How the SECURE Act Weakens 401(k) Protections (& What You Can Do)

It’s hard to deny that one in five Americans not having put a single cent towards retirement is a social problem. But the policy solution Congress is enacting to address this issue may affect your 401(k).

As investors, we love the 401(k), the 1978 amendment in the Tax Code that quickly became one of America’s favorite retirement savings vehicles. But Congress is actively changing your 401(k)s legal protections. We’re not letting any of our readers get blindsided by changes in law. Unfortunately, the well-intended GOP bill with the stated goal of encouraging more Americans to save has real consequences that threaten all account holders.

Here’s what the folks in Washington are up to, and why some policy experts and scholars fear the 401(k) will be ultimately weakened and undermined by the SECURE Act.

Summer of Savings or Losses 2019? Congress’s SECURE Act Threatens 401(k) Protections

As of August 1, 2019, the Setting Every Community Up for Retirement Enhancement (SECURE) Act passed the House of Representatives. “Passed” is actually an understatement, given the bill flew through the House with a landslide 417-3 vote in favor of passage. We feel current projections anticipating a similar cruise through the Senate are likely accurate, and time will tell.

That said, keep in mind a bill can change substantially in the days, even hours, before its passage. Whether it’s amended in committee, filibustered, or provisions shuffle in and out at the last minute, there are many ways a bill can change in the moments before it becomes law. There is a distinct possibility that the bill at the time of this writing won’t be the exact version that passes, so confirm any effects you expect to personally impact your retirement plans.

Now’s a great time to remember that not every legislator reads or fully endorses every item in every bill they pass. Doing so takes hours of specialized time. So often, tucked within popular provisions are smaller edits and amendments that can actually make a massive impact if they become law. The changes to 401(k) protections are simply an example of this phenomenon.

For more information, see our article, How The SECURE Act Impacts Inherited IRAs.

Your IRA’s Not Safe Either: Certain Beneficiaries Can Kiss Stretch IRA Strategies Goodbye

The long-beloved stretch IRA is no longer a viable strategy for children of IRA beneficiaries. The  conventional estate planning and asset protection wisdom that has historically worked in these cases must change with the law. Even our attorneys used to recommend stretch IRAs for child beneficiaries, who are now excluded from stretching IRAs along with other non-spouse beneficiaries.

Fortunately, there are reasonable accommodations for certain situations, such as beneficiaries with chronic illnesses or disabilities or beneficiaries within 10 years of the decedent’s age, but otherwise, if you are the beneficiary of an IRA, you have to take your distributions within 10 years now. You no longer can rely on the stretch method to spread a large IRA over a lifetime, a tactic long used to preserve wealth within families.

Now, you have to use it within a decade or lose it.  

Update Your Estate Plan and Asset Protection Strategies to Account for New Changes

The best way to prevent any of SECURE’s possible negative effects in your own life is to plan around them. Keep eyes on the law, especially in its final form, and don’t be afraid to ask your own trusted professionals about possible impacts on either your asset protection strategy or estate plan. After all, the two are linked.

Given we can no longer fully endorse the same-old 401(k) asset protection advice, we encourage investors seeking alternative asset protection vehicles to consider forming a living trust to address estate planning needs. This flexible vehicle remains unaffected by these legislative changes.

Most Americans who participate in 401(k) plans will likely need to make some adjustments to their estate planning, and some may opt to change course in their retirement savings altogether. Whether changes will drive Americans away from the enduring 401(k) or legitimately promote access to retirement accounts is a policy question that only time will answer.

How to Protect Your IRA in Two Steps

How to Protect Your IRA in Two Steps

People will tell you that your IRA is safe and they're wrong. Your IRA is only safe from a lawsuit against you and somebody coming after your IRA. If your IRA is invested in an asset class such as real estate where it can be sued, the IRA itself is exposed. Your IRA is exposed in the sense that it can be disqualified. If any of the transactions of the IRA are exposed.

