All Forum Posts by: Pixel Rogue

Quote from @David M.:

@Pixel Rogue

this is confusing... a se401k account is a pre-tax tax advantage account.  A Roth se401k account is a post tax tax advantaged account.  Are you just assuming whatever you have is a Roth-type account?

"Theorizing that if we retired early this would help supplement expenses.." What would help supplement your expenses?

I think I sent you another message on this...

What we have now are Roths. There is no se401k yet, but if we went this direction the goal here would also be Roth..and funds to purchase investment would be from Roth.

Quote from @David M.:

@Pixel Rogue

Little lost here...

For tax advantaged investment purposes in real estate, my understanding (never done this) is one would open a IRA or Roth IRA self-directed account. Fund it. Then, the self-directed account opens a LLC that would hold Title to a property. The key is getting a self-directed account, unless say a brokerage account where you can only buy stocks and bonds.

So, the se401k or Roth se401k could be moot.

Yes, using a tax advantage account to invest in real estate to commonly done to my knowledge.  

P.S.  I sent you a separate message 

 One of the replies sent my thinking down another path - purchasing a property through se401k, which then spun this thread as I starting thinking out loud.
So now this thead is a mix of different strategies for different purposes... didn't intend it to to that way.

We have ways to exist real estate to minimize tax liabilities....momve between rentals as they are sold, 1031 for a long term home etc.

Then we introduced purchasing an investment property through the se401k, meaning income generated wouldn't be taxed or reported to bump up brackets etc.

---
For those asking, we have W2 jobs, savings, investments etc.`There wouldn't be 'zero' reportable income but I find it helpful to understand as extremes, so for discussion purposes the idea of rental income that wouldn't be considered reportable income as it would be in the 401k.

Quote from @Bill B.:

Don’t forget…

1) Those rentals don’t become tax free sales if you live in them for 2 years after they were rentals. 

2) You talk about retiring with zero income? So your rentals are making zero income, you have no pension or social security, and you plan to sell them and have nothing? Not a great plan unless you’re 75-80 years old.

Think this statement might have jumped a bit too far. 

I was summarizing that if we were to purchase an investment property from an SE401k, then in theory live off that income and keep our bracket pretty low. Oversimplifying for sake of broad discussion. This is NOT saying zero income, it is saying low reportable income because it is from SE401k.

Theorizing that if we retired early this would help supplement expenses until we reach official retirement age. NOW as I say that outlaid, we probably couldn't 'live off the income' because it might be considered a distribution (?)...BUT...we could keep putting the profit back into the (Roth) se401k until it was time for official retirement...and yes think rate of return would be the market over time.

We could arrange an investment property from an SE401k and still have a reasonable roth401k...it would put a dent into the balance, but not wipe it out. While we exclude SS from retirement planning , it will be there and be fine...we have been contributing all our lives. 

"Unless your return on equity is so small that you can pay 10% to sell, another 10-20%+ in taxes and still make more with the remainder. I can’t see how the lump sum is better. "
Three of the properties are relatively new so there wouldn't be much equity gained...possibly a slight drop. I'd be looking about about 6% in transfer tax (3% per side) ~ and would expect to recapture 6% w/in a year of two. Just view the ALTA and the other taxes (property/school etc) are prorated and we are paying either way..so no loss there.

Yes, we have a tax professional to consult when we are getting close to locking in on a plan, to test and poke the plan for holes, offer guidance...when the time is right.

Quote from @David M.:

@Pixel Rogue

First, I apologize as I've skimmed over this thread --- there is such a mix of information...

Of course, consult a qualified professional...

Yes, you can "convert" your passive rental income into active income so that you can use it to contribute to retirement accounts. For example, a self-employed 401k, aka solo 401k, you can contribute ~22.5k yourself (basically the first profits of the LLC) and then your LLC contributes 25% of its profit up ~$65k (both amounts change yearly and I don't bother to remmeber them exactly). This is even faster than using the SEP IRA and now the primary account because of these recent rule changes. The tax advantage is a bit hazy because you can still deduct your half of the se tax. Its actually a circular equation and the IRS has a chart so that you calculate a final number if I recall correctly.

You can make se401k accounts with Fidelity for no charge.

People/investors do use self-directed IRAs which allow them to invest in real property.  Some people's IRAs are large enough that they can own (I think with leverage) an entire property and rent it out.  Yes, all the 'profit' is tax free since its being done in a retirement account.

