All Forum Posts by: Adam Bergman

Hi Bill,

If you are not self-employed and cannot establish a solo 401(k) plan, one option is to have the IRA own a C Corp and have the C Corp borrow the funds and make the real estate transaction.  The C Corp would block the application of the UBTI tax and would reduce the 37% UBTI tax to 21% (C Corp tax rate).  One thing to note is the 21% tax applies on all C Corp profits, whereas, the UBTI tax only applies on a percentage of the SDIRA income attributed to the debt financed income.  You would also need to look at any potential state corporate tax implications as well.  Otherwise, you would need to run the numbers and determine if the investment makes sense using IRA funds in light of the UBTI tax.  Note - you would be able to take into account expenses, such as loan payments, depreciation, etc.. to reduce the net tax impact of the UBTI tax.  Plus, NOLs from prior years can also be used to reduce the tax impact of the UBTI tax.  Hope this helps.

Thanks

Adam

In general, rental income is reported on Schedule E and is not subject to self-employment tax/FICA, and thus, not eligible for plan contributions.  However, if you can treat some of that income as self-employment income (management fee), then you may become eligible to establish a solo 401(k) plans.  Hope this helps.
Thanks
Adam

Hi - in general, employee deferrals are per individual and employer contributions are per business. In the case of after-tax contributions, they must be allowed by the plan document and are subject to the actual contribution percentage (ACP) test and the IRC 415 limits. In other words, after-tax contributions are not treated as employee deferrals or employer contributions (subject to IRC 402 & 404 limits) but are subject to the ACP test. Once satisfied, you can make the after-tax contribtuions and convert to Roth. In addition, if the businesses are part of a controlled group - you own more than 80% of the both companies - and both businesses are Schedule C businesses, then you may be able to use the net self-employment from both businesses to determine your earned income for contribution purposes. However - both plans would have to have the same features and benefits and you would not be able to exceed the IRC 415 limit - $57,000 or $63,500 if over 50 for 2020, plus would have to satisfy the ACP test in the case of after-tax contributions.  Note - if you have no full-time employees you will not have any ACP issues.  Hope this helps.

Adam Bergman
IRA Financial

Hi - I am trained tax attorney and have a Masters in Taxation so let me offer my thoughts.  You brought up some great questions that many self-directed investors are dealing with or will potentially deal with at some point. 

In general, if the property is owned by an LLC that is wholly owned by an IRA you will have two choices, but both have some risks. 1st option is that you can take 20% of the LLC as an in-kind distribution and the LLC will now now be owned by your IRA and you personally, which can be potentially be deemed a prohibited transaction under IRC 4975. The property would have to be re-titled. In addition, the LLC will now be treated as a partnership for tax purposes, which will have tax filing obligations. Secondly, you can potentially distribute 20% of the property from the LLC to the IRA and then take that as a distribution. The property would have to be re-titled. That gets into a number of partnership tax accounting issues as well as the same prohibited transaction issues as above. In sum, this is why it is best to work with tax experts who can help you plan in advance for these RMD issues. The cleanest approach would be to satisfy the RMD with other IRA funds or sell the property so you will have the cash to satisfy the RMD. Otherwise, you also have the option of taking the entire property as a distribution to cover the RMD.

Hope this helps.

Thanks

Adam Bergman

Hi - thanks for your question. So long as you are over 591/2 you should be able to rollover the 403B funds to another 401(k) to do a ROBS.  You will need to check with your plan administrator to confirm the 403B plan triggering event rules for your specific plan.  Hope this helps.

Thanks

Adam