All Forum Posts by: Mike S.

While you are still employed, many employers won't let you make an inservice rollover out of your 401k. If you leave the company, you can then either keep the 401k or rollover to another 401k or IRA. You can also borrow up to $50k out of your 401k at anytime but it has to be repaid over five years with interest, and you can not deduct the interest. And if you leave the company during these five years, you will have to repay it immediately.

Self directed IRA have more limitations than solo 401k. So if you have your own side business (even a very small one), it is often suggested to open a solo 401k for that business and use it to be the recipient of the rollover. That will give you much more flexibility.

Permanent life insurances have to be funded with after tax money. They are an excellent but complex vehicle, and IUL are often called the "rich man Roth IRA" as they have no upper limit on contribution. They are often misunderstood and need a proper execution to make them excellent. A poor implementation will give dismal result. Many financial advisors can't understand them and are preaching against them making grand statements proving they are confused.

You will have to shop with many banks to find one willing to open an account.

The first hurdle is to find bank willing to open account for trusts. Most will do revocable grantor trust (like a living trust) but won't touch any irrevocable trust. The 401k trust is neither revocable nor irrevocable, nor it is a grantor trust... So you may scare a lot of banks.

The second hurdle is that many local banks don't want to touch retirement plans as they are worried they may become liable to compliance issue with ERISA plans. I even had problem opening account for checkbook IRA LLC as there was the mention of IRA as the member...

Major banks should be more open to those, but you will need to find a business banker who is knowledgeable on trust accounts.

Again, shop around, a lot of banks will do it, even if your local banker doesn't know about it.

Solera and Titan Bank are two banks very well versed in solo 401k plans.

Last time I checked, by just passing the series 65 exam, you may meet the accredited investor qualification, but only for the 2 years your exam is valid. If you want to keep it for longer you need to get registered as an financial advisor with your exam and it has a lot of compliance costs and time that are wasted if you are not making it your profession.

There had been a lot of talks about offering other kind of exams to meet the accredited investor qualification. There are also rumors that the minimum amount of net worth criteria could increase from $1M up to $5M.

Why paying two states registration when you can pay only one?

To insulate liability between all my assets, I am not putting multiple properties in the same LLC, so I am creating a new LLC per per property.

Except maybe for CA where LLCs are expensive and the use of trust is probably a good option, I am creating the LLC in the state where the property is located. This LLC is a single member, member managed LLC.

All my single member LLCs are then owned by a holding WY LLC. This allow me to get only one taxable/reporting entity, I also have the anonymity provided by WY, and most important the excellent charging order protection from WY that you don't have in many state.

I don't see any good reason for foreign registering an LLC in another state. You pay two states registration and filing, in case of legal action a creditor will probably argue that he can choose the rules of the weakest state. There is more opportunities for you to screw up somewhere and weaken the company veil...

Chase business accounts have access to Zelle.

To my knowledge it is deductible as long as you can trace the use of the loan money. Where the confusion exists is that you can not deduct it as a a mortgage expense of your principal residence (personal itemized deduction). However, the interest will be entered as investment/business expense in the same location (schedule C/E..) where you entered your investment/business income. 

https://www.biggerpockets.com/...

 When I am "leveraging" my cash value (by borrowing from it) don't I also pay interest ("to myself") that subtracts from the yield that cash value is earning?  

I've been trying for a while to find any financial advisor who recommends these policies (particularly to middle class investors) who is not also an insurance agent who earns commissions selling these policies.  That's not to say they don't truly believe in them, but that naturally creates a bias.

Look at it the same way you can use a HELOC on your home. When you borrow some money with a HELOC, your home does not worth less, nor does it accrued capital gain slower than if you didn't have the HELOC. Of course if you sell your home, you will have to pay the HELOC back, so get less money at the sale of your home, but the home has still the same value.

Using a loan from a permanent life insurance is the same. An insurance, or a bank is lending you money using the cash value of your life insurance as collateral. The cash value of your life insurance continues to grow the same way, loan or not. Of course you have to pay interest for the loan, the same way than for a HELOC. So if you reinvest the loan money on something that produces more than the loan interest your money is growing faster as your are getting not only the gain of the life insurance, plus the arbitrage between your investment and the loan interest. On top of that, if you used a separate lender for the loan, you may probably deduct the interest of the loan as investment expense on your tax return.