There's two things that we do. The first thing that we do is, we can split up multiple IRA accounts. That way if any one type of investment is disqualified or has some type of issue that the IRS would look at? This limits your exposure, because it's only that one account that we have to worry about.

The second thing that you could do is set up a self-directed IRA with an LLC. I like to do it with a Series LLC. What that allows us to do is if you look at our videos regarding the Series LLC structure, we can take each different asset belonging to the IRA and put it into its own series.

That way if there's an issue with asset A, it doesn't affect asset B, C, D, etc. And this way, if you have one property that has a lawsuit against it, somebody can't take your entire IRA amount. They could only take a very limited amount of that structure.  Be sure that your IRA is properly structured with asset protection, because it's not by default the safest way to do it.

My name is Scott Smith, I'm an asset protection attorney with real estate. I'm a real estate investor myself, and I want to help you. Click here to set up a consultation today!

Three Lesser-Known Benefits of the Roth IRA

It's not a secret to the bigger pockets community that I'm a big fan of the Roth IRA, but I love its features so much that I'm doing writing about it again. If you haven't already read my previous Roth IRA piece, it serves as a good primer. The information below, however, will illustrate some of the lesser-known perks of owning a Roth IRA.

Many investors and financial professionals are familiar with the main benefit of a Roth IRA. In short, it's the fact that after you pay taxes on the money going into the Roth IRA, the plan's investments grow tax free. Even better, when the time comes to take your distributions, you won't have to pay taxes on those either.  That being said, there are so many more benefits to the Roth IRA that you should know about if you're considering this retirement account option. Below, you'll find the top three.

Roth IRA Benefit #1: Exemption From Required Minimum Distributions

First, Roth IRAs are not subject to Required Minimum Distributions (RMDs). Traditional retirement plan owners are subject to RMD rules which require the account owner to start taking distributions and paying tax on the distributions at a given age. For most plans, the RMD rules kick in when the account owner reaches the age of 70 ½.
Why is this a benefit to you? To put it simply, dodging the RMD rules allows the Roth IRA to keep gathering and growing tax-free income. This tax-free benefit extends to capital gains or other taxes on the investment returns. This allows the account to continue to accumulate tax-free income during the account owner’s life time.

And perhaps even beyond. Learn more about how your Roth IRA can outlive you and provide your loved ones with additional security below.

Roth IRA Benefit #2: You Can Share the Love With Your Spouse

Death is inevitable. But if you were a smart investor who got a Roth IRA, your surviving spouse can continue contributing to that Roth IRA, provided your significant other is a beneficiary of that account. He or she can combine your Roth IRA into his or her own Roth IRA.

Allowing the spouse beneficiary to take over the account allows additional tax free growth on investments in the Roth IRA account. By contrast, a  Traditional IRA cannot be merged into an IRA of the surviving spouse nor can the surviving beneficiary spouse make additional contributions to this account. Non-spouse beneficiaries, such as the children of a Roth IRA owner, cannot make additional contributions to the inherited Roth IRA and cannot combine it with their own Roth IRA account. Other beneficiaries are subject to required minimum distribution rules,  but they can delay out required distributions up to 5 years from the year of the Roth IRA account owner’s death. Additionally, they are also able to continue to keep the tax-free return treatment of the retirement account for 5 years after the death of the owner.

The second option for non-spouse beneficiaries is to take withdrawals of the account over the life expectancy of the beneficiary. So, young beneficiaries can delay taking money out of the Roth IRA for quite a longer than older beneficiaries. The lifetime expectancy option is usually the best option for a non-spouse beneficiary to keep as much money in the Roth IRA as possible while also reaping the benefits of tax-free returns and growth.

Roth IRA Benefit #3: No Early Withdrawal Penalties

That's right!  Roth IRA owners are not subject to the 10% early withdrawal penalty for distributions they take before age 59 ½ based on their own contributions or conversions. This is one reason that many investors choose to go Roth-style: the early withdrawal penalty certainly applies to those using 401ks or Traditional IRAs.

