Please Help a lost Newbie!

4 Replies

Hi everyone, My name is Mark and I need some direction. I am a self employed commercial fisherman who makes 150 to 200k a year. I am totally fine with this income at the moment but the only problem is when the tax man comes knocking I have to fork over 50 to 55k of my hard earned money. I am fed up and need to keep more of the money I earn... My solution to this problem is to invest in rental property. Fix and flips/hold and single/ multi family homes. I have background in Building Construction and enjoy remodels, so I feel this path to be fitting. Here is where I NEED DIRECTION. SHOULD I PUT THE FISHING PROCEEDS MONEY INTO A SELF DIRECTED IRA, AND USE THAT MONEY TO BUY RENTALS? SHOULD I WAIT UNTIL I HAVE ENOUGH HELOC IN MY HOUSE, TAKE THAT OUT AND START INVESTING? IF I HAVE RENTAL PROPERTIES UNDER AN (S) LLC WILL THIS hELP THE SITUATION I AM IN? ANY INFORMATION ON HOW I SHOULD GO ABOUT THIS WOULD BE MUCH APPRECIATED! SORRY FOR THE ALL CAPS MY I PHONE IS ACTING UP

@Mark Ryan Peterson

If you are self-employed and have no full time employees, then taking advantage of a Solo 401(k) or SEP IRA would give you the ability to make significant contributions and reduce your taxes.

If you are employed by someone else, or have employees, then your options would be limited in terms of making new contributions.

Best to discuss with your CPA.

Assuming you can sock away a good amount into a retirement plan, and/or have some previous 401(k)/IRA savings to start with, investing that tax-sheltered money into real estate or related such as mortgage notes could be a good option for diversification of the plan. Such investments would be wholly for the plan's benefit and not anything you would draw on personally at the current time.

@Mark Ryan Peterson ,

Truly self-directed Solo 401k plan would probably be the best solution for you. It will allow you to shelter up to $55,000 per year of your income from taxes. While this is a great shelter it will also give you total control how to invest those funds. You will not be confined by the stock market limitations and can invest in alternative assets such as real estate, private lending, trust deeds, syndication, private placements, note funds, etc.

You may find this discussion helpful:

This plan is designed for folks who are self-employed or own a small business without full time staff. It has significant advantages over an IRA such as: no need for a custodian, ability to borrow from your retirement account, exempt from UBIT taxes on leveraged real estate, greater protection, greater flexibility and more.

Hope this helps and feel free to ask any follow up questions. 

@Mark Ryan Peterson

Congratulations on having a strong income. I'd also recommend the Solo 401k if you're eligible. It will allow you to make the largest contributions per dollar earned, thus saving more in taxes. It will also provide quite a few benefits over an IRA:

  • Compared to an IRA, Solo 401k contributions limits are roughly ten times higher.
  • There is no custodial requirement for the 401k.
  • You don't need the additional expense and administration of an LLC to have checkbook control.
  • There is a built in-Roth component whereas IRAs are either traditional or Roth, not both.
  • A spouse can also participate in the same Solo 401k plan.
  • The Solo 401k has additional tax benefits over an IRA when investing into real estate using leverage.
  • The penalties for prohibited transactions are less severe, though it's best not to utilize this benefit :)