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All Forum Posts by: Zehua Zhou

Zehua Zhou has started 7 posts and replied 34 times.

Quote from @Dmitriy Fomichenko:

@Zehua Zhou, the setup would make sense if it was an IRA. But with the 401k, you don't need a custodian or third-party administrator (TPA). Moreover, you don't need an LLC to get the checkbook control. What you need is a truly self-directed Solo 401k plan!

Once established, you will be designated trustee of the 401k and will have full control over it, without any middleman. Simple, convenient, and cost-efficient! Again, remember the KISS principle (keep it simple)!


Thank you. I am very impressed with your knowledge and will definitely going with your firm for the simpler 401k trust plan, and I will get rid of the LLC.

Just for the sake of exercise, could anyone please still let me know if an IRA makes a private equity investment into an LLC and becomes the 100% owner of the LLC, and the LLC later receives tax forms against its EIN, will the owner of the IRA just disregard those tax forms? Or should the IRA owner give out the IRA's EIN instead of the LLC's EIN when he signs up with the bank and with the property manager? In that way, the IRS receives these tax forms and will see that the EIN is tax exempt. Otherwise if the IRS sees a 1099 against an LLC's EIN but never know where that income flows into, they may request an audit?

Quote from @Dmitriy Fomichenko:

@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. 


 Hi Dmitriy,

      Can you please elaborate on "investing in illiquid assets such as trust deeds and converting them to Roth at a deep discount."? I am very interested in that. Where can I find trust deeds to buy?

Thank you!

Zehua

Quote from @Dmitriy Fomichenko:

@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!


Thank you! When I apply for the business bank accounts, I give them my LLC's EIN and also my own SSN as the owner and their form asked me if this LLC will be taxed as sole prop or corporation and I selected sole prop. Will the bank issue the tax forms against my EIN or my SSN? It seems like I should call them to confirm they are doing it correctly.

Quote from @Michael Smythe:

@Zehua Zhou usually, your 401k will lend funds to your LLC.

In that case, you would give a PMC the LLC EIN.

You really should get advice from a tax professional.


My original plan with uDirectIRA is to let my 401k make a private equity investment into my LLC to make it own 100% of my LLC, and let my LLC buy real estate. Since the LLC is a disregarded entity, the income/expense flows to the 401k and will be tax deferred. But again, I run into the above questions when I try to implement details and no one in uDirectIRA would tell me how this works.

Quote from @Dmitriy Fomichenko:

@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).


 Hi Dmitriy,

     Thank you for your suggestion! I am losing trust with uDirectIRA at this point because after I made multiple calls, no one there was able to explain to me how this works end to end. I see you work for senseFinancial. I left a message via the Contact Us form on your website. Can you please give me a call tomorrow to talk more about this?

Yours sincerely,

Zehua

Quote from @Chris Seveney:

@Zehua Zhou

Your LLC should be a completely separate entity from you. Did your LLc pay market value for the assets? What are they purchasing the property for?

Do you in the course of business sell other properties to other LLc's for the same price as you sold to your LLC?

Lastly in what situation would a tenant want to sue you that is not covered by insurance ?

The only corner case not covered by insurance would be environmental. For example, if the tenant claims some mold in the house was killing them, then it will be environmental, so the insurance will not pay for it. But I think they should sue the property manager first, and if they never complained about mold, and later claim mold is killing them, they will likely not stand up in court.
Quote from @Sam Applegate:

@Zehua Zhou
I've looked into this situation quite a bit before. From my perspective, the main issue I encountered is whether you're allowed to transfer ownership from your personal name to an LLC. Typically, loan documents prohibit transferring ownership.

If you transfer ownership to an LLC, you'll typically need to switch the insurance to the LLC's name. When you do this, your bank will often be notified of the change in the insurancer's name. While this rarely happens, it allows the banks the opportunity to call your loan, claiming you've breached the terms of the loan agreement. This means they could require you to repay the entire loan balance.

People involved in the loan business will often say this situation never happens. However, given the recent rise in interest rates, if you're locked in at a 3% rate and the market is now at 7.5%, there's a possibility that the bank might call your loan if you've violated the loan covenants. Many people believe this won't happen, but it's a risk that exists. So, it's something you need to be aware of and consider.

If your goal in moving the property to an LLC is to protect yourself, it might be simpler to buy an umbrella policy to cover yourself against any issues. This can be beneficial for both your real estate investing and your personal life. So it's like killing two birds with one stone.


 Thank you for your suggestion. I ended up buying umbrella insurance, which should cover most cases. There are still corner cases that won't be covered, such as environmental. But there is always some risk we have to bear to do business.

Quote from @Chris Seveney:

@Zehua Zhou

Sounds like a lot of extra work and money?

What type of businesses are you running?


 I agree. It makes sense for apartments but probably too much work for single houses.

Quote from @JASON V.:

Generally, I think this setup would be to have a Wyoming LLC INSTEAD of a WA, not both. Then you would register the Wyoming LLC as a "foreign llc" doing business in WA. This is usually done under the assumption that laws are more favorable where the LLC is formed, then the persons home state. (Wyoming and Nevada, are popular for this)

This still doesn't solve your "privacy issue" though, that would generally be done by holding title in a real estate privacy trust. Then if someone looks up the owner of the property it shows up as the trustee(which in this case should not be you).



I paid an attorney to consult. She said the best LLC protection is only offered to LLCs in their own states. A Wyoming LLC registered to do business in WA will not get the same level of asset protection as a WA LLC. Also you have to pay more fees because you are paying WA and WY state fees. She said I should register one WY LLC as the holding company and have all my WA LLCs as the subsidiaries. Since it is just one WY LLC, it won't cost too much more.

My LLC is 100% owned by my 401k. So it is a disregarded entity where the tax should flow to my 401k.

When I try to open a business account with Fidelity, I filled their form to explain that the owner is my 401k and the manager is me. They declined my application after a week of review, citing that "Non-retirement accounts cannot hold retirement funds".

Can you please let me know your suggestion here? My 401k is set up with uDirectIRA. If I don't setup the LLC and don't setup the bank account, then it will be a lot slower because every time when I sign for the offer or for some expense, I have to ask them to sign. Also uDirectIRA's trust account only pays 0.1% interest, but Fidelity pays nearly 5% interest.