However,  growth and earning are subject to the early withdrawal penalty and to taxes too. But if you do find yourself in a situation where you must withdraw early, you can always take out the amounts you contributed to your Roth IRA or the amounts that you converted. These funds will be available to you tax- and penalty-free.  But if you do this, be aware that conversions have a five-year waiting period before you can take out funds while avoiding penalties or taxes. If you're relying on conversions, you'll want to let them sit for those five years.
Roth IRAs are an awesome resource for investors who are eligible to open them. There are some qualification rules for Roth IRA eligibility that leave out many high-income individuals. But as always, there are loopholes you can exploit in this situation.  You can convert your traditional retirement plan dollars to a Roth IRA (sometimes known as a "backdoor Roth IRA") as the conversion rules. This works and is legally permitted because there is no income qualification level requirement on converted amounts to Roth IRAs. This conversion option has in essence made Roth IRAs available to everyone regardless of income.

And everyone includes you. So, are you considering a Roth IRA? Have you already been seduced by this sexy beast of a retirement account? Do you have any more questions? Let's keep the conversation going in the comments section below. I'd love to hear from you, and will do my best to answer questions with the time I have available.

5 Most Common IRA Contribution Questions

My clients are always asking me what the deal is with the individual retirement account (IRA).  Don't worry if you're totally lost when it comes to retirement accounts. I spend a lot of my time addressing all sorts of IRA-related queries. Like if it's a good idea to get one even if you're young. Or why  I'm so into this Roth dude that people are constantly talking about talked, and if he's paying me off? (He isn't. He also isn't a "he" either--more on that below). Or what the maximum IRA contribution level is. And will the taxman cut retirees a break, finally? Maybe if I ask super nicely?

Fear not, friends. I've got your backs.  Here are the five most common questions I get about IRAs, finally answered in plain English.

Question #1: Is My Contribution Tax Deductible?

Maybe. All sorts of things factor into whether you will get a deduction. Some circumstances the taxman considers include whether you're married, if your job is backing your IRA, what tax bracket you fall into, etc.  Depending on those variables, you’ll be placed into one of three categories.

Group 1: No Tax Deductions

Contributions to a Roth IRA aren’t deductible. Never. Sorry about it. That said, contributing to your Roth account is still a good idea. You'll want to check your  modified adjusted gross income (MAGI) . Roth accounts have a cut-off for how much you can earn annually and still be eligible to hold the account at all.
If you're really looking to save in tax terms, one strategy you can use is maxing out your 401(k) or 403(k) first. You'll get all the same tax perks of the old-school IRA, and more, since you're a superstar taking advantage of multiple accounts.  You can even have one of these AND an IRA if you want to be super comfortable in retirement.

Group 2: Deductions with Limits

You may fall into this group if either of the following apply to you.

  1. You or your husband/wife are covered by your employer.
  2. You or your husband/wife are outside of the allowed income range.

Now you'll need to be aware of the fact that the IRS changes its parameters on this matter all the time. You'll want to do some research to ensure your eligibility before moving forward with filing. If this is confusing for you, call your lawyer and ask for help.

Group 3: Total Tax Deductions

You belong to this group if both of the following statements apply.

  1. You don't have a retirement plan through your work, and aren't married to someone who does.
  2. Your income(s) falls under the IRS cut-off point.

See above for information on income ranges. We'll talk more about the cut-off points below.

Question #2: Can I Contribute To An IRA Even if I Have It Through My Employer?

You bet! And frankly, you  probably should, especially if that employer is matching or offering other incentives to do so. You don't even have to have a conventional account.  SEP (self-employed) or SIMPLE IRA account holders can take advantage of this as well.

You'll want to note that there are limits to how much you can contribute. You may not be able to deduct the entire amount, but that will depend largely on your circumstances. (See Question #1 for more details on that).
I can already hear some of you saying, "Wait! I'm not covered by my job."  Take a deep breath now. That's okay. You can still contribute to an IRA. One of the perks of IRA plans is that they're available to literally anyone: which type (self-directed, Traditional, etc.) is best for you will depend on your circumstances. There's even the SEP IRA option for self-employed folks. Those contributions could even be deducted entirely depending on your income. Again, consult a CPA on this matter.

