All Forum Posts by: David B.

How does a non-recourse loan work with an IRA or Solo 401K? I understand that the bank requires a larger down payment than for a normal mortgage because they can't recover money from the IRA in the event of a foreclosure.

But I don't see how that protects the bank. Say my IRA puts $40K down and the bank $60K on a $100K property. What happens if I default on the loan, and the bank is stuck with the property? Since they can't keep the IRA money, would they have to refund that $40k to my IRA? That would mean they are into the house for a total of $100k, defeating the purpose of me (the IRA) putting any money down at all.

I'm sure I'm missing something obvious.

David

Hi everyone.

I am wrapping up a trip looking for a house to buy with a Solo 401K, to rent out. It will probably take me another two trips to finally get set up with one I like, as well as lining up the property manager, etc. I travel cheap, but each trip will still cost me $500-800. I understand the basics of prohibited transactions, but it still seems as though these travel expenses should somehow be able to be written off, or somehow paid for through the Solo 401K (when I finally set it up).

I am currently self-employed in an unrelated business.

It there any way to do this?

Thanks!

David

Thanks for all the help. I'm still a bit confused, but realize that whoever I use to set this up will know all these technical details.

For instance when Doreen says: "Your company will have one Solo(k) plans with two participants - you and your wife...", but then later says "Your two Solo(k)s would then simultaneously co-invest...", this confuses me. Is it one, or two? I think I understand it to be one.

I am going to discuss with my CPA again the LLC vs. Sub S thing, as soon as he's done with tax season. It was a couple years ago that he suggested the Sub S to me, and I am guessing maybe he was concerned that the IRS rules on SET and an LLC were a little vague. I'm just guessing at this, because it seems like some still are unsure about what the IRS says about it.

Regards,

David

Thanks, Steve and Mike for your replies.

Mike, you've given me a lot to digest here. I really appreciate all the help.

My accountant was who got me thinking about going the corporation route, mostly for the sake of eliminating the Self Employment Tax. I wonder why he suggested a Sub S rather than LLC. From reading I got the impression that avoiding the SE Tax is more difficult with an LLC; maybe that's what he was thinking. Unfortunately, I think I'll have to wait until after April 15 to sit down with him.

We'll have to sit down and study your replies thoroughly. I may have follow-up questions.

Thanks, again.

David

I hope he takes a day off once in a while!

David

I appreciate everything I have read here about buying investment real estate with a Solo 401K, but am still a little confused about a couple things that I haven't read about.

First, I own a Sole Proprietorship which my wife helps with. Most of our current IRA investments are in her name. Can we roll her IRA into a Solo 401K attached to my business?

Second, I'm a little confused about how the accounts are structured. The advice here that makes the most sense to us is to keep "the accounts" separate for ease of accounting. Does this mean separate Solo 401K accounts, or separate bank accounts? Can we have two separate Solo 401Ks or is just one allowed between us? Or is there any simple way to combine her larger IRA money with my smaller amount, or do we just use hers and leave mine in my existing IRA?

Third, I am about to change the structure of my company from a Sole Proprietorship to an S Corp. Should this be done before setting up the Solo 401K, or doesn't it matter?

Thanks a lot for any help with figuring all this out.

David

Is UDFI the same as UBIT I have heard about on IRAs?

As far as each spouse needing a separate business checking account. How would this affect purchases and making payments? Can payments be made from both accounts on the same property, or either?

For instance, to pay a $60k down payment on the purchase, can we split it, say, $40k from my account and $20k from my wife's ?

To buy a new water heater for the house, can we pay for it all from either my or her account as we choose? And then the next expense we could make out of the other spouse's account?

Thanks!

David

Thanks for the replies.

I had read several of your excellent discussions about Solo 401Ks, Dmitriy, and this was a major factor that got me interested in them. After hearing all the advantages, I was curious to hear of the disadvantages. It doesn't sound like there are any, except possibly for people who don't currently own a business.

It sounds like basically once the account is set up, our accountant can basically handle the annual stuff himself.

In another discussion I saw that some consider it to be very difficult to keep the accounting straight if we combine both my and my wife's IRAs into a single Solo 401k. Somehow, though, this sounds easier than managing two separate accounts. We just have to keep accurate accounting of the proportions of all the payments, is that right?

I think some small portion of the funds in one of our IRAs is in a Roth IRA. (I should know this.) Does this matter at all?

Regards,

David

So my wife and I are starting to look for a house to buy with our IRA, and then rent out, probably in Florida. This is something we have been considering for a couple years, and understand the procedure and rules.

But as of last night I started learning about doing the same thing from a Solo 401k, which we would fund from our IRA, which apparently we are eligible for since I have been self-employed with my own business for the last 20 years. So we also understand the ins and outs of running a business, along with the related responsibilities and tax laws. My wife is a diligent bookkeeper, and we have a sharp CPA doing our taxes and giving general advice.

I am learning about all the advantages of using a Solo 401k instead of an IRA, but what are the disadvantages? It appears that I don't need a custodian for this, but what professional services do I need, besides a CPA? Any other pitfalls to watch out for?

Is the money easily moved from the IRA to the Solo 401k?

We would be leveraging this with a non-recourse loan. Would this be done the same way as with an IRA? Do the lenders care one way or the other?

Thanks for any help.

David