All Forum Posts by: Brian J Haney

@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.

@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.

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.

I recently wrote an article for the Property & Casualty insurance industry that might be a helpful piece speaking to WL: https://www.agencynation.com/i...

Hope it can be a valuable perspective.

Maximo, I have found that by assigning the right purpose to what you are saving for helps create the appropriate framework for what things you might end up saving/investing into. For example, if I say "These funds need to be for a rainy day in case I need them," then it may be much easier to determine how you'd like to allocate them, since...in that scenario, liquidity and access would be significantly important, then often liquid banking instruments that may not pay a great rate of return seems more appropriate because the point is access and not necessarily ROI. If, however, you say "I want these funds to help me retire," then since that entails a much larger and longer term purpose, the potential vehicles (instruments and/or specific investments) would be different. While a lot of people on this thread have provided several great suggestions, I would hesitate to add something to the mix because advice such as "investing in index funds periodically overtime" may be a good idea, or it may not be, but in a vacuum it's hard to say. For what it's worth, I'd encourage you to work on putting some form of a plan together that helps identify all of these considerations and helps create some better definition and purpose (with or without a professional depending on how confident you feel about it). The most financially successful people I know and have as clients are not the ones that have made the most money, they are the ones that have made the most of their money! Doing that involves a plan and a strategy

@Maximo Jacobo - You're certainly asking all of the right questions! For someone like yourself that's being smart and looking at things holistically, there can be several things to consider. Message me if you'd like to have a brief call to discuss!

Thanks @Jenning Y. - I can appreciate where you are coming from when it comes to concerns about bad actors misrepresenting certain financial products or instruments. I've certainly had to overcome some bad information and experiences when working with clients over the years and it is always frustrating. I will say candidly having done a significant amount of data-driven research of various financial instruments (including RE), that Cash Value life insurance more than holds its own, especially on a risk-adjusted basis. 

But meta data and personal data are 2 very different things. This is why I tend to shy away from static hypotheticals or "fictitious" cases designed to project some kind of a return scenario that, in reality, is hardly ever the personal experience someone will have. What I have found helps most, and also addresses bad actors, misunderstandings and misrepresentations as much as possible, is to explore real-life scenarios specific to each investor. I'd feel more confident looking at someone's existing Real Estate portfolio, examine their values, cost basis, rent rolls, occupancy rates, history of cash-flows, and taxable dynamic, to properly assess return potential. I'd feel equally more comfortable running a Life Insurance illustration tailored to an individual, accounting for insurability, cash-flow/premium targets, possible distribution desires, and tax-advantaged returns over the life of the policy. Since policies can be designed in a variety of ways, landing on a more real-world scenario would equip myself as a professional and my client with something worth assessing to determine its merit.

I also always remind clients that financial instruments really shouldn't compete against one another. One isn't better than the other, each one has unique pros and cons, unique risk elements, and can serve as a viable piece of the wealth-building puzzle. Real Estate has many advantages and also several disadvantages and risk (such as fire, theft, a pandemic that causes high levels of lease-breaking or non-payments, to name a few). Life insurance as well as advantages and disadvantages. So does a stock, or a mutual fund. It's a fallacy to line them all up and try to have them go head-to-head, or to zoom in on hypothetical return modelling that really doesn't sufficiently account for the reality of how the instrument may perform.

My two cents is to work with a qualified financial professional that can help assess things that might make sense for you, model things specific to your situation, and then make an assessment for what things seem to be a fit, and which things don't. Involving a CPA is also always advisable to properly explore the tax ramifications and tax drag elements.

In reading this give and take, I am curious @Jenning Y. - What is the applicable tax drag you're factoring into this 10% return for real estate. Having worked with a variety of wealthy investors over the years, I can't say I have seen a consistent 10% rate of return in RE portfolios net of taxes. Frankly, it's hard to net a consistent 10% rate of return with most investments, especially after taxes. 

For example, if I am pulling $10,000 of rental income each year, there's a tax bite year over year on that 10k. If I am selling RE (flipping) there is a tax bite coming out of the sale proceeds. 

I understand how factoring the appropriate tax drag is tricky to say the least, since there can be many ways you might be taxed depending on how you're making money - I just want to point to the importance of NET rate of returns if you're trying to dig into comparisons. All of these static growth models can both help (give you some projections to consider) and hurt if that's not exactly how the growth plays out overtime (Real Estate is rarely perfectly consistent year-over-year). 

At least with properly designed cash value life insurance you should be able to pull out after-tax dollars, so the tax element there is fairly straightforward.

Just my two cents.

Benjamin, if you're still looking for someone I may be able to help. If you want to send me a message, I'd love to discuss

@Justin Bauer has it right. There is no magic bullet or one size shoe fits all. There are a variety of ways to build wealth and a variety of strategies that should be considered. It's important to see something for what it is, weigh the pros and cons, and make an informed decision you can live with. Cash value life insurance is not something new, nor is it a gimmick, has a long track record to examine, and is something that could be a part of your wealth building puzzle.  Or perhaps not. 

One thing I would encourage everyone to examine that has nothing to do with financial instruments or assets, is the current National debt situation and what potential implications it may have on our taxes for the future. According to USdebtClock.org our federal debt to GDP ratio is 136%. To me these numbers are staggering and while I don't have a crystal ball, it's hard for me to imagine a scenario where taxes do not increase in the very near future to try and "right the ship." To me that's not a political statement, it's just math.  So, IF you agree with that premise, then I would encourage all of us to examine assets through a tax-advantaged filter just to be mindful of how we are accruing wealth based on how much of a chunk the IRS will extract. There's a great documentary to watch "Power of Zero - the tax train is coming" in case you're interested.