Question #3: Is It Possible to Contribute if I Didn't Earn Anything This Year, But My Spouse Did?

Absolutely.  You'll have to file your taxes jointly to do this, but it's A-okay with the taxman if only one partner is earning taxable income. It doesn't matter which individual  earned the money you plan to contribute.
As with all things tax-related, there are some restrictions. You have to ensure your contributions don't exceed those. The limits for 2018 are $5500 in if you're under the age of 50, or $6500 if you're over the age of 50.

Question #4: Is There a Way to Contribute To My Roth Account If I Earned Too Much Money In 2018?  

The IRS has set the contribution cutoff at $135,000.00 for single individuals and $199,000.00 for couples who file jointly, which up significantly from last year. Some exceptions apply if you are a qualified widower. If you're married and filing separately, you aren't eligible for a Roth account. Whether you want to reconsider how you file is up to you.

It comes right down to whether you earned more or less than that figure above. If you're under that number, you're good to go.  But if you have earned more, your Roth custodian can limit or even freeze your account.

But there are loopholes here if you do earn more than the Roth cut-off. You can use a Traditional IRA (which is available to everyone, regardless of income). Contribute to that, and pay the taxes upfront. Now roll that cash money over to your Roth IRA. Why this is legal is you've already paid the taxes, so it's eligible to transition into the Roth. Pretty cool, right?

Fun fact for all my retirement superstars out there: This tactic was made possible when the IRS removed the income level restrictions for making Roth conversions in 2010.

Question #5: Can I Contribute To My IRA if I'm older than 70½?

Maybe. The type of IRA you use is the critical factor here.
If you've gone with the old-school IRA, the answer is no. Once you hit that age, you won't be able to contribute any further. But if you've opted for a Roth IRA, you can still add funds there. You may also move funds between IRA accounts.  Barring any unforeseeable and unlikely dramatic changes of law, this will always be true, even if you live into your 100s.

And I sincerely hope you do!

There you have it. Those are the short versions of answers to the five most common IRA questions I get. If there's a detail still gnawing away at you, or if a question you didn't see answered above, please use the comments below to ask about anything still on your mind. Thanks for reading!

Quick Fix: IRA Contribution Limits for 2018

Hello, fellow investors. Every new year, I get many questions about IRA contribution limits and what changes have taken effect. This year, there have been many more questions than usual about this subject, as well as the new tax laws.  Don't worry, there's an article in the works about how these new tax laws will impact real estate investors soon. While it would be impossible to answer all of the questions I've received in this space, I will be giving an update on the IRA Contribution Limits for 2018.

Today, we're just going to talk about a "quick fix" for your IRA and retirement concerns. We'll also show you one big way to get around the 2018 limits and make the most of your retirement savings.  Even better, you can learn all of this information in less than ten minutes.

2018 IRA Contribution Limits

Let's start with the good news:  IRA contribution limits remain the same in 2018 as they did in 2017 (and even as far back as 2016). Here's the quick and dirty update:

But maybe you want to contribute more. If you're ready to take your retirement account to the next level, here is our Quick Fix solution:  take advantage of a self-directed IRA LLC.

Why Is a Self-Directed IRA LLC Good For Me?

Self-Directed IRA LLCs  are a mouthful to talk about, so it's possible you haven't even heard of this tool at all. But they will offer you the ability to make tax-free investments without custodian consent. Since you don't need to get permission from a custodian (you are, after all, an adult--or possibly an extremely bright teenager planning retirement early), you can make the investments you want, and you can make them faster than you would if you were stuck in Traditional IRA Land. Self-directed IRA LLCs are special purpose liability companies. Yours will be fully owned and managed by you. You can lord over it and feel like a God on the weekends. The LLC can become a pass-through for tax purposes, which allows you, the owner, to assume the tax burden instead of the LLC. This gives you tax options.

