Self-Directed IRA vs. Self-Directed IRA LLC

QUESTION 1: Quick questions - where is my money kept in a self directed IRA?

ANSWER: The liquid funds in a self-directed IRA is kept with a custodian such as IRA Services Trust Company or Sunwest Trust, as all IRAs are required to have a custodian.

QUESTION 2: Do I have any control over my money?

ANSWER: You can control the investments in the self-directed IRA in one of two ways:

Option1: Direct the IRA custodian in writing to purchase alternative investments.

Option 2:  Place investment yourself on behalf of the self-directed IRA by forming an LLC IRA.  Commonly referred to as a self-directed IRA LLC, we can facilitate the setup of a self-directed IRA LLC in which the IRA would become a member and you would be listed as the managing member. As a result, a bank account with a checkbook feature would be opened at your local bank for the LLC IRA and the IRA custodian would then wire the IRA funds to the LLC bank account. Once funded, you as the manager of the IRA LLC would place investments by writing checks.

QUESTION 3: Can I save pretax money in both a solo 401k and self directed IRA if so what are my limits?

ANSWER: Yes you can contribute to both a Solo 401k and a self-directed IRA at the same time. The maximum contribution limit to a solo 401k for 2013 tax year is $51,000.  The maximum self-directed IRA contribution limit for 2013 is $5,500. However, you may not be able to take a tax deduction for the full amount IRA contribution amount if you make over a certain income amount, defined as phase-out range for IRA deductibility. 

To learn about the self-directed IRA contribution limits visit:
http://www.irs.gov/Retirement-Plans/IRA-Deduction-Limits

Thanks in advance.

Justin T. from Wisconsin

Self Manage Solo 401k | Manage LLC Solo 401k

QUESTION: If a self directed solo 401k is the sole member of LLC then can debt financing be used?

ANSWER: Yes debt financing (solo 401k non-recourse loan) can be used if the solo 401k is the sole member of the newly created LLC.

QUESTION: Can the LLC manager hire contractors to perform repair work on Solo 401k owned LLC?

ANSWER:  Since the Solo 401k is investing in the LLC and the property will be owned by the LLC, you as the manager of the LLC will be responsible for hiring contractors to perform repairs on the property. Generally the Solo 401k owner self manages his solo 401k as well as the LLC. Note that you cannot perform the repairs since your solo 401k is the member of the LLC as it would be deemed a solo 401k prohibited transaction.

QUESTION: In a scenario where solo 401k is the only member and LLC has 100% equity in real estate, can the LLC take a line of credit to make further real estate investments?

ANSWER: A line of credit is basically a loan; therefore, the loan to the LLC would need to be a non-recourse loan because the solo 401k is the member of the LLC. You can learn more about non-recourse loan rules by reading following blogs from our main website as well as our sister website.

Thank you, Ron from Florida

http://www.mysolo401k.net/Blog-for-MySolo401k.html?entry=quick-and-precise-explanation-of

http://www.isolo401k.com/non-recourse-loan.html

http://www.isolo401k.com/qualifying-for-a-non-recourse-loan.html

http://www.isolo401k.com/non-recourse-loan-criteria.html

http://www.isolo401k.com/eligible-vs-ineligible-poperties.html

Transfer Promissory Note to Self-Directed Solo 401k

QUESTION: First off, thanks for all your help on creating my self-directed solo 401(k). I am very happy with the way things are going so far. I finally received my cash from Equity Trust and also three notes that I have outstanding. Equity Trust transferred those notes over to my Solo 401(k) but do I need to do anything else to complete the transfer or just file them away? Do I just file these away and everything is good? 

Also, since they came to me in 2013 do I need to file anything with the IRS showing a rollover of the assets?

Sincerely,

Ava O. Nevada

ANSWER: Make sure that the notes are each registered in the name of the solo 401k (i.e. the solo 401k is listed as the beneficiary/lender). You will need to sign as the trustee of the solo 401k and the borrower will also need to sign.

With respect to IRS reporting, if Equity Trust didn't process the direct rollover until this year it will not be reported on your personal tax return (Form 1040) until next year in lines 16a and 16b. Equity Trust will issue a Form 1099-R to report the full IRA direct rollover to your Solo 401k plan using code "G" in box 7 since the funds and assets were directly rolled over to the solo 401k plan. As such, when you receive the Form 1099-R from Equity Trust next January make sure code letter "G" is listed. Lastly, we will send you a reminder e-mail next January with clear instructions on how to report the direct rollover on your Form 1040.

Convert Individual 401k to Self-Directed Solo 401k

QUESTION: I have an individual 401K at Schwab and would like to convert to self directed solo 401k. I have also funds in IRA which I would like to move to the solo 401K.

Can you Please let me know the steps and how much time is needed for the transfer?  

Thanks
Aneil O. from Kentucky

ANSWER: The process will take about 7 days to convert your Individual 401k to a self-directed solo 401k, we need to know the effective date of the Individual 401k which can be ascertained from the Individual 401k adoption agreement.  We also need to know how the Individual 401k is currently titled at Charles Schwab. Next we need to establish an employer identification number (EIN) for the new solo 401k plan as it is most likely that you’ve been using your social security number. A separate EIN is required for the new self-directed solo 401k especially once you start processing alternative investments such as real estate, precious metals, notes, private company shares because the EIN will start flying around on form W-9 (an informational tax form) which is commonly issued when making alternative investments with a self-directed solo 401k.

Your next need to complete step 2 of the sign-up page:

http://www.mysolo401k.net/OpenSolo401k.html

You can either fill-in the setup information on your own, or please call us and we will walk you through the entire Solo 401k sign-up process.

Once we receive the required information to prepare your solo 401k plan documents, we will assist you in completing the Solo 401k trust adoption forms as well as prepare the IRA and Individual 401k transfer forms.  We can even assist you in setting up the self-directed Solo 401k brokerage account at Charles Schwab if you would like. That way you can continue using Chwab’s brokerage account services and us as your self-directed solo 401k provider.