All Forum Posts by: Brian Eastman

@Eddie Werner 

There are a lot of different takes on this topic, with varying application to specific situations.  A person's age, income, tax bracket and goals all fall into play and there is no one set answer.

It seems from this thread that we are comparing a conventional market based 401k to investing in real estate, and that is like comparing a Yugo to a Porsche.

If you are stuck in an employer plan, then you do not have much in the way of investment options. If however, you already have significant tax deferred savings in a former employer 401k or an IRA, then you can have the best of both worlds - a tax sheltered retirement plan that can invest in real estate. That would be a self directed IRA or Solo 401k, perhaps with a Roth focus.

For those who are actively investing in real estate - flipping, wholesaling, etc - and creating earned income as a result, there can be benefits to establishing a self directed Solo 401k that allows you to take the earned income from those activities and shelter some into a plan to reduce your tax profile.  This does not apply to passive rental earnings, however.

So, lots of ways to look at these topics, and lots of ways where a careful planning of investment and tax strategies can put more money in your pocket.

@Khalisah Callam 

If you take a distribution from an IRA, you have 60 days to put that back into another qualified retirement plan and not have any tax implications. You can go back to the same plan or a different plan.

You can only do one such "indirect" or "60-day rollover" transaction per year.

You can, however, have IRA custodians do a direct institution-to-institution transfer as frequently as you like.

So, just get that $30K back into any IRA ASAP. You can make a determination whether to do something different like a self directed IRA and move the money at some point in the future.

@William Behm 

@John Santero is correct.  There are legal limitations on what tax services plan custodians and facilitators can provide and not all Solo 401k providers have access to an in-house CPA who is licensed for such specific tax guidance, or if they do, that may not be something included in the basic cost of these types of plans.

You definitely do not want to get this information from an unlicensed customer service person at an IRA firm or off a web forum

Contact your licensed tax advisor.

@Dale Nuzum 

As a provider of such plans, I can't answer all of your questions - notably about recommendations on who to work with. (I could, but they would of course be biased).

At a certain point, the best thing to do is just speak with a couple of firms who offer such plans.  they can help you understand the answers to the technical questions you ask as well as many others I'm sure you are not thinking about yet.  As with any vendor selection, don't just speak with one company.

You can continue to add funds to an IRA LLC if it is properly structured.

Personally, I would question the need for the IRA LLC model providing checkbook control simply for a land purchase. There is not so much time-sensitive or high volume trasaction activity with that type of investing, and you may not require the additional flexibility the LLC provides as compared to simply using a good custodian to handle the transaction. The LLC will make it easier to keep the earnings from the property re-deployed, however, so worth exploring and comparing.

There is a lot of content on this topic on BP.  Search around and I think you will get a good idea of who is well respected in the community.

@Josh Rich 

Exposure to UBTI would depend on the nature of the arrangement.  If the funding entity is purely passive, and receiving passive income such as rent or interest, then there would likely not be UBTI.  If the funding entity has an equity position in the underlying business, there would be UBTI exposure.

To fully answer such a question would require more details, and would be something we could investigate for a client with one of our plans, but not as an a la carte service or as part of a web forum.  You should consult with your tax advisor.

@Harold Groetsema 

This is a topic that has been covered extensively with BP.  Check the forums.

A Solo 401k may flip properties.  You or a disqualified party may not perform any of the work.  You are limited to administering the Solo 401k funds - signing contracts, paying for expenses, receiving income.

Gains from flips are considered a business, and therefore subject to a trust tax known as UBTI.  This tax does not apply to passive earnings such as interest on a hard money loan.

Your step son is {technically} not a disqualified party to your plan, but caution is advised.

This can be a very profitable way to grow your retirement savings, but involved several complexities.  You should absolutely speak with an industry professional and/or your tax advisor before proceeding.

@James Sullivan 

You absolutely should not get a credit card in the name of the LLC. Your signing a personal guarantee on that debt instrument would be a prohibited transaction. Use a different bank if you have to.

The IRA LLC may use a debit card, since there is no credit association.

@Donna Smolinski 

In that circumstance, simply using BP as a means to double-check is a different matter.

I see a lot of folks coming to BP as a first stop seeking complex tax advice and/or support for an existing plan and that is a touch frightening, frankly.

@Grant Huggins 

The IRS language is as follows:  If a tax exempt entity engages in a trade or business on a regular or repeated basis, then UBIT applies.

A single flip on rare occasion mixed into a portfolio of largely passive investments would not "likely" be subject to UBTI, with the caveat that the IRS has the final determination should they choose to take a closer look.  A conservative approach would be that if your intent was to flip the property, then UBTI applies.

Holding a property in and of itself does not eliminate UBTI, but just makes you a slow flipper.  Holding the property as a passive rental for a period of time would eliminate teh UBTI exposure.

@Donna Smolinski 

I hate to say it, but if the firm that setup your Checkbook IRA LLC did not make this clear to you, and is not available to easily answer this question for you, you used the wrong firm. You should not have to go to BP for basic support like this.

A single member LLC is disregarded for tax purposes, so no return is required.

A 990-T does not apply to passive rental income.  The trust taxes UBIT and UDFI apply only to trade or business activities (i.e. flipping houses) or the use of leverage, respectively.