. While the amount of information is vast there are still so many questions left unanswered. My biggest concern at the moment, tax right offs, for my individual return. I am a sole proprietor and I need the write offs. If I have a solo 401k purchase a property what happens to the write offs? I have a deal that I am closing in three weeks and I am afraid if I close in my name then that will preclude ever getting it into the 401, but on that I am not 100% sure. Great forum by the way really appreciate all the knowledge, kudos to you all!

Jim,

As a sole proprietor you can defer 17,500 (Plus 5000 if you're 50+) You can also contribute up to 20% of your Schedule C profit to the solo 401k.

If you purchase a property inside of your solo 401k, you do not have to worry about deductions if you did not use any financing for the property.

-Steven

@Jim Biggs ,

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Raymond

@Jim Biggs if you have already put in a purchase offer on your investment property in a name other than your solo401k entity, your trustee may not allow you to close on the house in the name of the solo 401k. Something to check on with your trustee before considering your options for this particular purchase.

Thanks everyone for your response. @Raymond B. appreciate help for the newbie! Seems like a lot to give up (Tax Deductions) buying inside the 401. Looks like I have a lot more work to do. Ben Franklin the numbers, again really appreciate everyone's input! @Steven Hamilton II @Dave Savage @Justin B.

Investing inside your 401K is not mutually exclusive outside the 401K. Just because you have steak doesn't mean you can't have cake.

I get my documents through completeira.com. Joshua Sharp is incredibly well informed. He's always a phone call away, and can guide you through the prohibited transaction maze. The advantages of a 401K over an IRA, even a checkbook control IRA are too many to list. Dmitriy Fomichenko has listed them here in a very cogent and understandable manner. Check out his posts. He also facilitates 401Ks as do I.

The biggest advantage to 401Ks is the favorable tax treatment of leveraged property. You can borrow to your heart's content without paying a nasty tax called UBIT. IRAs, both traditional and Roth, incur UBIT on leveraged property. Thus your transactions in a 401K are 30 - 50% more profitable where loans are used.

The next big advantage is that you can borrow 50% of your account value, up to $50,000. AND if you use this money for business purposes, you can deduct the interest as well.

Read Dmitriy's posts for a more complete analysis of advantages. You'll be glad you did.

PS You don't need a third party administrator for 401Ks, You need an advisor who can answer questions as they come up.

Originally posted by @Dawn A. :
Okay, but if one leaves their current job, can you split your current 401k into a self-directed 401k that you can borrow from, as well as an IRA? Or is it in one's best interest tax-wise when you roll over to go only one way?

I don't see any reason why you would want to split your rollover partially into Solo 401k and other portion into an IRA. With Solo 401k you can do everything you can with conventional IRA or self-directed IRA. But Solo 401k has several major advantages over an IRA (been listed many times), so that it becomes pointless to split. You should move everything to Solo(k) and then split portion into real estate, notes, mutual funds or however else you wish.

Save money on the administrative cost while maintaining full control.

Originally posted by @Jim Biggs :
My biggest concern at the moment, tax wright offs, for my individual return. I am a sole proprietor and I need the write offs. If I have a solo 401k purchase a property what happens to the write offs? I have a deal that I am closing in three weeks and I am afraid if I close in my name then that will preclude ever getting it into the 401, but on that I am not 100% sure. Great forum by the way really appreciate all the knowledge, kudos to you all!

I think people sometimes get confused and are comparing apples to oranges when considering buying real estate inside of a retirement account. So Jim while it is correct that you don't get to write off depreciation on the property owned by your retirement account (in most cases), remember that you are doing this inside of a tax-deferred account. You don't have any income to report when you do this inside of an IRA or 401k.

Now, if you want tax write off and have personal savings to invest, then yes, go and buy investment property and get maximum tax benefits. But this has nothing to do with your 401k, you still have money there and you need to be wise steward and put those funds to work. So the question is: how do I invest my 401k funds (the question is not: Should I take early distribution from my 401k, pay taxes and penalties, which could be nearly 50%, and then buy property in my own name and claim tax benefits)? You can either leave it in the hands or a stock broker or some fund manager and have no control over the performance of that stock or mutual fund, or use self directed IRA or Solo 401k and invest your money into something that you have much better control over, have better understanding and can get better return on investment (this could be investment property, tax-lien certificates, mortgage notes, etc.).

Both Partnerships and S-Corps can have a Solo 401k as long as there are no common-law employees. Eg. You and your Spouse could be a partnership or even an S-Corp. You, your Spouse and your children can also be a Partnership or S-Corp if you want to include your children in the plan.

The Partnership partners or Members of the S-Corp need not be your family members as well... just can not have common law employees.

I think a 401k employer sponsored plan is a good way to go.  If you work for a pretty good company they will provide a match and a yearly profit sharing.  These two things will help you save at a much faster rate.

I've just got my solo-401k setup and funding coming in from a roll over xfer from my ex employer's 401k plan.  They will file a 1099-R but is there a form my solo 401k files for the incoming funds?  

The form 5498 seems to be for IRAs.  Is there a form solo-401ks file for incoming funds?

@Curt Smith

Who setup your plan?  They should be able to assist you with this question.

@Curt Smith

you are correct, form 5498 only applicable for an IRA and can not be used with 401k. You should request a Direct Rollover instead of distribution.

Who established your plan, did you ask your provider for assistance with this basic question, it should be part of the service you are getting. 

Advanta -IRA (and solo 401k) It is a direct roll over. Advanta said no IRS forms for funding the solo 401k. Just checking with other experts. I took the self administration option to get the trustee/administrator OUT of being the middleman in transactions. IE check book and I do book keeping and filings (5500) etc. A few $100 a year. I forget the annual fee. Which is not my concern. I'm coming from Equity trust and moving 12 rentals out of Equity into my wife's solo 401k. And my works 401k cash into my solo account.

What we are adamant about getting out of is the SD-IRA audit risk and out of the most miserable SD-IRA custodian there can be Equity trust. ET is probably ok for holding notes, few transactions. But a rental and worse 12 of them is just NOT workable. So many delays and lost rent checks...

Aside for taking on IRS filings (5500's) and book keeping I see only pluses for going to a solo-401k hung off our S-corp property managment co.

@Curt Smith

you must request "Direct Rollover", assuming that they will process it as such you will get a 1099-R but with proper coding. In this case code G will be listed in the box 7, which means "Direct Rollover". Contact Advanta for assistance on how to properly submit your request. 

@Curt Smith

Besides being re-portable by the current IRA custodian on Form 1099-R as non-taxable direct rollover, you can report the direct rollover on Form 5500-ez, Part III, 8c as well when you file it in July of 2017. Note that even though a Form 5500-ez is not required unless total plan assets exceed $250K, many plan trustees file one to start the statute of limitations afforded to 401k plans once the first return is filed.

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