The issue with an overfunded permanent life insurance, is that the cash value the first few years is lower than the premium that you put in, because of the different front loaded fee (including commission; cost of insurance; state taxes). So you have a few years of drag. A properly set up policy should give you 75 to 85% of cash value/premium the first year, going higher every year. Around year 4 to 6 you should have 100% of your premium available in cash value, and after it should be more than that, growing at an average of 3-8% a year, depending on the product (whole life, Index Universal Life). If you take into account that drag, and if you compare investing your money directly into an investment, or putting instead your money into a life insurance, and reinvesting the loan proceed to the same investment, the cross over is between year 7 and 10. After that, the compounding effect put the later way ahead of the former.

Permanent overfunded life insurance is a complex product, that need proper planing and a good execution. But it has excellent tax advantage, it is secured from creditors, it grows steadily and does not go down with the stock market, is a fantastic wealth multiplicator for your investments and on top of it provides a financial security to your family in case of your early demise.

If you are interested on how to use it properly, you need to find an insurance agent who is knowledgeable on it. You also need to find an agent who is willing to offer it, as to properly set it up, the agent has to lower his commission. Last I would also suggest to use an agent who is also an investor him/herself who uses it too.

Quote from @Chris Seveney:

 I have found the youtube videos by Steve Parisi at IBC global to be educational. I am a numbers guy and thats what he provides is data. Some others I have seen like to manipulate numbers to make certain policies that generate more income for them look better.

I agree, I like his videos that are going in depth about how to optimize whole life insurance for cash value. However, he barely mention Index Universal Life, if only to denigrate them as he explain he does not have enough experience with them.

@Thomas Rutkowski has a great educational website and Youtube channel covering both WL and IUL, with probably more focus on IUL. He also has more content towards real estate investor use of overfunded permanent life insurance policies.

Entities are created to protect you against two types of liability:

Inside liability: something is happening within your entity (slip and fall from a visitor or tenant, mold health issue, ...).

Outside liability: something is happening in your personal life (you are at fault in a car crash with major injuries, ...)

Not all entities are created equal for liability protection. Most LLC will protect against inside liability. So if you put a real estate property into an LLC, if a tenant sue you and win, the maximum at risk is all that is within that LLC, but your own wealth outside this LLC or in other LLC will not be impacted. But if you put all your four properties into a single LLC, any event in any of them is risking all four

Outside liability protection however varies greatly by state. Florida has charging order protection for multi member LLC but not for single member LLC. So even with a single member LLC in Florida, if you are sued personally, all your assets in Florida LLC are at risk.

We have in Florida a great tool called Land Trust that offer inside liability protection (but not outside).

In your situation I would suggest that you open a Wyoming holding LCC (WY has charging order protection even for single member LLC). Each property will be placed in its own Florida Land Trust, the WY LLC being the beneficial owner of the trusts. You can be the trustee of the land trusts or create another WY or NM LLC as trustee if you want to get anonymity.

You will have one bank account for the WY LLC that will collect all rents.

Creating an LLC is easy, but you need to know what kind of LLC you want (single member/multi member, member managed/manager managed). You would also need a registered agent if you can't receive legal service during business hours or don't want to disclose you private address. The operating agreement on the other hand is extremely important as it will be the major piece that will maintain your liability protection. Legal zoom templates are highly inadequate for asset protection. I would recommend spending some money on an asset protection attorney to draft them.

To educate yourself on this topic, I strongly recommend you spend some time watching the excellent videos on Clint Coons Youtube Channel. After years of studying the field, I am more than 95% in agreement with his advice.

@Todd Goedeke

If you can guarantee me a 20% return with no risk I will give you money to invest…

I made some 500% return in the stock market in some commodity stocks. But it is risky and I lost money on other bets.

I still have a permanent life insurance policy as foundation where all my cash flows in first… It acts as a multiplier of the returns I am making in real estate, and also add a layer of safety.