Can I use Self-Directed Solo 401k to buy precious metals on ebay?

 

QUESTION: I’m looking to open Solo 401k and invest it in precious metals like gold. Can I buy precious metals on ebay with a Self-Directed Solo 401k since I would be the named trustee and the Solo 401k would allow for investing in precious metals?

ANSWER: I wouldn’t recommend purchasing precious metals on E-bay with your Self-Directed Solo 401k. Reason being the precious metals dealer must be certified by NYMEX/COMEX, NYSE/Liffe, LME, LBMA, LPPM, ISO 9000, or national government mint and meeting minimum fineness requirements, in order to be considered an allowable precious metals investment in a Solo 401k, often referred to as precious metals Solo 401k.  Reason being, specific quality and fineness requirements must be met in order to comply with IRC Section 408(m)(3)(A) and IRC 408(m)(3)(B).

Can I Open Multiple Solo 401k Plans?

 

Hello, A few of questions regarding the Solo 401K:

QUESTION: I have multiple businesses with no employees, s-corp and llc's, would I be able to open a Solo 401k for each?

ANSWER: Yes the Solo 401k rules permit the establishment of separate Solo 401k for each self-employed business; however, you cannot exceed the annual-maximum contribution limit between all Solo 401k plans. For example, the maximum Solo 401k contribution limit for tax year 2012 is $50,000 plus $5,500 for those age 50 or older, so if you opened a separate Solo 401k plan for let’s say two self-employed businesses, the Solo 401k contribution rules restrict you to only contributing $50,00 to both combined Solo 401k plans combined.

QUESTION: I have a 401k that has pre-tax, after-tax and rolled-over funds. Can I designate that all pre-tax go to a Solo 401k and leave the post-tax behind and/or put the after-tax into a
separate Solo 401k or account?

ANSWER: You would need to setup multiple checking accounts/brokerage accounts for the Solo 401k plan to distinguish after tax vs pre-tax and rollovers. The first sub-account would house the after tax 401k contributions and the second sub-account would hold the pret-tax and rolled-over funds.

QUESTION: I had a SEP over a year ago, when I 100% rolled it into the above mentioned 401k, any issues there?

ANSWER: The SEP IRA would qualified to be directly rolled over to Solo 401k as the rollover rules allow for the transfer/rollover of SEP IRA to Solo 401k. The only type of IRA that cannot be rolled over to Solo 401k is Roth IRA. Lastly, SIMPLE IRA can be rolled over to Solo 401k but only after a 2 year waiting window has been met.


Thanks for your rapid response.

Ready to rollover SIMPLE IRA and Open Solo 401k

 

 

I'm ready to establish Self-Directed Solo 401k:

• Have established a Secretary of State recorded LLC “Solo-Performance LLC” in South Carolina.

• Have received a EIN number from IRS for business.

• I do have a simple IRA with Ameritrade that I would like to transfer to my new Solo 401k.

Now I want to open Solo 401k administered by mysolo401k to purchase real estate and move money in and out the Ameritrade account as I see fit.

 QUESTION: Do I need Ameritrade brokerage account for Solo 401k with check writing option for making “allowed” purchases of tax liens and keep the rest of the funds in Ameritrade Solo 401k broker account?

ANSWER:

First, regarding SIMPLE IRA, make sure that you have had it opened for at least 2 years in order to comply with the SIMPLE IRA 2 year holding period. If you have had the SIMPLE IRA for 2 years, you can transfer/roll it over to Solo 401k. You can process a full or partial transfer of your SIMPLE IRA to Solo 401k provided you have met the 2 year SIMPLE IRA holding period.

Second, as a Solo 401k provider our Solo 401k names you as trustee and administrator of your Solo 401k. Therefore, we assist you in administering the Solo 401k, i.e., we file annual Form 5500 E-Z, prepare Solo 401k Loan documetns which are required in order to process a Solo 401k that is in compliance with the IRS Solo 401k rules, etc.

Third, our Solo 401k permits investments in alternative investments incuding tax liens as well as real estate, private company shares, precious metals, etc.

Fourth, we can assist you in opening brokerage account with checkbook control at TD Ameritrade. That way you easily internally transfer your TD Ameritrade IRA to Solo 401k brokerage account at TD Ameritrade. We will prepare the SIMPLE IRA transfer form, Solo 401k establishment documents, and help you complete the TD Ameritrade brokerage accounts forms once you decide to use MySolo401k as your Self-Directed Solo 401k provider.  The process generally takes 24 hours.

