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Regulations

The Next SECURE Act Introduced and Referenced as SECURE Act 2.0

October 28, 2020 | By Mark Nolan

While the odds of SECURE Act 2.0 passing in 2020 is slim, it is still worth noting for 2021 as it may pass once the presidential election is finalized. As the name implies, the purpose of the proposed addition to the Act is to build on the the already previously passed SECURE Act from December 20, 2019.

“COVID-19 has only exacerbated our nation’s existing retirement crisis, further compromising Americans’ long-term financial security,”  Neal said in a statement upon introducing the legislation. “With the Securing a Strong Retirement Act, Ranking Member Brady and I build on the landmark provisions in the SECURE Act and enable more workers to begin saving earlier—and saving more—for their futures.”

Here ae the items found in the proposed SECURE ACT 2.0

  • Require automatic enrollment of eligible employees in 401(k), 403(b) and SIMPLE IRA plans with certain exceptions and grandfathering provisions.
  • Modify the credit for small employer plan startup costs.
  • Increase the amount of, and eligibility for, the “saver’s credit” for taxpayers making IRA contributions or deferral contributions to employer-sponsored retirement plans.
  • Exempt up to $100,000 of accumulated retirement account balances from required minimum distribution (RMD) requirements.
  • Reduce the penalty for failure to satisfy RMD requirements from 50% to 25%; if an IRA RMD failure is timely corrected, the penalty would be further reduced to 10%.
  • Permit 403(b) plans to invest in collective investment trusts
  • Increase the RMD age to 75.
  • Provide for indexing of IRA catch-up contributions.
  • Provide a second, higher tier of catch-up deferral contributions for those age 60 and older, with indexing provision.
  • Allow certain student loan repayments to be paid with employer match funds.
  • Provide a new small employer tax credit for enhanced plan eligibility for military spouses.
  • Enhance options for correcting employee contributions.
  • Permit increasing payments in IRA and defined contribution plan life annuity benefits.
  • Expand the IRS retirement plan correction program to permit self-correction of certain inadvertent IRA errors.
  • Permit tax-free qualified charitable contributions to be made from employer-sponsored retirement plans (now permitted only from IRAs).
Solo 401k

Solo 401k Webinar – Deep Dive Compare Self-directed Roth 401k VS. Roth IRA

October 23, 2020 | By George Blower
Roth 401k vs Roth IRA

Please check out our webinar for an in-depth discussion of the differences between self-directed Roth 401k vs. Roth IRA.

Roth 401k vs Roth IRA

  • Technical Differences
  • Practical Considerations
  • How to get more info about your situation

Compare Roth IRA vs. Roth Solo 401k

Compare Roth IRA vs. Roth Solo 401k

Compare Roth IRA vs. Roth Solo 401k

Compare Roth IRA vs. Roth Solo 401k

Compare Roth IRA vs. Roth Solo 401k

Roth IRA vs. Roth 401k –
Practical Considerations

  • Am I self-employed? Do I have full-time employees in my business? Roth Solo 401k:
    • Must be self-employed with no full-time w-2 employees
    • Roth IRA:
    • No self-employment requirement
    • An owner of a business with full-time employees is eligible
  • Do I want to make high contributions?
    • Roth Solo 401k:
      • For 2020:
        • $19,500 or $26,000 (if age 50 or older)
        • Up to $57,000 or $63,500 if plan allows for Mega Backdoor Roth
    • Roth IRA:
      • For 2020:
        • $6,000
        • $7,000 (if age 50 or older)
  • Will I need money before I retire?
    • Roth Solo 401k:
      • Non-qualified Roth 401k Distribution – taxes on the gains
      • Solo 401k participant loan up to 50% of the balance not to exceed $50,000
    • Roth IRA:
      • Non-qualified Roth IRA Distribution – no taxes on the contributions
      • Loan is not allowed
  • Am I 72 years of age or older?
    • Roth Solo 401k:
      • Required Minimum Distribution
      • May rollover to Roth IRA
    • Roth IRA:
      • No Required Minimum Distribution
  • Do I want to invest in alternative investments?
    • Roth Solo 401k:
      • Self-directed Solo 401k provider
      • Direct Checkbook Control
      • UBIT/UDFI exception for income from debt-financed real estate investment
    • Roth IRA:
      • Specialty Trust Company/Provider
      • Checkbook Control via Roth IRA LLC
      • No UBIT/UDFI exception for income from debt-financed real estate investment
Regulations

Solo 401k for Patent Investment

October 21, 2020 | By Mark Nolan
Investing a solo 401k in patents does not appear to be a disallowed investment as referenced below; however, it is prohibited to invest your solo 401k in a patent that you (the solo 401k account holder/participant) is developing because you are considered a disqualified party. See below for more on disqualified parties.
However, if the solo 401k invests in a patent that is being developed by a third party (non-disqualified party), the IRS rules do not reference such investment as being disallowed or prohibited. VISIT HERE to learn more about the prohibited transaction rules.
While the IRS rules do not provide a list of approved 401k investments. The code does provide a list of disallowed investment which include the following:
  • collectibles, such as art, antiques, gems, coins, or
  • alcoholic beverages, and they can invest in certain precious metals only if they meet specific requirements. (IRC Section 408(m))
However, certain transactions between a plan including a solo 401k plan and a “disqualified person” are specifically prohibited by law. CLICK HERE to learn more about the prohibited transaction rules.
Solo 401k

