All Forum Posts by: Brett Synicky

 To clarify what @Pete M. meant about loan option with the solo vs. the SDIRA he's referencing the participant loan.  You as the plan fiduciary can borrow up to 50k or 50% whichever is less and use it for virtually any purpose including what would normally be a prohibited transaction. Both SDIRA and Solo 401k can use leverage on Real Estate.  Both must use non-recourse loans only (property is the only security) and only the Solo will avoid the UDFI which kicks off UBIT on the income from the financed portion of the real estate.   

Also bear in mind @Limor Hanannia that if the IRS thinks you're running a business within your SDIRA or Solo 401k you will be taxed on UBIT for that as well which scales up to 37% so it can be quite hefty.  Flipping is a business and is not a passive activity even if you delegate all the physical work which you have to do no matter way on either option.  If you normally buy and hold and flip one or two per year cause that exit strategy makes more sense you'll probably be ok but if you're primarily flipping and doing multiple that will be deemed as running a business.   Hope this helps

 Hello Jim, you need legitimate self employment activity and no w2 employees (other than spouse) working more than 500 hours annually.  The business that sponsors the Solo 401k would need to be in business and earn money.  IRS expects people to have up and down years in business but the intent would need be to make money.  Also as others have stated you would not be able to take advantage of the employee and employer contributions if the business doesn't make money.  You could however roll over your 403 and 457 into the Solo and start make investments.  

If you don't intend to operate an actual real estate sales business even if super part time then you're better off looking at a Self Directed IRA. The downside is if you invest in real estate the income from the financed portion of the real estate will be subject to UBIT TAX.

Talk to a qualified tax professional before doing anything of course.  

@T. Philip Washington There are a few things an SDIRA cannot invest in.  Collectibles (think baseball cards and stamps), life insurance policies, any investment with a prohibited party which is you, your spouse, your children and their spouses and your parents.  Think of a vertical line.  Uncle and brother or sister is fine. It's not really a mixed bag of apples, you're a prohibited party so no "partnering" with your SDIRA so you can only do white collar work, no blue collar hammer swinging.  

The only real exception is investment in a business in which Plan Participant or other disqualified person already has less than 50% ownership.

Hope that helps.  But yes - get advise from a qualified tax professional.   

@Bob Willis I took your original post as the LLC being the LLC that was created specifically and only for the SDIRA. It must have a trust (newer and less common) or a special purpose, single member LLC to work. Isn't that what you meant?

@Bob Willis

Pretty much. You can add money to the Solo a few different ways. Rollover from a qualified retirement account and contributions. There's 2 types of contributions. Employee and employer. Employee 23k and you can put 100% of what you pay yourself up to that amount. The profit sharing can be contributed up to a max of 20% (sole prop/single member LLC) or 25% (Scorp) of what you pay yourself for the year. For 2024 these totals cannot exceed $69k (double that if your spouse is an employee of the sponsoring company). It's an amazing retirement vehicle for self employed.

@Shannon Dennis take dad out of the equation.  You can open an SDIRA and invest in real estate and the only tax you would have is the UBIT generated on the UDFI generated by the income on financed portion of the real estate.  There's no UBIT tax on financed real estate in a SOLO 401k. 

@Shannon Dennis The only IRA option for investing in alternative assets is either a sep IRA or Self Directed IRA and both have IRS rules regarding probited parties and transactions. Prohibited parties are spouse, child and their spouse, and parents. Think of a vertical line. Can't go up or down. Uncle or brother is ok, cousin or friend is fine. In your case it's a non-starter with father and daughter.

 If dad qualifies for a Solo401k (legitimate self employment activity and no w2 employees other than spouse working more than 500 hours annually) he can take a participant loan up to 50k or 50% whichever is less and use that for any purpose including loaning money to a prohibited party.   BUT - there's the current 50k loan outstanding.  @Shannon Carter I commented on your other post also - is the current 401k with a current employer?  

 Hi @Shannon Carter First off, both of you should probably talk to a qualified tax professional.   

Is the 401k your dad borrowed 50k from with a current employer?  If so, it's not likely they'll let him roll the funds into a solo 401k or SDIRA pre tax or post tax. Of course converting the funds into a Roth is a taxable event, so whether he takes a RMD or converts to Roth it's taxable. At this point I think you need to wait 6 months before asking him for money from his retirement account if the goal is to pay as little tax as possible.  Again, best to check with a CPA.  

@Denise Holder

So sorry you're going through this, it's a tough lesson for sure. As you probably know by now you cannot co-mingle personal funds/accounts with retirement accounts. Unfortunately with the SDIRA it's likely now invalid since there's no way to undo what was done. Get in touch with your CPA asap about this to see how you can mitigate the damages. Using the IRA to invest in prohibited assets or transactions may result in the plan losing its tax-deferred status and being subject to various taxes and penalties.@Account Closed did a good job explaining.