Can I transfer Existing Solo 401k Funds to an IRA?

QUESTION:

Will I be able to rollover some of my 401k solo funds to another trading IRA account ?

ANSWER:

The solo 401k already allows for investing in stocks or mutual funds, so we can assist you in opening a Fidelity or Schwab brokerage account, for example.
However, if you still want to transfer some of your solo 401k funds to an IRA,  the type of solo 401k funds you can directly rollover will be dependent upon the source of those funds. While a direct-rollover is non-taxable, it is considered a type of a distribution under the rules.  Therefore, the distribution rules as outlined in the following links would apply and are dependent upon whether the funds you wish to directly rollover stem from  (i) After Tax and Rollover contributions (2) Employer Contributions, or (3) Employee contributions, and/or whether certain triggering events apply.  Please let us know if you will  process a direct-rollover to an IRA so we can guide through the process (as we would need to prepare a form 1099-R with regard to the direct-rollover for reporting purposes.)
Please review the links provided below and email me if you have any additional questions, or we can set up a time to discuss further.

 

 

Transfer QDRO to solo 401k or self-directed IRA?

QUESTION:

I am in the process of getting divorced.  My soon-to-be-ex has a 401K through his employer.  It is anticipated that this will be divided in some manner using a QDRO.  I would like to know what my best options are – can I roll it over to a solo 401K or would a self directed IRA be better?  I am interested in in real estate investments & flipping houses.

ANSWER:

Yes the rules allow for the transfer of QDRO 401k funds to a solo 401k an/or a self-directed IRA. Also, both the solo 401k and self-directed IRA allow for investing in physical real estate.
Not everyone qualifies for a solo 401k, however, since not everyone is self-employed. However, the self-employment requirement does not apply to self-directed IRAs.
To learn more about the solo 401k self-employment rules, CLICK HERE.
To learn more about the similarities and differences between the solo 401k and self-directed IRA, please visit the following link. https://www.mysolo401k.net/self-directed-solo-401k-vs-self-directed-ira/

Self-Directed 401k for LLC Self-Employed Business

BACKGROUND & QUESTION:

I currently have a 401k with my previous employer in a Voya account. I started an LLC recently in PA and was considering options for setting up a self directed 401K, and came across your website. This LLC is brand new and I am currently the only employer.
My primary interest is in having check book access to the funds for real estate and other non-traditional investments, as well the ability to take a loan out.
Do you have any guidance on how to obtain a self-directed 401k to achieve these goals?

ANSWER:

If you are operating a self-employed business (e.g. providing goods or services), you can certainly set up a solo 401(k), as any entity type including an LLC may be sponsor a self-directed 401k provide the entity is offers goods or services. Moreover, our solo 401(k) plan would allow you to invest in real estate and other alternative investments, take a loan, as well as a free checkbook account. As part of our services (for no additional charge), we would handle the transfer from your former employer plan at Voya, preparing all the required loan documents among many other services.

Can I Transfer a Thrift Savings Plan (TSP) to a ROBS 401k?

I am currently employed by the federal government and have a TSP account.  I am preparing to leave my job in November or December to start a new retail business specializing in outdoor gear and apparel.  I have done extensive research on the ROBS process and believe that it is a good option for this enterprise. I do have a few questions

QUESTION 1.

Do you have experience preforming the ROBS transactions from TSP accounts?

ANSWER:

Yes the IRS rules allow for the transfer of a TSP to a 401k and a ROBS falls under the 401k or define contributions umbrella. We will handle the transfer process (including completing all of the necessary paperwork).  As part of our process, the administrator of the TSP will provide the transfer paperwork (Form TSP-70-T, or TSP-70 if you want to process a full transfer) or  to rollover funds from your TSP to your new employer ROBS 401(k) plan (which paperwork we would complete as part of our services).

QUESTION 2.

If I was planning to leave my job on 11/24 for example, How soon prior to that date should I engage your services?

ANSWER:

We can start the process at any time (although you will not be able to transfer the funds from your TSP until you leave your job).  For example, we can set up the Corporation now (which you may find beneficial from a business perspective – e.g. to enter into contracts in connection with the outdoor gear and apparel business, etc.) and then proceed with the rollover in November.  To learn more about the benefits of a phased approach HERE.   If you prefer to wait until November, we would suggest starting around the middle of November. 

Reporting Solo 401k After-Tax Contributions (non Roth) for an S-corp or C-corp | Form W-2

If your self-employed business is an S-Corp or C-Corp that sponsors a solo 401k plan, and you elect to make after-tax contributions to the solo 401k plan, you may report these contribution on Form W-2 line 14. See below.

