All Forum Posts by: Brian Eastman

@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.

@Darryl S. 

I took it from the comment "I'm sick of paying these short term capital gains" as an indication that you were - in addition to your full time employment - flipping houses personally.  That activity would be producing the self employment income (it's not cap gains) that is necessary to sponsor a Solo 401k plan.  By deferring some of that flip income into a Solo 401k, you would reduce your tax profile there.

I don't see how UBTI "ruins your Roth IRA plan". If someone said,"I can show you how to reliably generate 40% ROI tax free to your IRA in a few months time", most people would be jumping up and down and shouting for joy.

Sure, it would be really, really nice to be able to keep all of the initial 60% ROI this particular deal could produce, but that just is not the way it works. If we let tax-exempt entities compete with taxpaying businesses on an uneven playing field, we'd have no tax paying businesses at all left and then imagine what your personal tax rate would look like?

If your Roth IRA is making 40% today, please let me know how you are doing that? If you would rather your Roth IRA have that kind of potential, contact and consult with one of the self directed advisors available to you through BP.

We very frequently speak with investors who have the potential to do really, really good things for their IRA just by using it to do something they are already having success with. Sadly, many throw that opportunity away and leave their IRA in some under-performing portfolio of paper assets simply because they see or hear one thing they do not like about the IRS restrictions that come with these tax-sheltered savings vehicles - such as UBTI or the prohibitions against sweat equity. IRA investing is different. But is can be really rewarding too.

@Darryl S. 

And the other thing....  Setup a Solo 401K so you can reduce the tax liability on the income you are generating with your after-tax real estate activities.