In most cases, income and gains flow back into the IRA tax-free. You are also able to keep and funds in an LLC bank account without having to go through a custodian. These accounts operate similarly to personal checking accounts, but the company is separate from you as an individual. You have control over, and access to your money, which means greater investment flexibility.

You can invest in anything from your IRA LLC. And when I say anything, I mean literally anything: real estate, gold, Bitcoin, and so much more is all fair game. Your only limit is your imagination. No matter where you put your money, your income and gains flow back into your fund tax-free. You can stick it to Uncle Sam--who among us hasn't wanted to? And even better, you can maximize your contributions and plan the retirement you've fantasized about for during your working life.

Quick and Dirty Recap of Self-Directed IRA LLC Benefits

So, to briefly review for the scanners in the audience, when you get a Self-Directed IRA LLC:

Pretty cool, right?

That's it for today. If you have any questions about Self-Directed IRA LLCs, want to sing their praises, or want to pick an argument with me because you think I'm totally off-base, you can do so in the comments below. Let's spread the Self-Directed IRA LLC Gospel  and work towards a happy, healthy, and comfortable retirement plan together.


RMD Penalty Waiver: Using The 5329 Form For a Missed IRA Required Minimum Distribution

With all due respect to any financial masochists in the audience, nobody derives pleasure from paying taxes. But it's kind of part of the deal of living and working in the United States.

You have to pay Uncle Sam, and he's not about to start making exceptions for the money from your IRA. One of the requirements of IRA accounts is that you will have to take a Required Minimum Distribution eventually. Failure to do so  is something Uncle Sam frowns upon. In fact, he dislikes it so much that he'll send his minions to hit you with a massive 50% penalty.

The penalty is 50% on the amount you should have distributed from your IRA to yourself. This is tremendously annoying to a person who has otherwise been fiscally responsible, because they are essentially being punished for failure to pay themselves. From their own IRA. You know, the kind of account most of us save into for all of our working lives.

The irony of this situation is lost on nobody, but with that massive of a threat hanging over your head, you should know how to avoid it.

So, if you've been hit with the 50% penalty, don't throw yourself a pity party just yet. There’s some good news about how you can possibly get a RMD penalty waiver.

Steps To Getting the RMD Penalty Waived

In the event that you failed to take RMD for your IRA, you may be able to get a waiver for the penalty if you admit the mistake to the IRS by submitting the forms we'll talk about below (See Steps 2 and 3).  We all know Uncle Sam loves his paperwork, and yes, I'm telling you that you can possibly get back in his good graces with his favorite thing: more paperwork!

Fortunately, it's not an overwhelming amount of paperwork, especially for what you stand to gain (or more accurately, not lose). I'll describe the process in two simple steps, laid out in plain English.

Step #1: Take The RMD

Even if you know fully well that you intended to dodge the RMD, you're going to have to correct the "error" to get any sympathy from Uncle Sam. Better late than never. But you want to get this first step knocked out as expeditiously as you can, so you can move on to the super fun forms in Step #2.

Step #2: Complete Section IX Of Form 5329.

First, you'll need to say what you should have taken as an RMD. Using this number, you will calculate the penalty tax due. It's okay if you're not a math whiz—use a calculator

Now scroll down to Line 52. Here, you will need to put the letters "RC" next to the exact dollar amount you are requesting to have waived.

Step #3:  Attach a Missed RMD Letter of Explanation

Your statement of explanation will need to hit on two key points. The first thing you need to explain is the “reasonable error” that caused you not to take RMD. The IRS does not provide a precise definition or clear-cut circumstances for “reasonable error."  However, one expert I consulted with the IRS told me the IRS does respond well to oversights in a broad variety of situations where they can be persuaded the error was unintentional or otherwise not your fault.

Since these categories are vague, let's look at circumstances or situations that have worked for other taxpayers in this situation.  

