All Forum Posts by: Loren Whitney

Hey Erik Kubec Can you clarify how you envision the LLC interacting with the IRA owned property? Your ETC correspondence are only half true. For example, 1099 income from interest does not constitute earned income. There are several types of 1099 income and some does quality as earned income. Many contractors earn 100% of their living on 1099 work and it is taxed as self employment income. You'll certainly need to check with your tax professional to be sure it qualifies. Be sure that your LLC does not perform services for the IRA owned property. Your and your LLC are the same thing in the eyes of the IRS. I'm sure you're already aware of the rules but I mention it for the benefit of other readers.

Would online ACH deposits work as opposed to check scans? Tenants could input their accounting/routing information and no cost to either party. No more checks.

This will depend on how risk tolerant you are. One way is perfectly fine if they aren't disqualified but both directions could be considered an arrangement.

I'm getting ready to head out of town and don't have time to work the specific math today but I'm sure someone else can chime in the figures.

Big picture (contribution limit wise):

Disney 401(k) would be $52,000 based on employer contributions. 

Solo(k) would be $52,000 as well. Counting the employee deferrals.

@Bryan Hancock

The $17.5k deferral is per person, but the company max is for the company.

@Ellis San Jose is on the right track.

You couldn't contribute to the 401K at (your business #1) plus (your business #2) beyond the $52K total because you have to treat all companies you control as one. What that really means is even though you have multiple businesses, 'you' are the employer now matter how many hats you wear.

When would this work?

If you hold a second job as an employee, the company (say Disney) could technically contribute their 'employer' portion to the 401k. 

This doesn't apply to hardly anyone. 

@Pat L. is on to good logic by looking at other plan options beyond 401k. I don't deal with them personally but I believe Defined Benefit [Section 415(b)1(A)] contribution limits are $210,000 in 2014. 

Dmitriy Fomichenko Jon Holdman Nicely said gentleman. Congratulations on the 403B to IRA move. That is not always an easy feat to accomplish. Were you a teacher in prior years? Welcome to BP! I look forward to networking and helping with future questions. Do you have any specific ideas or desires out of the gate related to the IRA? Strategy and IRS code talk usually emerges once you have an idea of what you're after. Welcome again :)

@Account Closed 

This is actually a complicated question Joe. The Roth IRA is a powerful tax strategy and if the model fits your personal finances well, it can be a colossal win. Note, the Roth IRA doesn't benefit everyone even though the idea of "tax-free distributions" sounds great. You have to look at the big picture and time value of money VS. your long term taxation. I won't go any deeper than that but it's worth putting time into researching the details on that sooner than later.

Once you turn 59.5, you're eligible for tax-free distributions without penalties for early withdrawal (normally 10% if under 59.5 with a few exceptions). If the Roth has been in place for five tax years (5 year rule), then principal + gains can be withdrawn without restriction. There are no RMD restrictions like pre-tax retirement plans and heirs can takeover the assets. It's important to note that Roth tax-status does not transfer to heirs. They would be required to open a beneficiary IRA. That being said, think long and hard about your tax strategy for future heirs as you get older (if you choose to leave assets).

@Andy Norcia 

I look forward to seeing what others suggest.

Perhaps you should investigate private lending.

This is a controversial subject but your logic is certainly valid. In order for IRA/401k savings to make sense, you have to look at the big picture but more importanly - YOUR big picture. Since everyone has a different financial situation, there is no single "right way" to save for retirement. That being said, you have funds in a tax-deferred plan now so you'll need to do some math and long term planning to see what suits your needs best.

Aside from the good points that Troy mentioned, here are a few specific reasons to use IRA/401k funds directly.

1. Tax deferred growth (no capital gains or 1031 on cash investments)

***This is the big one. The ability to buy-sell-buy-sell and snowball the balance is the main objective.

2. Tax-free distributions (If you have Roth funds)

3. More control over taxable distributions later in life.

4. Leveraged IRA/401k investments don't restrict your personal ability to borrow.

Walt Payne is correct about the proportioning. Side note - Checkbook IRA investing must follow all the same IRS rules as a traditional custodial model. In almost all situations, the same rules apply to solo(k) investing as well. Just an FYI. Yes - you can partner IRA funds (even multiple accounts) with personal funds. There are specific rules that must be followed. Here's a general overview and I'm happy to clarify with anyone over phone that needs review. 1. Proportions must always also be kept in an undivided interest. This points to the importance of budget strategy up front. 2. The IRA is responsible for its specific interest in the property (IE - 30%). This means the IRA needs more than enough to cover 30% of all related expenses, foreseeable or not. It's also entitled to 30% of all proceeds in the back end. 3. There must be no transactions between disqualified persons. All investor stakes must be handled separately. In most situations, this means paying all expenses in pieces ( IE - 30% from IRA, 70% from pocket). Some times, investors use a non-disqualified person or bookkeeper to hold retainers for both parties and make check writing easier. Note* - Checkbook IRA would another way to go. Please do your homework. 4. If an IRA is partnered with a disqualified person, no disqualified person can have use or benefit of the property. Meaning, no direct lineal family members could use, rent or provide services to the property (paid or unpaid). This can be a deal breaker for some because it boils down to no sweat equity. If Your IRA is involved in your own deal, you need to maintain yourself to the rank decision maker only. No picking up tools okay. I like to explain it to people in terms of managing a project out of state. I'm posting from my iPhone so I don't have the link handy but if you visit my BP profile and look for my blog, I wrote a detailed piece on partnering your IRA. Good luck!