My solo 401k financial blog - My Solo 401k Financial

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

September 19, 2017 | By Mark Nolan

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/

Solo 401k

Self-Directed 401k for LLC Self-Employed Business

September 18, 2017 | By Mark Nolan

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.

401k Business Financing

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

September 18, 2017 | By Mark Nolan

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.

Solo 401k

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

September 9, 2017 | By Mark Nolan

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.

Regulations

Airbnbn Solo 401k Rental Income – UBIT Considerations

September 1, 2017 | By George Blower

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.

Solo 401k

Margin Account and Solo 401k

August 30, 2017 | By Mark Nolan

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).

Solo 401k

Questions on Solo 401k, rollover, Schwab Brokerage

August 29, 2017 | By Mark Nolan

I’ve been reviewing your website and considering my options with
regard to some of my retirement accounts. Last year I accepted a
payout of my old employer pension plan. I rolled over those funds
into a newly created IRA at Schwab. Currently I am self employed and
have a solo 401k with Schwab that is also managed by an outside
financial advisor. I would like to be able to self direct the new IRA
funds into other alternative investments, private reits, trust
deeds/notes. The new IRA is under $100,000. If I understand it
correctly the self-directed 401k would have less fees, administration
than a self directed IRA and would not require the formation of an
LLC. Is this correct?

Correct. There are other advantages as well – CLICK HERE for more on this.

Would I be able to convert my Schwab solo401k to a self-directed
solo401k – transfer the new IRA funds to the solo401k, which could then be invested in notes and maintain the brokerage account with Schwab (which would continue to be managed by the current broker/advisor). If yes, would it require liquidating all holdings in the current brokerage and then re-buying them? (potentially costly).

(1) Yes (2) Your investments can be transferred in-kind.

Does the 2 year hold period (on SIMPLE IRA?) apply to a rollover IRA that was funded with pension funds? No.

I’m thinking my other alternative would be a checkbook IRA LLC. I see you charge $1100 to set up but i did not see your annual fee. Do you maintain compliance on these accounts similar to the solo401ks? GHB: While we certainly provided ongoing support to our IRA LLC customers, the account of the IRA (which is invested in an LLC) would be at a company called IRA Services Trust company and this company would be your primary contact for ongoing support.Since it is an LLC don’t you need to pay the $800 california llc fee every year? Yes the CA franchise tax fee will apply since you are located in CA.

To learn more about the process of changing solo 401k providers, VISIT HERE.

Solo 401k

The Process of Investing a Solo 401k Plan in a Single Member LLC

August 23, 2017 | By Mark Nolan

BACKGROUND

A self-directed solo 401k is a type of retirement plan for the self-employed that allows for investing in alternative investments such as real estate, notes, metals, tax liens and traditional investments like stocks and mutual funds. Visit here for a list of popular solo 401k investments.

While the above investment types including real estate may be placed directly through the solo 401k plan instead of a solo 401k owned LLC, this blog post covers the process of placing investments through a solo 401k owned LLC (i.e., single member solo 401k LLC).

NOTE: My Solo 401k Financial also specializes in setting up single member LLC’s where the solo 401k is the sole member.

First Step: Open a self-directed solo 401k plan

The first step is to open a self-directed solo 401k with a solo 401k provider whose solo 401k plan allows for investing in alternative investments such as as single member LLC.

Second Step: Fund the Self-Directed Solo 401k Plan

Once the solo 401k has been established, the next step is to open the solo 401k bank account and to fund it by either making an annual contribution or by transferring IRAs (except for Roth IRAs as the Roth IRA rules do not permit transfers to a solo 401k-clicke here to learn more about this restriction), and/or former employer plans to the solo 401k plan.

Third Step: Register the LLC with the Secretary of State

After the self-directed solo 401k has been funded, it is now time to register the LLC with the secretary of state. The Secretary of State will charge a fee to register the LLC and the fee varies by state.

Fourth Step: Draft the Special Purpose Solo 401k LLC Operating Agreement

After the above steps have been completed, the next step is to have the LLC operating agreement prepared. This is a vital step as the LLC operating agreement will need to outline both the solo 401k rules and IRS rules. For this reason, it is not recommended to use an off-the-shelf (e.g., a legal zoom) LLC operating agreement. For example, regulatory language surrounding the 401k prohibited transaction rules, disallowed investment rules, decedent account rules, QDRO rules, distribution rules, RMD rules, UBIT and UDFI rules will need to be included in the LLC operating agreement.

Fifth Step: Obtain an Employer Identification Number (EIN) For the LLC (do not use the solo 401k trust’s EIN)

To obtain employer identification number (EIN) for the LLC, use the following IRS site:

https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online

Sixth Step: Open the Bank Account for the LLC (this is a separate bank account from the solo 401k bank account)

This is a separate bank account from the solo 401k bank as this bank account is for the LLC. You choose where to open the LLC bank account and does not require the use of the same bank or credit union where you opened the bank account for the solo 401k. The bank or credit union representative will ask for the LLC articles of Organization and a copy of the LLC employer identification number letter.

Seventh Step: Fund the LLC Using Self-Directed Solo 401k Funds

After the LLC bank account has been opened, the next step is to fund with solo 401k funds. Funding the LLC bank account can be done by check or by wire, and the funds have to flow directly from the solo 4o1k bank account to the LLC bank account. If funding is done by check, the check will need to be made payable in the name of the LLC not your personal name.

Eight Step: Start Placing Investments Under the Solo 401k Funded LLC

After the LLC has been funded using solo 401k funds, future investments will be placed through the LLC bank account not the solo 401k bank account. Also, investments will be titled in the name of the LLC. If the LLC invests in real estate, for example, the funds for the purchased will flow from the LLC bank account to the seller, expenses and gains will also flow to the LLC bank account not the solo 401k bank account. However, once you are ready to dissolve the LLC or no longer wish to place investments via the solo 401k owned LLC, the funds will flow back to the solo 401k bank account. Also, solo 401k participant loans, and distributions such as required minimum distributions (RMDs) will need to be processed from the solo 401k bank account not the LLC bank account.

Solo 401k

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We help our clients take control of their retirement money. Our products and services provide our clients the freedom to invest their retirement savings in their own business as wells as alternative investments such as real estate, private companies, promissory notes, precious metals, tax liens and equities.
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Transfer QDRO to solo 401k or self-directed IRA?

QUESTION:

ANSWER:

Self-Directed 401k for LLC Self-Employed Business

BACKGROUND & QUESTION:

ANSWER:

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

QUESTION 1.

ANSWER:

QUESTION 2.

ANSWER:

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

Airbnbn Solo 401k Rental Income – UBIT Considerations

Question:

Answer:

Margin Account and Solo 401k

Questions on Solo 401k, rollover, Schwab Brokerage

The Process of Investing a Solo 401k Plan in a Single Member LLC

BACKGROUND

First Step: Open a self-directed solo 401k plan

Second Step: Fund the Self-Directed Solo 401k Plan

Third Step: Register the LLC with the Secretary of State

Fourth Step: Draft the Special Purpose Solo 401k LLC Operating Agreement

Fifth Step: Obtain an Employer Identification Number (EIN) For the LLC (do not use the solo 401k trust’s EIN)

Sixth Step: Open the Bank Account for the LLC (this is a separate bank account from the solo 401k bank account)

Seventh Step: Fund the LLC Using Self-Directed Solo 401k Funds

Eight Step: Start Placing Investments Under the Solo 401k Funded LLC

About MySolo401k

Connect with us

We’re here to help.

Call: 800-489-7571

Monday-Saturday

7:30 am - 5:30 pm PT

Connect with us