Examples include suffering from a mental illness or falling victim to a damaging health situation or equally legitimate reason that may have stopped you from filing accurately.  If you've reached the age of 70 ½ years, or are new to taking RMDs, or fail to understand the requirement, these can also serve you. Other clients have succeeded in receiving waivers based on taking bad recommendations from a professional they had entrusted to help them, such as an advisor, custodian or accountant.

If one or more of these situations apply to you, list any and all of them. The IRS, despite its hawkish reputation, does certainly respond to logic and, if you're lucky, with empathy.

The second thing you need to explain is the reasonable steps you took or intend to take in the immediate future to remedy the mistake you made.

Showing Good Faith Gets You The Waiver

By the time you’re filing the exemption request, you want to have already contacted your IRA custodian. If you haven't by this point, be sure to do so before you file. This way, you can take the late RMD (see: Step 1). This means that as soon as you submit the RMD penalty tax waiver, you would be caught up and would have already remedied the error. Showing good faith is more likely to get you the waiver you need.

You can contact the IRS's Taxpayer Advocate Office as well for assistance following these steps, as well as more specific advice regarding your individual situation.

Keep in mind that RMD failures won’t go away. Uncle Sam is like an elephant: he never forgets. Sooner or later you’ll start getting collection letters from the IRS requesting the 50% penalty tax. The best way out of it is to get as ahead of it as you possibly can. You should correct your RMD failure, request the waiver, and fill out all of the necessary paperwork as soon as you learn of the looming problem.

This is especially if you have an inherited Roth IRA, as those withdrawals would ordinarily be totally tax-free! 


If you’ve been hit with a 50% penalty don’t panic. You may be able to get a waiver for the penalty if you admit the mistake to the IRS by filing a 5329. Come clean. Throw yourself at the mercy of the court.

You’re going to have to write a Statement of Explanation that outlines:

  1. What makes your error “reasonable,” such as mental health issues or bad advice from a bad advisor. The IRS is, at times, capable of compassion.
  2. The process you are planning to take, or have taken, to correct the error. If you’re on top of things, you’ve already taken the missed RMD. This makes everything clean, from your explanation for the error, to the enemy’s acceptance of your reasonable explanation.

Keep in mind that RMD failures don’t disappear. The IRS is a relentless, greedy machine. They WILL get their money. Get your error fixed!

Hopefully your panic level has dropped by now. The above is a simple, clear explanation of what steps you’re going to take. Essentially, your explanation will be that you already corrected the RMD failure as quickly as you could upon learning of the error.

If you are the beneficiary of an inherited IRA, check out our article, Calculating RMD For An Inherited IRA.



Top 10 Features Of The Solo 401k Plan: Empower Your Business

Are you an independent contractor or the only employee of a business you own? If so, you may want to learn about the Solo 401k.

A Solo 401k is a dream come true for small businesses, independent contractors and sole proprietors, such as consultants or freelance writers. A Solo 401k Plan can be adopted by any business with no employees other than the owner(s).

The business can be a sole proprietorship, LLC, corporation, or partnership. The Solo 401k is a tax efficient and cost effective plan offering all the benefits of a Self-Directed IRA, plus additional features.

Solo 401k Features and Benefits

1. Easy to maintain.

There is no annual filing requirement unless your solo 401k plan exceeds $250,000 in assets. If it does you will need to file a short information return with the IRS (Form 5500-EZ).

2. Freedom of choice and tax-free investing.

With a Solo 401K Plan, you will be able to invest in almost any type of investment opportunity, including:

Your only limit is your imagination.
Note: The income and gains from these investments will flow back into your Solo 401K Plan tax-free.

3.You can get a loan.

The Solo 401k allows you to borrow up to $50,000 or 50% of your account value, whichever is less. The interest rate will be the current prime rate. You can use the money for anything you want.

4. No Custodian fees.

A Solo 401k plan allows you to eliminate the expense and delays that come with an IRA custodian. This enables you to act quickly when the right investment opportunity presents itself.