IMPORTANT NOTE: Don’t confuse after-tax solo 401k contributions with Roth solo 401k contributions as they are different. For example, gains on Roth solo 401k contributions grow tax free whereas after-tax solo 401k contributions earnings are subject to taxes once distributed. For this reason, business owners will convert their after-tax solo 401k contributions immediately to a Roth solo 401k or Roth IRA.

Please see following 2 excerpts from page 19 of the Form W-2 instructions (available HERE) which states the following (emphasis added):

The following are not elective deferrals and may be reported in box 14, but not in box 12:

 ….

  • After-tax contributions that are not designated Roth contributions, such as voluntary contributions to a pension plan that are deducted from an employee’s pay. See Box 12—Codes for Code AA, Code BB, and Code EE for reporting designated Roth contributions. Required employee contributions. Employer matching contributions.

Example of reporting excess elective deferrals and designated Roth contributions under a section 401(k) plan. For 2017, Employee A (age 45) elected to defer $18,300 under a section 401(k) plan. The employee also made a designated Roth contribution to the plan of $1,000, and made a voluntary (non-Roth) after-tax contribution of $600. In addition, the employer, on A’s behalf, made a qualified nonelective contribution of $2,000 to the plan and a nonelective profit-sharing employer contribution of $3,000.
Even though the 2017 limit for elective deferrals and designated Roth contributions is $18,000, the employee’s total elective deferral amount of $18,300 is reported in box 12 with code D (D 18300.00). The designated Roth contribution is reported in box 12 with code AA (AA 1000.00). The employer must separately report the actual amounts of $18,300 and $1,000 in box 12 with the appropriate codes. The amount deferred in excess of the limit is not reported in box 1. The return of excess salary TIP deferrals and excess designated contributions, including earnings on both, is reported on Form 1099-R. The $600 voluntary after-tax contribution may be reported in box 14 (this is optional) but not in box 12. The $2,000 nonelective contribution and the $3,000 nonelective profit-sharing employer contribution are not required to be reported on Form W-2, but may be reported in box 14.

To learn more about he solo 401k rules, VISIT HERE.

Airbnbn Solo 401k Rental Income – UBIT Considerations

Question:

If I rent real estate owned by my Solo 401k via Airbnb, will the rental income be subject to unrelated business income tax (UBIT)?

Answer:

While the UBIT rules are complex and depend on the facts and circumstances, short term rental income earned from real estate owned by a Solo 401k will generally be subject to UBIT if such income constitutes business income.
While income earned from leasing real estate is typically considered non-business rental income, the IRS has identified certain scenarios where real estate rental income is treated as business income.
  • The average period of customer use is 7 days or less.
  • The average period of customer use is 30 days or less and significant personal services are provided with the rental.
See Treas. Reg. § 1.469- 1T(e)(3)(ii)
As such, if Solo 401k real estate is rented via Airbnb on a short-term basis as described in one of the above scenarios, the income would generally be subject to UBIT.

Margin Account and Solo 401k

1. There will be no problem with me and my wife both getting a solo 401k, right?  We can both be considered self employed. Yes provided that you are both working in the same self-employed business.

2. Would a margin stock account within a solo 401k be worth it?  It sounds like you get taxed heftily coming out of it (not sure at what rate, though), but at the same time, after about 10 years margin accounts catch up and surpass pretax accounts.  Whether it is “worth it” will depend on the facts and circumstances of course.  From a big picture perspective, this will depend on whether the additional returns achieved through leverage outweigh the additonal taxes incurred (note that the UBIT tax rate can be as high as 40%).

3.  I’d like to invest in real estate, but what are the limitations here?  Can I own a real estate business with a solo 401k or does it fall under UBIT?  I was going to try fundrise’s eREIT for starters. While you can invest your Solo 401k in real estate or REITs, this must be structured as a passive investment (i.e. it can be your real estate business, etc.).

4.  Is owning futures (either managed or directly) or options punished in any way?   If the investment is via a margin account in which case UBIT would apply.

5.  Lastly, any limitations on peer to peer investing?  Lendingclub.com does do IRAs, but I wanna make sure. Peer-to-peer lending is certainly allowed provided that the loan is to un-related person, on market terms & documented in the name of the Solo 401k. With regards to a paricular provider, the question will be whether they will open an account in the name of the Solo 401k (as the account can’t be in your name if you are investing Solo 401k funds).

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