E*TRADE Solo 401k Restatement Review – How to Change to a Self-directed Solo 401k

October 16, 2020 | By George Blower
E*Trade Solo 401k Review

Please check out our webinar as we discuss the top reasons why clients transfer or switch their solo 401k at E*TRADE to a self-directed Solo 401k with us including

  • The process
  • The costs
  • The ongoing compliance support that we provide.

Restatement –
E*TRADE to Self-directed Solo 401k

  • Reasons to Switch
    • 100% FLAT FEE self-directed plan including Mega Backdoor Roth and All Allowable Alternative Investments
    • Open Account at 100s of banks, brokerages, cryptocurrency and alternative investments platform
    • Expert Compliance Support (5500-ez, 1099-R, expert compliance team, etc.) for no additional charge
  • How to Switch

Compare:
E*TRADE to Self-directed Solo 401k

How to Change Plan Providers:
E*TRADE to Self-directed Solo 401k

Process:

  • New Solo 401k Plan Documents (vs. E*TRADE “Do it yourself/DIY” plan documents)
    • List the original plan effective date
    • Obtain 401K EIN
  • Close Existing Account and Open New Account(s)
    • Pre-Tax, Roth and Voluntary After-Tax
    • Spouses
  • E*TRADE QRP Distribution Request & Letter of Acceptance
  • Not Required: No Final 5500-EZ or 1099-r

Additional Considerations:

  • If assets exceed $250K:
    • Have you been filing Form 5500-EZ?
    • If not, need to file under the IRS Correction Program
  • Do you wish to keep investments (in-kind transfer)?
    • Confirm that new brokerage account provider offers those funds
  • Are there multiple participants (e.g. spouses)?
    • Segregate the funds and transfer into separate sub-accounts
  • Consider filing an extension to ensure plenty of time to make contributions

Self-directed Solo 401k –
Compliance Support

  • Form 5500-ez
    • If your solo 401k plan balance exceeded $250,000 as of December 31, a Form 5500-EZ is due to the IRS by July 31. 
  • 1099-R
    • Distributions, Rollover, In-Plan Conversions
  • Solo 401k IRS Required Plan Updates
    • IRS-required plan updates with the next required update occurring in 2020 or 2021 once the IRS approves the industry wide update
  • Contribution Calculation (including Mega Backdoor Roth)
  • Loan Document Preparation
  • Alternative Investments
  • Account Setup
    • Bank, Brokerage, Crypto exchange, etc.
401k Business Financing

Can’t Use Non-Spouse Inherited IRA or 401k Funds to Finance a ROBS 401k

October 14, 2020 | By Mark Nolan

QUESTION: 

I have an IRA account with Fidelity that I inherited from my mother? That only has $29,000 and it and I would like to use it to start an online video editing business with. I would like to use this money in the IRA to help me get started.

ANSWER:

Good question. Unfortunately, the IRA rules do not allow for the transfer/rollover of an IRA that was inherited from a non-spouse to a 401k plan including the ROBS 401k.  Instead, and beginning in tax year 2020  the following rules apply to IRAs inherited from a non-spouse:

  • Yes the SECURE Act changed the distribution rules for IRAs inherited by non-spouse beneficiaries starting in 2020. Other than those non-spouse beneficiaries who are disabled or chronically ill, most beneficiaries will be required to empty out the inherited IRA within 10 years (known as the 10 year rule).
  • This means the inherited IRA will need to be fully distributed by December 31st of the tenth year following the IRA owner’s year of death.
  • The non-spouse beneficiary is not required to take distributions over the 10 year period and can wait until the end of the tenth year to take the full required distribution.
  • If the beneficiary is a minor, they will be able to wait until they reach the age of majority under state law or finish school (no later than age 26) before the 10 year rule commences.
  • However, the 10 year rule will still apply to grandchildren unless they are disabled or chronically ill.
  • The 10 year rule also applies to Roth IRAs.
  • A 50% tax penalty applies to those non-spouse beneficiaries who do not fully distribute the inherited IRA by the end of the 10 year period.
  • Spouse beneficiaries are not subject to this new 10 year rule, and can distribute the IRA over their lifetime.
COMPLIANCE NOTE:  It’s important to note that the new 10 year rule for non-eligible designated beneficiaries under the Setting Every Community Up for Retirement Enhancement (SECURE) Act is not affected by this CARES Act provision. The 10-year period applies only to certain beneficiaries for deaths in 2020 and later years. If an IRA owner dies in 2020, the 10-year period would not start until 2021, the year after the year of the IRA owner’s death.
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