Also, because you can open a Solo 401k at any local bank or credit union you won't have to pay custodian fees for the account as you would in the case of an IRA.

Another benefit of the Solo 401k plan is that it doesn't require you to hire a bank or trust company to serve as trustee. This flexibility allows you to serve in the trustee role. This means all assets of the 401k trust are under your direct control.

5. High contribution limits.

While an IRA only allows a $5,500 contribution limit (with a $1,000 additional “catch up” contribution for those over age 50), the solo 401(k) contribution limits are $54,000.  (With an additional $6,000 catch up contribution if you're over age 50.)

Under the 2017 Solo 401k contribution rules, if you're under the age of 50 you can make a maximum employee deferral contribution in the amount of $18,000. That amount can be made in pre-tax or after tax. The after-tax method is known as the Roth account.

On the profit sharing side, your business can make a 25% (20% in the case of a sole proprietorship or single member LLC) profit sharing contribution up to a combined maximum, including your employee deferral, of $54,000.

If you're over the age of 50, you can make a maximum employee deferral contribution in the amount of $24,000. That amount can be made in pre tax or after tax (Roth). (Up to a combined maximum of $60,000.)

6. Contribution options.

You always have the option to contribute as much as legally possible, as well as the option of reducing or even suspending plan contributions if necessary.

7. Roth contributions.

The Solo 401k plan contains a built-in Roth sub-account you can contribute to without any income restrictions. With a Roth sub-account, you can make Roth type contributions while having the ability to make significantly greater contributions than with an IRA.

8. Tax deductions can offset the cost of your plan.

By paying for your Solo 401k with business funds, you would be eligible to claim a deduction for the cost of the plan, including annual maintenance fees.

9. Exemption from UDFI tax.

When an IRA buys real estate that is leveraged with mortgage financing, it creates Unrelated Debt Financed Income (UDFI). This means you're going to be paying a lot of money in taxes!

How much is a lot you ask? The UBTI tax is approximately 40% for 2017-2018! Learn more details about this whopping tax penalty from our previous UBTI breakdown.

But, with a Solo 401k plan, you can use leverage without being subject to the UDFI rules and UBTI tax. This exemption provides significant tax advantages for using a Solo 401k Plan over an IRA for real estate purchases.

10. Rollover options.

A Solo 401k plan can accept rollovers of funds from another retirement savings vehicle, such as an IRA, a SEP, or a previous employer's 401k plan. Which means you can directly rollover your IRA or qualified plan funds to your new 401k Plan for investment or loan purposes.
Note: Roth IRA funds can't be rolled into a Solo 401k Plan.

Still Using an IRA?

While the IRA is nice and all, it just can't compete. With a solo 401k plan, your business will pay less in tax, and you won't have to deal with the typical IRA restrictions.

Are you interested in learning more about Solo 401ks? Call Royal Legal Solutions at (512) 757–3994 to schedule your retirement consultation today.

What is the Self-Directed IRA?

Do you have an IRA? If yes, you've probably only invested in mutual funds and other types of stock investments. But did you know lot of people that are in the know are now using their IRAs to invest in real estate and other more productive assets? All thanks to the self-directed IRA.

The Self-Directed IRA Basics

As its name suggest, the self directed IRA is an IRA you self-direct, or control. You might think that you control your IRA already. The truth is you don't. Your IRA is controlled by a custodian, and you have a limited choice of investments. You can only invest in things like stocks, bonds and mutual funds.
But by using a self-directed IRA, you'll be able to take complete control of your IRA. You'll be able to streamline the investment process and cut out the custodian, which means no more custodian fees or undue delays. And the best part? You can invest in real estate using a self directed IRA!

