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Updated almost 7 years ago,

User Stats

20
Posts
5
Votes
Jeff Ju
  • Los Angeles, CA
5
Votes |
20
Posts

Investing via retirement vs. personal cash

Jeff Ju
  • Los Angeles, CA
Posted

First off - I apologize for the duplicate post. I felt that this belonged in personal finance as much as it belonged in tax strategy. If it needs to be deleted by a moderator, I understand. 

I've found so much contradicting information online and through the hired professionals that handle my taxes. I am hoping that someone here can provide a more reliable answer.

I have a well-funded defined benefit pension plan through a company that I own. It is sitting as cash in a checking account. It is well-funded primarily because I wanted to defer taxes the S-corp/I would owe.

I'm now investing in syndicated multifamily deals and it's been tough understanding if I should be investing personally - which I believe would help offset my company profits via depreciation and also allow me to contribute less to my defined plan. The flipside is that I'd have to pay capital gains when the investment is sold - which I assume can be deferred via the pension plan.

When I look at debt-financed investments through defined benefit plans, I am getting contradicting information. I've heard that debt-financed real estate investment income from rents and disposition are NOT considered UBTI and, hence not taxable, and I've heard debt-financed real estate income is considered UBTI and that a form 990-T must be filled out to report these. If that's the case, I don't know what the tax rate is for the defined benefit plan. I've also read that investing into an LLP as a partner has different tax implications than other forms of investment.

Needless to say, I'm confused and frustrated.

Can someone help me understand this using some arbitrary numbers for illustration purposes?

If the pass-through company generates $500,000 profit - I can either contribute $250,000 (or so) to the plan and figure out the remaining $250,000. It'll be expensed or taxed at 40% federal and 10% state leaving me with $125,000 accessible cash and $250,000 cash tied up in pension plan.

If the $250,000 is invested in debt-financed syndications, how much (if any) of the income will be taxed from rent + capital gains upon selling? Will it differ between LLP vs. other entities the syndicators set up?

Option B.) I don't contribute $250,000 to the pension and instead invest that directly into a syndication. That's not tax-deferred so I'd essentially have $125,000 left to invest with. Will the depreciation offset this against income in future years' income? Is this more or less favorable than option A?

I do have some personal disposable cash to invest with as well. I'm not sure if I should use that cash or use only the pension's cash.

Please help!!

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