 

Fifth, with respect to your comment "move money in and out the Ameritrade account as I see fit", keep in mind that profits generated by Solo 401k owned investments (e.g., real estate, tax liens, promissory notes, etc.)  generally must flow back to the Solo 401k. If profits don't flow back to the Solo 401k, distribuiton rules and/or prohibited transaction rules apply.  

Thanks

 CD

Solo 401k tenancy-in-common real estate transaction questions

I've just reviewed your Solo 401k website with great interest.  Here's what I have in-mind.

 I'd like to purchase a residence using the $244,000 I presently have in one of

my existing 401K accounts with Ameritrade.  The purchase price would be

about $400,000 requiring me to add around $160,000 from my personal account

(tenancy in ownership) I believe is how you refer to this arrangement.

Here are my Self-Directed Solo 401k questions;

 1)      QUESTION: Can this be done with your trustee account system "SOLO 401K"?

ANSWER: While as a Solo 401k provider our Solo 401k plan document allows for investing in alternative investments such as real estate, promissory notes, private stock, precious metals, to name a few, you first must determine if you even qualify to open Solo 401k. To qualify for Solo 401k, one must be self-employed with no full-time employees; hence why the plan is referred as Solo 401k or Individual 401k.

That said, assuming you meet the requirements to open Solo 401k, you next need to aware of the Solo 401k prohibited transactions, especially in your case where you are looking to invest in real estate with your Solo 401k and personal funds. The Solo 401k prohibited transactions with respect to investing your Solo 401k in real estate require that you (the Solo 401k Trustee/participant) do not live in the real estate property sell the property to your Solo 401k or purchase the property from the Solo 401k. Further, the following parties are considered disqualified parties (that is, it’s prohibited for your Solo 401k to participate in transactions with these parties): you, your spouse, your parents, your children, your Solo 401k provider, etc.  

However, when investing Solo 401k in real estate under tenancy-on-common arrangement, disqualified parties can partner alongside the Solo 401k when purchasing real estate as long as the following conditions are met:

The real estate purchase is consummated at the same time (that is, all parties to the real estate purchase fund the purchase at the same time);

No debt financing is utilized; and

Each party’s real estate interest is separately listed under tenancy-in-common.

What’s more, all rental income and expenses must flow according to the owners ownership percentage in the property.

  

2) QUESTION How long does it take to set this up?  The Ameritrade account has been

    already converted to cash.

 ANSWER: It generally takes 24 hours to prepare the Solo 401k plan documents and between 3 to 5 days for TD Ameritrade to open brokerage account for the Solo 401k.

3). QUESTION What are the tax filing requirements?

ANSWER: With respect to informational return, Form 5500-EZ must be filed annually once the Solo 401k account exceeds $250,000 in value and when the Solo 401k account is terminated. 

4). QUESTION Is there any impact on income taxes as a result?

ANSWER: As long as you do not run afoul with the Solo 401k prohibited transactions or make a distribution, your Solo 401k investments, including real estate, grow tax deferred until you commence making Solo 401k distributions, usually at retirement.

5). QUESTION I see $395 charge to open this Solo 401k account, are there any other account maintenance fee or any other service fees to maintain this financial arrangement?

ANSWER: We charge $395 the first year and then $195 annually commencing on your Solo 401k opening anniversary date. Please visit our Solo 401k pricing page for more information.

6). QUESTION: What happens when you sell the property, taxes, fees etc?

ANSWER: Just like all profits generated from the Solo 401k plan’s investment ownership percentage in the real estate asset must flow back to the Solo 401k, expenses, including property taxes, repairs, etc., must be paid by the Solo 401k.

 Thanks for your time in this matter,

JL

Documenting Solo 401k Contributions

QUESTION 1: I am planning on faxing all of my Solo 401k plan establishment documents back to you in the next 24 hours. I found them to be easy to fill out and straightforward thanks to your concise directions! I don't intend to fund the Solo 401k plan until December when I get a feel for how much income will be available.

ANSWER: Since you executed the Solo 401k establishment documents before the 12/31 deadline, pursuant to IRS regulations you have until your file your business tax return in 2013 plus extensions to make your 2012 tax year Solo 401k contributions.

QUESTION 2: My main question involves the initial $17K in deferred income contribution to Solo 401k. Do I have to "run" this contribution through a payroll (which I don't currently have established) or can it come straight from my business checking account? I currently am an LLC reporting as an "S" Corp.

ANSWER: No you do not have to run Solo 401k contributions through payroll. Most self-employed individuals run their Solo 401k contributions from their business checking account to the Solo 401k checking account. The important item is to base the Solo 401k contribution on your self-employment compensation and that you don't exceed the annual Solo 401k contribution limits. You can easily calculate your 2012 Solo 401k contribution by clicking on Solo 401k Contribution Calculator located on our website and following the easy instructions. Also, as your Solo 401k provider you can call us anytime and we will run the calculation for you.