The Self-Directed IRA Rules

However, there are certain restrictions that apply to self directed IRA investors. You don't want to violate the IRA rules. (If you do, there are several consequences, including a fine.)
For example, one of these IRA rules is you can't loan money to a disqualified person. Also, there are certain assets that you can't invest in such as artwork, life insurance or collectibles.
Yet despite all these IRA rules, the self-directed IRA is the most powerful investment tool available for an IRA owner. Once you have a self directed IRA, you'll be able to use to invest your IRA funds into highly profitable asset classes with the ease of not having to involve a custodian.
If you have any questions about the self directed IRA, I've written several blog post that should be able to answer all of your questions. To learn more about the self-directed IRA (including how to fund and create one), check out our answers to top self-directed IRA questions. You may also be interested in learning how to buy real estate with your self-directed IRA.
If you have more questions or want to establish your self-directed IRA, Royal Legal Solutions is here to help. Contact us today.

Do You Need An IRA Custodian?

Every IRA is required to have a custodian. But not everyone needs or wants the services of a custodian. Most of the time investors are forced to use custodians due to the way traditional IRAs are set up.

A custodian is someone you need to finalize your deals. You might even have a custodian choose your investments for you. And if that's the case, you want to make sure you have a custodian who knows the prohibited transaction rules inside and out.

Keep in mind, not all IRA custodians are created equal and the IRS isn't lenient. If your custodian breaks the prohibited transaction rules with your IRA funds, you're the one they'll penalize, not your custodian.

The Self-Directed IRA Custodian

As I said earlier, not everyone wants or needs an IRA custodian. And that's where the self-directed IRA comes in. Investors with self-directed IRAs can take on the responsibilities of a custodian.

Yes, that's right, these investors volunteer to do more work. The benefits of doing your custodian's job include the following:

But you can't just become your own IRA custodian right away. You'll need to know the IRS's prohibited transaction rules. Unless you want to pay a steep penalty tax.

When you're your own custodian, you can also get an attorney who's familiar with the IRS's rules to look over your deals for you. An attorney will be able to make sure your deals are in compliance with IRS rules and not disqualified transactions.

Always remember, with an IRA custodian you get what you pay for. Same thing with an attorney. If you plan on investing purely by yourself, make sure you know what you're getting yourself into. The IRS isn't known for being lenient.

If you need assistance managing your retirement account or reviewing your IRS compliance, schedule your consultation with our online tool.

Your IRA Isn't As Safe As You Think It Is: Protect Your IRA

People will tell you that your IRA is safe. I mean come on, it's a retirement account. Yet in reality, they're wrong. Your IRA isn't safe.

The only protection you get by default with an IRA is that it's separate from your personal assets. What this means is someone can't sue you and your IRA at the same time. They'd have to choose to sue either you or your IRA.

But that doesn't make your IRA safe from litigation, especially if your IRA is invested in a lawsuit-prone asset class such as real estate. Also, your IRA is exposed in the sense that it can be disqualified if any of its transactions aren't IRS-approved.

The last thing you want is for the IRS to disqualify your IRA. The penalties are extremely costly.

How Do You Protect Your IRA's Assets?

There are two things you can do to protect your IRA.

The first thing you can do is split your IRA into multiple accounts. Doing this would limit your exposure. For example, if someone sues one of your properties, or if the IRS disqualifies one of your IRA's, the damage would be limited to only one IRA.

The second thing you can do is set up a self-directed IRA with an LLC. I personally like to use a series LLC.  What this allows you to do is take each different asset belonging to your IRA and put it into its own "series." Each series functions as its own LLC.

Let's say someone then sues one of your IRA held assets, which happens to be in a series. Worst case scenario, you lose the lawsuit. In that lawsuit only one of your assets would be affected. The majority of your IRA holdings and wealth will be protected.

Protect Your IRA Properly

By default your IRA is largely unprotected. This means that until you implement asset protection your IRA is exposed to attack, either by the IRS or someone else. If you've invested into multiple properties with your IRA I recommend implementing an asset protection right away.

I hope this information was useful to you, if you have any questions feel free to comment and ask me. Check out my other blogs to learn more about asset protection. If you need help setting up a Self-Directed IRA LLC or asset protection plan, schedule your personal consultation today.