All Forum Posts by: Dmitriy Fomichenko

@Kevin S.

Technically, it is not the property passed down to the heirs but the 401k that owns the property. Remember, if you decide to invest in a property in your 401k - you don't own the property, 401k does. 

The rules are the same regardless of whether your heirs inherit a conventional IRA with stocks and mutual funds or a self-directed 401k with properties, trust deeds, and any other alternative assets in it.

Consult with your CPA about tax implications for an inherited IRA.

@Kevin S.

When you take RMD from an IRA or 401k, you pay ordinary income tax on the distribution amount. If you go with a self-directed Solo 401k plan, you can supercharge its Roth component by investing in illiquid assets such as trust deeds and converting them to Roth at a deep discount. Then, you can grow them tax-free, and distributions will be tax-free. 

@Kevin S.

If you are getting an average return of 7% in your 401k and have an option of converting that to self-directed and then invest in real estate and as a result, get 20% return - does it make sense to switch? 

Buying real estate inside a qualified retirement account is not about tax write-offs. You can't do that since you don't own the property; your IRA/401k does. And your IRA/401k is a separate legal entity from you. Compared to the stock market, real estate investing offers better return on investment and lower risk. That is why many invest in RE with their 401Ks.

As far as the RMD is concerned, you have to plan for it. If you have a portfolio of, say, five rentals in your 401k when you are in your sixties that produce $7,000-$10,000/mo in passive income (rental cash flow) - then you simply take the rental income as your RMD without touching the properties. If you don't have enough income to satisfy the RMD, you may have to liquidate the assets or distribute them to yourself as "in-kind distribution". 

@Zehua Zhou, 

You have a flawed setup. A 401k does not require a custodian or a third-party administrator (TPA), and you don't need an LLC to have checkbook control for your 401k. You just need the right provider to set it up better. We set Solo 401k plans for our clients in the form of a trust instead of using a custodian. The trust will have its own EIN, and as a trustee, you control it. This way, you will eliminate the custodian completely with its fees, red tape, etc. The end result - are you truly in the driver's seat of your 401k!

As trustee of the plan, you can open a bank account in just a few hours at one of our preferred banks. If you need a brokerage account at Fidelity, you open Fidelity's Investment-Only Non-Prototype Retirement account for the 401k; there is no need for the LLC. Your structure is complex and not cost-effective. Try to always remember and apply the KISS principle (keep it simple).

@Zehua Zhou,

You have a flawed setup. A 401k does not require a custodian or a third-party administrator (TPA), and you don't need an LLC to have checkbook control for your 401k. You just need the right provider to set it up better. We set Solo 401k plans for our clients in the form of a trust instead of using a custodian. The trust will have its own EIN, and as a trustee, you control it. This way, you will eliminate the custodian completely with its fees, red tape, etc. The end result - are you truly in the driver's seat of your 401k!

As trustee of the plan, you can open a bank account in just a few hours at one of our preferred banks. If you need a brokerage account at Fidelity, you open Fidelity's Investment-Only Non-Prototype Retirement account for the 401k; there is no need for the LLC. Your structure is complex and not cost-effective. Try to always remember and apply the KISS principle (keep it simple).

@Zehua Zhou,

LLC is a separate legal entity with its own name and EIN. If you wish to purchase property using the LLC then you must take the title to the property in the name of the LLC and use it's EIN for everything related. YOU MUST NOT USE YOUR SSN!

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@Ryan Daulton,

Correct. You (personally) don't own the property, your IRA is the owner - so, you can't expect any tax benefits from a property that you don't own.

Ryan, all expenses related to the investment of an IRA must be paid by the IRA.

@Ryan Daulton, you are not allowed to use personal funds to pay for the rehab of IRA-owned property. IRA must pay all expenses related to the investments it owns.