Please also click on Solo 401k forms to access our Solo 401k annual contribution from which should be used to document your Solo 401k contributions. This form is for your records. Further, when making Solo 401k contribution to the Solo 401k checking account, make the check payable in the name of your Solo 401k, and write "Solo 401k Annual Contribution" on the memo section of the check(s). I also recommend that you make copy of your Solo 401k contribution check(s) and file them with your Solo 401k contribution form(s). Remember that you are the Trustee of the Solo 401k and thus responsible for keeping precise records, especially in the event of an IRS audit.

Closing on Solo 401k Real Estate Duplex

 

I am very close to closing on a property (duplex) with funds I have transferred from a qualified IRA (in my name) to a Self-Directed 401k plan established for my self-employment business entity.

QUESTION 1: My business is a sole proprietorship. Chase Bank set up a solo 401k checking and savings account in both my name and my wife’s name.  Does it matter that the money I transfer from my IRA be transferred to only the solo 401k accounts in my name?

ANSWER:  First you should confirm with Chase Bank by reviewing the bank statements that they setup the bank accounts in the name of the Solo 401k instead of each of your names. For instance, the name of your Solo 401k is ABC Solo 401k and both you and your spouse are making contributions including rolling over funds, each Solo 401k bank account would be setup as follows:

 Bank Account 1: ABC Solo 401k; FBO Jack Doe

Bank Account 2: ABC Solo 401k; FBO Janet Doe

Separate bank accounts are required for each Solo 401k trustee/participant because each of their respective contributions, rollovers and investment gains/losses and expenses must be separately accounted for.

QUESTION 2:  Once I start receiving rent checks and deposit them.  Does it matter which accounts I deposit them into?  

 ANSWER:  Yes it matters. For example, if you and your spouse both use your respective Solo 401k’s to purchase the property (duplex); the investment gains and expenses must be shared based on the percentage of ownership in the duplex.

 For example, if your Solo 401k purchased 60% of the duplex and your spouse’s Solo 401k purchased the other 40%, then your Solo 401k would be responsible for 60% of the duplex expenses and would also received 60% of the rents or sale proceeds. Obviously your wife’s Solo 401k would share in 40% of the expenses and profits from the duplex.

Furthermore, at the time of purchase, the real estate purchase documents including the deed can be recorded in one following two ways, for example:

Option 1: ABC Solo 401k

Option 2: ABCK Solo 401k; FBO Jack Doe 60%; ABCK Solo 401k; FBO Jane Doe 40%

The important pieces here are that the real estate purchase documents reflect the Solo 401k as the buyer and that Solo 401k funds are used. Then, as explained above, as trustees of the Solo 401k, you will need to allocate the rents and profits to your respective Solo 401k bank accounts based on the percentage of ownership in the duplex real estate.

QUESTION 3: Does it matter if I transfer the rent money back to my original IRA as long as it’s a qualified plan?

 ANSWER: It most certainly matters that the funds are returned back to the Solo 401k.  Since Solo 401k funds are making the purchase of the duplex, the profits and expenses must flow back to the Solo 401k, not your IRA. 

Lastly, as the Solo 401k trustee you are in control in making the investment decisions, safekeeping the real estate investment documents, transmitting the Solo 401k funds and properly filling out the real estate forms. Therefore, it is important that you document all the Solo 401k transactions properly. Visit Solo 401k Real Estate to review procedure for purchasing real estate with your Solo 401k. Further, visit Solo 401k forms for list of free forms including real estate forms for documenting Solo 401k real estate purchases, sales, and deposits

Does IRS frown upon S-Corporation Solo 401k?

BACKGROUND: I was told by other Solo 401k providers that the IRS frowns upon S-corporations that don’t receive earned income but instead passive income. As I mentioned...I have no passive income but I was told by other Solo 401k providers that I can receive $22k management fee for the properties and that would be considered self-employment income; thus, I could open Solo 401k.

ANALYSIS & RESPONSE:  While all business entity types, e.g., LLC, Sole Proprietorship, C-Corp. and S-Corp., for example, can generate self-employment income, in order to open Solo 401k and make annual contributions, the self-employment income must result from the self-employed individual’s personal services. As a result, passive income generally does not count towards compensation for Solo 401k qualifying or contribution purposes.

Direct form the horse’s mouth—here’s what page 15 of IRS Publication 560 has to say about self-employment income:

“Self-employed individual. You can make contributions on behalf of yourself only if you have net earnings (compensation) from self-employment in the trade or business for which the plan was set up. Your net earnings must be from personal services, not from investments.”  

