Investing in commercial syndication using Solo 401K

[Gabrielle T.]

Hi everyone, if I want to use funds in my self-directed Solo 401K to invest in a multi-family apartment commercial deal, are there any caveats I need to know about for asset protection? I'm just a passive investor, someone else is syndicating it. But I'm curious about questions like, should I worry that someone sues this apartment building investors and impacting the rest of my Solo 401K?

[Charles LeMaire]

My take on this is that you are moving Cap-Gain earnings to earned income rates, which does not make a lot of sense to me.  

Say you put $100K from an Traditional IRA or 401K. Over time they send the distributions to your account and at the end the big lump goes to your account. Say, in total, you doubled your money, now $200K.

Outside of the tax advantaged account, you would have paid taxes on the $100K (a less really) at the Cap-Gain rate (15% or 20%). 

If you mostly fail and have limited assets in retirement - you win, less taxes!  There are financial planners that can get you to $0 tax if you have little.

But assuming you are successful, when you start pulling the funds out (RMDs) they will be taxed at earned income rates.  Today those vary by income, but for the successful, likely 25% or higher.  Do you think they will remain this low? 

If you work through the math associated with Traditional IRA/401K, it only really works if you are at a lower tax rate. That was the pitch when they were created in the early 80's.

HINT: With current low tax rates, limit IRA/401Ks contributions and/or go for the Roth options. Consider conversions and withdrawals.

Sorry, just my opinion.

Regards,

Charles LeMaire