I hope this helps.  Take care.

Did a super roth a few years back, loved it. Situations changed and I forgot the 25% limit. The personal side would already be maxed out through W2 employer. It would only be my company paying into the plan and, with the 25% cap, + se tax, there might not be enough to matter.

NOW - while we never actually planned for this so restructuring would be needed, yes we could probably purchase an investment property from the retirement funds. Having one of those moments saying 'what, really? and I'm just learning this now?' Presuming Roth works equally as well? This potentially changes everything....

Please correct this inflated aspiration presumption:
• Set up an SE401k, shift things around to fund enough to purchase a property.
• Purchase property, get it rented. 
• All profit is tax free for life of investment - can live off this in theory?
• This income is not taxable and would not add to income brackets
• Presuming no benefits to expenses, nothing to write off against in t his scenario.

Questions:
• Income could, in theory, feed the SE401k balance...contributions monthly?
  In theory, no annual contribution limit?
• Could this work for similar investments (that a 1031 would accept) to something
   such as a DSTs, CrowdStreet/FundRaise - more passive options?
• Could one of my LLCs sell to me SE401k, essentially converting a current investment?
  (at the cost of transfer tax and fees)
  Presume there are rules preventing the LLC from selling to SE401k for $1.00.
  Curious on rules around sales price for such a situation. For example, the LLC could
  sell to SE401k for leveraged amount?
• Could I still purchase a property through SE401k as an LLC?
  Seems like this could work.

Quote from @Basit Siddiqi:

One thing to consider is that it seems like you live in PA and to factor in state taxes.

Luckily PA's state taxes are low but paying state taxes should come into the calculation.

This one got me on the first 1031 as PA didn't recognize 1031s. There have been rumors this would change any minute but two or three years passed and no update. Fingers crossed.

Quote from @Todd Goedeke:

@Pixel Rogue a purchase of RE is made by the Solo401k. The mortgage on the property is in the name of the Solo401k. For example the property might be titled : “Pixel Rogue Solo401k “. 

There is no UBTI on mortgage interest on RE investments held by a Solo401k.

Reading more on this topic. Would a mortgage in the name of a Solo 401k be considered similar to an LLC from a bank perspective, discouraged by most and requires different levels of financing? Curious, however not 100% applicable as I expect the purchase to be a cash buy or 1031 as-is exchange.

Now, that brings another question into view... let's say you purchase an investment property through a Solo401k, would that mean all expenses/income do not hit personal income tax and remain sidelined? 

Is mortgage interest the only gotcha of UBTI?

How did this work out for you?

@Adrian Brown

Hello Adrian - wanted to see how this was developing?

I'm thinking along the same lines, however not as an S-Corp. W2 employee, maxed out the 401k as an individual. Since we do 90% of all the work ourselves (no management company,) considering setting up a management company and each property then pays a management fee....which creates active income that then goes etc fund a solo 401k.

Quote from @Doug Smith:

In the mornings, I make it a point to log in and see if I can help a handful of people, but sometimes I worry that I type just to "hear the sound of my own voice". I think we all fall into that trap sometimes. I logged on to answer this, saw that @Jeff Nash, a CPA, answered the question, and thought to myself what in the world could I add to the commentary of an expert who has already answered the question. It just reminded me to stay in my lane and only answer questions where I'm a true expert. 

Hello Doug,

Didn't quite follow the response. If the purpose is a self thought reflection thinking Jeff already answered the question and/or you are staying in your own lane, then why proceed posting the reply? If the purpose is to let myself and others know that you, too, are also knowledgeable on the subject as an optional expert for hire then why not mention directly?

Quote from @Todd Goedeke:

@Pixel Rogue you can be your own custodian for a Solo401k. You don t need a 3rd party to be a custodian. Check out IRA Financial on You Tube. They can provide set up documents for you.

Don t forget a major advantage of the Roth portion of your Solo401k is that all cash flow from rental or lease income is tax free.   The ability to transfer existing IRAs and old 401ks into a new Solo401k is a great advantage in order to convert to a Roth account within the Solo401k.

• Majority (if not 100%) of retirement funds are already Roth, so nothing to convert.
• The super/mega Roth was the option removed by the new parent firm.

If I remember, since as a individual the cap has been reached the 'company' would only be able to contribute its portion on behalf of the employee..which would be up to 50% of its net earnings (...?)..if company made $100.00, the company could contribute $50.00 to Solo401k on behalf of its employee.