BACKGROUND: Currently I have an
IRA account with Schwab. Due to financial hardship, my church asks loans from
members of the church. I want to lend ($100K with 2% rate interest only,
mature in 3 years) to my church from my IRA account, which was not allowed.
QUESTIONS:
I saw your website that a self-directed 401K plan might do. My questions are:
- Q1: How much can I roll to your account?
ANSWER: The IRS
solo 401k rules do not place a restriction on the amount of funds than can be transferred
from a Traditional IRA to a solo 401k.
- Q2: what are the fees?
ANSWER: We
offer a fairly priced solo 401k. Please visit solo 401k pricing to learn about our fees.
- Q3: do I need to have a
company? I do have an S-corp I still maintain but do not have too many
activities so far.
ANSWER: Yes pursuant
to IRS Publication 560, in order to open a solo 401k the presence of self-employment
is required and it can be on a par-time or full-time basis. Therefore, passive
income does not qualify as self-employment income.
- Q4: Can I use it to set up
this type of 401K to serve my needs?
ANSWER: While a
solo 401k may be invested in alternative investments such as promissory notes,
one must be careful not to run afoul with the prohibited transaction rules.
Some of
the prohibited transaction rules to be mindful of include the following:
The solo
401k assets may not be loaned to a disqualified party (e.g., the solo 401k
owner, the solo 401k owner’s spouse, parents, son or daughter, natural
grandparents, solo 401k service provider or a company that the solo 401k owner
has a controlling interest in, to a name few).
Further,
it would be prohibited for the solo 401k owner to have access or use the property
that the solo 401k funds were invested in.
What’s
more, it is important to understand that the intent of any solo 401k investment
has to be intended to benefit the solo 401k not the borrower. Therefore, if,
for example, the self-directed 401k loaned funds to a church at only 2 percent,
the IRS could rule that the investment was prohibited on the grounds that the
intention of the investment was not to benefit the solo 401k but rather the
church.
- Q5:
What kind of support do I have from you?
ANSWER: We offer a variety
of solo 401k services at one low annual fee. As a solo 401k provider, our solo 401k documents allow for investing
in alternative investments such as promissory notes. We are responsible for keeping
the solo 401k plan document in conformance with the IRS plan regulations.
Further, we offer free preparation of Form 5500-EZ and Form 1099-R. Form 5500EZ
is filed with the IRS on an annual basis once the solo 401k’s total value
exceeds $250,000 as well as when the plan is terminated. Form 1099-R is filed
with the IRS once distributions commence from the solo 401k, which is usually
at retirement, or when the solo 401k is transferred to an IRA or another retirement
plan.
Thank you,
HK in NY
