Investor · Somerville, NJ · Member since 2017 · 5 posts · 7 votes
I am looking to invest in a syndication using my retirement accounts. I had intended to open an SDIRA to do this, but the operator of the syndication suggested an eQRP (fancy word for Solo 401k) to avoid UBIT tax. Based on everything that I've found it looks like an eQRP is only available to self employed persons, not people that hold a W2 job, which is where I fall. Is anyone able to clarify this for me? Am I eligible for a Solo 401k, or is an SDIRA my only option? Also, can you private lend out of an eQRP the way you can out of an SDIRA?
You can be employed and participating in an employer sponsored 401(k) or similar plan and separately have your own business that sponsors a Solo 401(k).
There are contribution thresholds you cannot exceed personally, though you can spread that across all plans you participate in contingent on having qualified income. Each business is independent and employer profit sharing in a Solo 401(k) is not impacted by your participation in a separate plan.
Self Directed IRA & 401k Advisor · Wenatchee, WA · Member since 2014 · 2k+ posts · 2k+ votes
5y
@Katie Rohrer A Solo 401(k) is an employer sponsored retirement plan. There has to be a business you operate that sets up the plan for your benefit. In the Solo 401(k), it needs to be an owner-only business format, and you cannot have any non-owner employees in any business you control.
It sounds like a self-directed IRA is the only plan available to you in your situation, and it is a great option.
Real Estate Consultant · Member since 2020 · 14 posts · 15 votes
5y
Katie, you're asking a great question. According to how Qualified Retirement Plans are regulated, you're only permitted to contribute to 1 Employer-Sponsored Retirement Plan at a time (401k). Meaning if you are already a W2 employee AND your employer offers a 401k plan...even if you have elected not to participate, you could not go and setup your own. This is where the Self-directed IRA platforms can be helpful, however we all understand the contribution thresholds are lower when compared to 401k plans. I'd recommend working with an advisor that understands both Retirement Plans and Real Estate investing, so you can get help navigating to the best option that can work for you.
You can be employed and participating in an employer sponsored 401(k) or similar plan and separately have your own business that sponsors a Solo 401(k).
There are contribution thresholds you cannot exceed personally, though you can spread that across all plans you participate in contingent on having qualified income. Each business is independent and employer profit sharing in a Solo 401(k) is not impacted by your participation in a separate plan.
Real Estate Consultant · Member since 2020 · 14 posts · 15 votes
5y
@Brian Eastman - appreciate the response. You're right and I should clarify my remarks accordingly: IF you intend on maxing out your retirement plan contributions, you'll be subject to the same contribution thresholds for 1 plan. You need to be aware that the IRS's contribution limit for elective deferrals refers to your combined 401(k) accounts. Should you decide to spread that across several, you can. However read your Qualified Plan's document, as sometimes there are prohibitions for contributions for employees that are covered under another Qualified Plan.
If there is a level of self-employment income you can show that would permit the Solok, and that amount is significant enough to go beyond the elective deferral threshold, then you might have the option of using the employer (which is yourself) funding channels.
My caution is managing contributions between two plans, because if you accidentally exceed the elective deferral threshold you don't want to have to back out contributions.
Thank you both! This information is very helpful! Looks like I need to move forward with the SDIRA for now.
If you can, take some time to identify who you'll use to figure out your UBIT, if applicable. I found on the backend that the CPA I planned on using didn't really understand UBIT, and had to find someone else. Doing that work upfront could save you some headache :)
Contractor · Sheboygan, WI · Member since 2016 · 917 posts · 266 votes
5y
@Brian J Haney, I have never seen any documents that prohibit an employee of a company from opening a Solo401k from a non associated self employed business and making contributions.
There are no minimum income limitations that a business owner must meet to make Solo401k Deferrals. If I as a self employed business have income of $100 I can havE a a Solo 401k irrespective of amount. As a business owner I may wish to establish Solo 401k to allow IRA transfers and 401k transfers into Solo401k.
Real Estate Consultant · Member since 2020 · 14 posts · 15 votes
5y
@Todd Goedeke - I was referring to a Qualified Retirement Plan's Plan Document, often called an Adoption Agreement. This is a document that governs the retirement plan and is a required regulatory document - it details eligibility, plan provisions, contribution types, etc... In such a document you may often find that "employees covered under another qualified plan" can be an excluded class.
This really applies in the situation where you're a W2 employee eligible to participant in your Employer's 401k plan. In that situation you'd want to check the plan document just to be sure there is not an exclusion. If there is not, then you'd have no problem establishing a SoloK and contributing to both plans.
I also did not suggest there was a minimum self-employed income amount, the key in managing contributions between plans would be the total amount contributed that would be designated as "elective deferrals." Say, for example, you were contributing to the 401k of your W2 employer's plan and you max that out based on the annual IRS maximum for yourself. Then in that scenario, regardless of how much or little self-employment income you earned, you would not be coding any contributions you make to your SoloK as "elective deferrals." You would, however be able to code them as Employer-contributions (such as Profit Sharing for example).
I realize my initial response was woefully written (hastily, which is never good), so I apologize for the lack of clarity that @Brian Eastman did a good job of pointing out. Glad we have many strong people in these communities to keep people on point.
Our firm handles over 200 401k plans for companies of various sizes and industries, in addition to supporting a myriad of self-employed retirement plans including Soloks, and several others, so we've seen a lot of plan documents and plan design elements and we always work to ensure everything someone is establishing is regulatorily compliant.