Note buyers: Solo 401(k) vs Self-Directed IRA LLC

[Neil Hohmann]

Hi BP,

Like many buy-and-hold REIs, I'm getting hung up on what entity to form with regard to investing in notes.

Have most of you formed an LLC? My understanding is that some exchanges will only sell to an LLC or company, as opposed to an individual.

And for those of you using a self-directed retirement account, have you formed a SDIRA LLC or are you using a solo 401(k)?

Currently, my wife and I own several rental properties in our name -- not in an LLC. For note buying, I'm planning on rolling my traditional Roth IRA into a self-directed Roth IRA LLC.

Your collective knowledge on the subject is appreciated!

Thank you,

Neil

[Justin Windham]

@Neil Hohmann

An LLC may be a good option for your note investing done outside of retirement accounts. As far as using retirement money, the Solo 401k is generally the preferred structure for those who are eligible.

Compared to an IRA, Solo 401k contributions limits are roughly 10x higher and there is no custodial requirement for the 401k. You can take participant loans from the plan, you don't need the additional expense and administration of an LLC to have checkbook control, and there is a built in-Roth component. A spouse can also participate in the same plan, there are additional tax benefits compared to an IRA, and there is generally greater privacy. Finally, the plans are often quicker to setup and cost less money over time especially compared to most IRA LLCs.