All Forum Posts by: Jeff Nash

Hi Mike, just to clarify a few things:

The maximum Roth 401k contribution for 2023 is $22,500, and if you are 50 or older you can do an additional catch-up contribution of $7,500.  

The maximum of all contributions to a 401k plan is $66,000, or $73,500 if you are 50 and older.  

I assume you are self-employed and have your own 401k with all the plan design bells and whistles (not the generic plans offered by larger popular custodians and trading platforms). If this is the case, you can implement the mega back door Roth strategy which works similar to a regular back door Roth IRA, only with a lot more money. So let's say you are under 50 and make the regular contribution of $22,500 to the Roth 401k and now you have another $43,500 to contribute to hit the statutory limit. You would put that in the After-Tax account and then immediately convert it to the Roth so that future earnings are not taxed. The After-Tax account is almost like a clearing account just like a Traditional IRA is when you implement a back door strategy.

It depends on your financial situation, income potential, expectations to remain at that employer. and whether there are any other available alternatives.  Without knowing all the details of your situation it is difficult to say with exact certainty.  Normally borrowing from a 401k may not be the best option if there are available alternatives. Feel free to message me.  

If you are interested in real estate and alternative investing you might be better off setting up a self-directed solo 401k plan.  Depending on your age, income and investment objectives, that might be a better option than a SEP.  I was not particularly a fan of the SEP for many reasons pre-SECURE Act 2.0, but it is been improved with the legislation. I am not aware though if the custodians are up to speed yet with the changes. Feel free to connect and message me as I might be able to help if I know more about your situation.  

I agree with the other respondents regarding the issue of LLC/PLLC. If the LLC is not an option with the realtor business (eliminates S-Corp election option) then I don't think it is worth setting something up for investment purposes assuming you don't already have a large RE portfolio.

As for your other question, for most of my business owner clients I recommend using Interactive Brokers because interest earned on just cash (not putting it in any financial instrument or security) earns a very competitive rate relative to the many alternatives. Currently it’s 4.33% but with restrictions (see Pricing on their website). You also have the other large players like Schwab/TDA, Fidelity, Pershing, Vanguard, etc online platforms, and regional banks and credit unions. These options should be better than your typical savings accounts which have not generally been offering the same level of competitiveness. 

If you have a business with no employees and earn income from self employment outside of your W-2 job you can set up a self-directed solo 401k and start funding it with your own employee elective contributions or profit sharing, but there are limits and it depends on the businesses profitability. You can also roll over traditional IRAs and old traditional 401ks into it to consolidate. I doubt you can do an in-service transfer from your current employer 401k as those are usually not allowed, or not allowed until you attain a certain age. You’ll have to get with HR or review the plan documents.  Just like your employer 401k, if allowed, you can take loans from the 401k within limits ($50k max)  and use the funds for any purpose.  The one issue with that though is your expectations for remaining at the company. If you want help talking through this decision and your situation in more detail feel free to message me. 

The tax form line item description are not always thorough so you usually have to use some discretion and decide whether to include them under “Other Expenses” with an appropriate description. 

I have mostly relied on KBKG for assistance, but there are other reputable service providers as well. Feel free to message me if you want more information or want to debrief me on the details so I can point you in the right direction.

Hi Luke, an education expense is a deductible business expense only if you get the education while your working in a business with a profit motive.  So the question is, does your rental activity qualify as a trade or business or just a passive investment?  It is possible for only one rental to be considered a trade or business (sometimes what is considered a trade or business is relevant for different reasons for tax purposes), but obviously the more rentals and more involved you are the better your position.  Another consideration would be to look at it as a start-up expense if it's regarded as a trade or business (can deduct up to $5,000 immediately for eligible start-up costs).

As a side note for education expense, you may deduct education that maintains or improves your current job skills or that is required by law or your employer - as long as the education does not qualify you for a new business.  This topic comes up with more expensive fix and flip courses where you have to determine the timing of the deduction and when the course was taken when folks are transitioning from their W-2 jobs.  

I am not sure how much this course was or when you purchased it, but I would evaluate your fact pattern in light of the above and self-assess or discuss with a tax professional as needed.     
   

@Karen Lee I am a little unsure what you mean by retroactively saving but here is my high level explanation and a helpful link.  The timeline to reinvest the proceeds from the sale of real property (and other personal property and capital assets in the case of QOZs) is 180 days which is the same for both 1031s and QOZs.  There are a few key differences - one is that QOZs only require to defer the actual gain whereas with 1031s you must put all the net proceeds of the relinquished property into the exchange to get full deferral.  With QOZs you don’t have much control since the sponsor of the fund makes all key decision so you have to do your due diligence.  Some QOZ funds involve a single asset and some involve many and are geographically diverse.  The QOZ might eventually be taxable (say in 2027 for the 2026 tax year) when the TCJA sunsets or the investment might not be taxable if held for long enough.  In any event it’s probably not something that you can defer until death like with a 1031 exchange.  So basically there are pros and cons to both depending on someone’s situation.  Here is a link from the IRS website -

https://www.irs.gov/credits-de...

So if you are looking to sell either option might be appropriate and be helpful but you should weigh the pros and cons and work with your CPA in advance.  

@Carl N. I would have to know all of the details of this property to fully understand the consequences, but the condensed answer is that you have a long-term capital gain taxed at either 15% or 20% (add 3.8% for additional Medicare in the 20% bracket).  You also might have depreciation recapture taxed as ordinary income.  I'll send you a link that explains these concepts in more detail.  As far as the 1031 exchange goes, you have to exchange up or it won't work.