Here’s the link to IRS Publication 560: Retirement Plans for Small Business:

http://www.irs.gov/pub/irs-pdf/p560.pdf

ANALYSIS CONTINUED:  Therefore, if you are generating self-employment income through your S-Corporation, which sounds like is involved in the real estate field, you may qualify for Solo 401k. However, make sure that you are performing services that led/lead to the self-employment income as detailed above and not from investments. In other words, if you are just sitting back and receiving passive income from real estate (collecting rents), but you are not performing services, e.g., fixing the properties, managing them, etc., you are truly not self-employed.  What’s more, make sure you are filing Form 1120S: U.S. Income Tax Return for an S Corporation to report self-employment income as this is the number one mechanism the IRS uses towards determining if one has self-employment income and thus qualifies for Solo 401k.  Lastly, we strongly recommend that you work in concert with your personal accountant to confirm if your S-Corporation is generating passive vs. compensation before proceeding to open Solo 401k.

Can I fund Solo 401k via IRA Rollover?

While reading your FAQs about opening a Solo 401k, I saw the following:

"How long do I have once my previous 401k is terminated to roll those funds
into my new Solo 401k plan?

You have 60 days from the day you receive your rollover check to roll your
funds over"

QUESTION: What if I have a Rollover IRA that contains 401k rollovers from several
previous employers over many years? Can I use some of that Rollover IRA to
fund a Self-Directed Solo 401k? After I open Solo 401k, can I add additional funds to the Solo 401k from that Rollover IRA later if I wish.

ANSWER: At the time you transferred/rolled over your former employer 401k plan to your Traditional IRA, your retirement account ceased being a 401k; therefore, your current retirement account is considered a Traditional IRA or what some in the industry like to refer to “Rollover IRA.”  Yes the rollover rules permit the rollover of IRA to a Solo 401k and vice versa. Further, partial direct rollover and rollovers are permited, but the latter only allows for one every 12 months. This is discussed further below. 

2 Ways to move Traditional IRA/Rollover IRA funds to Solo 401k

What’s more, there are two (2) ways to move traditional IRA funds to another retirement plan including Self-Directed Solo 401k, which are:

Rollover: When moving funds from a Traditional IRA to a Solo 401k via a “rollover”, the distribution check is made payable in your name (the IRA holders name) and tax reported on Form 1099-R by the IRA custodian as either an early distribution using code 1 if you are under age 59 ½ , or reported as a normal distribution on Form 1099-R using tax reporting code 7 if you are age 59 ½ or older at time of distribution. You then have 60 days from the date you receive the IRA check to deposit the funds to your Solo 401k account  or another IRA in order to avoid paying taxes, and the 10% early distribution penalty if you are under age 59 ½.  Lastly, the IRA rollover rules only allow one IRA rollover every 12 months.  

Direct Rollover: Under a direct rollover, the IRA custodian makes the check payable to the Solo 401k and reports the Traditional IRA direct rollover by issuing Form 1099-R and using tax reporting code G. As trustee of the Solo 401k, you then deposit the funds into the Solo 401k’s bank account.  You can process as many Traditional IRA direct rollovers because the 12 month restriction (1 rollover per 12 months) does not apply to direct rollovers.  

Lastly, even though you have option to fund Solo 401k via a rollover or direct rollover from your Traditional IRA, you first must qualify to open Solo 401k. To qualify for Solo 401k, you must be self-employed with no full-time employees.  

Thank you,
BK

Solo 401k Life Insurance and Loan Question

My Self-Directed 401k is getting ready to be funded into my Wells Fargo Solo 401k Checkbook control bank’s account. I wanted to know what the process was to use this money. I know I am able to use it to buy investments; I can invest in a company; I can take a personal Solo 401k loan; and I can lend it to someone.

QUESTION 1: Can I also use my Solo 401k to purchase life insurance for myself, and what about health insurance?

ANSWER: The 401k rules do not permit Solo 401k to invest in health insurance. However, the Solo 401k rules permit  Solo 401k to invest in Life Insurance but certain restrictions apply.  Please  click on Invest Solo 401k in Life Insurance to learn about the restrictions and the process.

QUESTION 2: I know I would have to keep good records and receipts on what I use My Self-Directed 401k for. What about a Solo 401k loan? Do I get the Solo 401k Loan paperwork from my Solo 401k provider or from the bank?

ANSWER: Wells Fargo only involvement with your self-directed 401k is to offer a bank account since you opened Solo 401k with a Solo 401k provider whose Solo 401k documents name you as trustee and allow for investing in alternative investments; hence why it’s referred to as Self-Directed 401k. All other matters (investment decisions, administration of the loan, safekeeping of the alternative investments, etc) are handled by you as Trustee of the Solo 401k.

