Turn 457b Into Solo 401k with Checkbook Control for Real Estate

QUESTIONS:

Good morning.
I am inquiring into the feasibility of rolling over my Deferred Compensation plan from a former employer into a self directed Solo 401K.  I plan to invest the funds into real estate, specifically flipping and buy/hold.
I am interested to know if this is feasible, and if so what are the tax implications?  Finally, I would like to know what your pricing is and if I would have checkbook control with your program.
Thank you in advance for your time and attention.  I look forward to your response.
Sincerely,
Allen

ANSWER:

An IRC Sec. 457 plan is a deferred compensation plan. A 457 plan is for employees of local governmental entities, hospitals, school districts, and certain other tax-exempt organizations.
 
Therefore, if the 457 plan you are referring to is a 457(b) governmental plan, this type of plan can be transferred to a self-directed solo 401k. See: https://www.irs.gov/retirement-plans/comparison-of-tax-exempt-457b-plans-and-governmental-457b-plans
 
Yes the solo 401k plan that we offer allows for checkbook control which means you can place the alternative investments such as real estate and promissory notes, for example, by writing a check or by wire.  
 
With our solo 401(k) plan, we will handle getting it set up with an account at the bank and/or brokerage of your choice where you will have checkbook control.

Our customers have their solo 401(k) accounts at hundreds of different banks, credit unions, etc. as well as brokerage firms such as Fidelity and Schwab just to name a couple.

If you want a brokerage account, we will prepare all the forms that the brokerage firm needs to open a free account (i.e. there are no account opening or maintenance fees and the brokerage firm only charges trading and wire transfer fees) and many firms (including Fidelity and Schwab) offer a free checkbook feature.

If you want a bank account, we will prepare a packet (including banking guide, certificate of trust, EIN letter, etc.) that you can use to open an account at the bank of your choice. We will also be available to speak with your banker if he or she has any questions.

Flipping Real Estate Inside a Solo 401k Plan: Flipping homes is generally considered a trade or business activity.  When a tax-exempt entity (e.g., Solo 401k or IRA LLC) engages in a trade or business on a regular or repeated basis, the income generated may be subject to Unrelated Business Income Tax (UBIT).   While the industry consensus is that 1-2 flips per year would not expose the income to UBIT, a higher volume of such activities increases that risk.
Solo 401k Eligibility Requirements: In a nutshell you need to be performing at minimum part-time self-employment activity in order to open and continue with the Solo 401(k) plan, and it has to be active income versus passive investment income. One way to distinguish passive income versus active income is that active income is subject to Social Security taxes were as passive income is not because it’s considered capital gains income. Visit Here to learn more about the solo 401k eligibility requirements.

Information Regarding Investing a Solo 401k Plan in Real Estate: You can use debt in conjunction with your solo 401(k) funds to purchase real estate provided that the debt is non-recourse financing. For more information please see the following link:

  • Nonrecourse financing: Find lenders that specialize in nonrecourse loans to solo 401k plans: CLICK HERE
  • Real Estate Investment Procedure: Click Here
  • Real Estate FAQs: Click Here
  • Invest in Real Estate: Click Here
  • Full Setup Assistance:  As part of our services, we would guide you through the process to set up an account for your Solo 401k.  You can have a bank or brokerage account for your solo 401(k), or even both (and we would help you set up the accounts as part of our services).  For example, if you wish to have an account at a brokerage like Fidelity or Schwab, we would prepare all of the paperwork that Fidelity or Schwab needs to set up a free account for the Solo 401k (i.e. no set up or maintenance fees) that comes with a free checkbook and through which you can invest in traditional investments (e.g., stocks, mutual funds, bonds, etc.) as well as alternative investments such as real estate, promissory notes, etc. since they are allowed under our IRS-approved plan documents. Please see more at the following links:
  • Our Fair Fee Structure: Our Solo 401k fee structure is 100% flatOur initial fee is $550which covers everything to establish the plan (for both of you), including account set up, transfer of existing retirement funds as well as the first 12 months of ongoing compliance support.  Starting 12 months later, we charge a flat annual fee of $125.  Please see more the following link:
  • Guide for Choosing a Solo 401k Provider: Click Here to view our guide for choosing a solo 401k provider.
  • Solo 401k Compliance & Audit Guarantee: It is important to work with a solo 401k provider that will stand behind their solo 401k plan and service. Click Hereto view our solo 401k audit guarantee.

About Mark Nolan

Each day I speak with energetic entrepreneurs looking to take the plunge into a new venture and small business owners eager to take control of their retirement savings. I am passionate about helping others find their financial independence. Having worked for over 20 years with some of the top retirement account custodian and insurance companies I have a deep and extensive knowledge of the complexities of self-directed 401ks and IRAs as well as retirement plan regulations. Learn more about Mark Nolan and My Solo 401k Financial >>

  • About MySolo401k

    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 well as alternative investments such as real estate, private companies, promissory notes, precious metals, tax liens and equities.
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