To take a loan (Solo 401k participant loan) from your Solo 401k, the Solo 401k provider will need to prepare the loan documents after you provide the Solo 401k provider the loan specifics (amount, payment period, loan date).

Thank you for your help.

Sincerely,
Y M

Self-Directed 401k S-Corporation Contribuiton Questions

 

As I am in the process of initiating this Self-Directed 401K, I thought of giving you a brief intro about my background and the questions that I have. I feel this will be helpful for me.

Intro:

·         This year, I started my own company (S-Corp), a consulting company of which my wife and I are the only owners and employees.  

·         Prior to this, I was a fulltime-employee at a local company and for this year, I contributed around $4,000 towards former employer 401K.

·         Both my wife and I take monthly salaries (W2) through our S-Corp consulting business.

·         I rolled over my previous employer 401K to an IRA with Chase, which I would like to rollover to my new Self-Directed 401k for my S-Corporation.

·         My wife also would like to open Self-Directed 401K and transfer her former employer 401k to it.  

·         As part of the Self-Directed 401K, we want to make annual contributions and also want to explore the Roth-401k.

 

Questions:

 

Q1: Since I already contributed to my former employer’s 401k, am I eligible to contribute to my S-Corporation’s Self-Directed 401k for this year?

 

ANSWER:  As long as you have not exceeded the annual 401k contribution limit for 2012, you can make Solo 401k contribution for 2012. The limit on contributions to all 401k plans including Solo 401k (also known as Self-Directed 401k, Individual 401k, Solo K, Individual K, etc.) for 2012 is $50,000 plus an additional  catch-up amount of $5,500 for those age 50 or older.  Note that rollovers and transfers from IRAs or other 401k plans are not included in this figure as unlimited amounts can be directly rolled or transferred to Solo 401k.

 

So if you only contributed, let’s say, $4,000 to your former employer 401k for 2012, you can make an additional $46,000 contribution to your Solo 401k for 2012 provided you have the self-employment income from your S-Corporation to justify this contribution.    

             

Q2: This year’s W2 salary figures from our self-employed S-corporation for my wife and me is $60,000. Based on this figure, what would be the maximum Self-Directed 401K employee contribution, Roth-401K employee contribution and Profit sharing contribution? Also, this $60,000 does not include my previous employer’s salary amount of $75,000.  

 

ANSWER: To calculate the annual Solo 401k contribution for an S- Corporation, you must base it on W-2 income not pass-through profits.  

 

So if your W-2 income/compensation for your S-Corporation for which you would open Solo 401k through is $60,000 for tax year 2012, you would calculate your Solo 401k contribution as follows:

 

Step 1: Determine maximum Solo 401k Profit Sharing Contribution (employer contribution) by multiplying $60,000 by 25%, which = $15,000.

Step 2: Determine maximum employee contribution (salary deferral) by adding $17,000 to your maximum Profit Sharing Contribution amount of $15,000 and then subtract the $4,000 that you already contributed to your former employer’s 401k.

 

So your maximum Solo 401k contribution for 2012 based on $60,000 of W-2 income is $28,000.  

 

NOTE: the contribution limits separately apply to each Solo 401k participant. Therefore, if your wife also generated $60,00 of W-2 income from the S-corporation she could contribute $32,000 to her Solo 401k for 2012, assuming she didn’t make contributions to any other 401k for 2012.

 

Q3: Lastly, can I merge my IRA with mine and my wife’s Self-Directed 401k or are we required to maintain separate Self-Directed 401k accounts?

 

ANSWER: Just one Solo 401k Plan would be established for the S-Corporation, but two separate subaccounts, one for each Solo 401k participant, would be established to separately account for each participant’s contributions, rollovers, transfers and gains.  

 

Roth 401k:

The Roth option is not offer by all Solo 401k providers so make sure to first check with the Solo 401k provider that you choose to open Solo 401k through as to whether or not their Solo 401k plan document allows for Roth Solo 401k contributions. Roth Solo 401k contributions are made up of only the $17,000 portion known as the employee or salary deferral contributions plus the catch-up amount of $5,500 for 2012 for those ages 50 or older. Therefore, you would subtract the $4,000 that you already made to your former employer 401k, thus leaving you with $13,000 that can be applied as a Roth Solo 401k contribution for tax year 2012. Roth contributions have to be separately accounted for; therefore, a separate account would be setup under the same Solo 401k plan for your business and labeled Roth Solo 401k.

I hope you can help me with this.

 

Thanks,

NJ