Can I transfer personal asset to Solo 401k?

 

QUESTION:

I have currently finished setting up my bank acct and EIN#. I have formed my LLC and even purchased one tax lien certificate (which has not paid yet). I would like to Open Solo 401K before that tax-lien pays or is it too late?

QUESTION:

Also, I work for the federal government, and have a TSP acct of course. I’m a current fed employee can I still roll that money into my Self-Directed Solo 401K?

Thank you

Barry

ANSWER: Please clarify: Is the tax lien certificate owned by you or your business? If either, you cannot transfer it to your Self-Directed Solo 401k, nor may the proceeds be deposited in the Solo 401k as it would be deemed a prohibited transaction.  

ANSWER: Yes the 401k rules permit the transfer of TSP to Solo 401k. However, because you are still employed you may be restricted from transferring the TSP out to a Solo 401k or an IRA. Ultimately, you need to contact your TSP administrator to see if they will permit you to transfer out your TSP to Solo 401k.

Barry: Well yes I purchased the tax lien last month through my LLC.
The money I used to fund my acct for my LLC is a loan from my TSP.
At any rate I would still like to do the solo 401K for my LLC.

MySolo401k.net Question: Is the LLC your self-employed business? Reason being, to open solo 401k you must be self-employed with no full-time employees. Passive income does not generally qualify as self-employment income either.

Barry: Yes --I have that business which I purchase tax lien certificates/deeds, & other real estate & other investments with. I'm also fully employed by the Dept of Veterans Affairs as a social worker/therapist.

ANWER: It doesn't appear that you qualify for Solo 401k because your business is for passive investment purpose.  To qualify and make contributions to Solo 401k, you must be self-employed, have not full-time employees and have earned income from self-employment activity.

Passive income generally does not qualify as self-employment income unless:

“Earned income only includes net earnings derived from the individual's personal services. Gains (other than capital gains) and net earnings derived from the sale or other disposition of property, or the licensing of the use of property, constitutes earned income if the individual’s personal efforts created such property.”

Please visit Self-Employment Compensation to learn more about qualifying for Solo 401k.

Self-Directed Solo 401k openning questions

Comment: We talked on the phone awhile. In January I will open my Self-Directed Solo 401k with income from my self-employment business.Would like to open Solo 401k now but my business will report a loss this year.

Solution: You can open Solo 401k this year even if you expect to report business loss this year. Reason being, the Self-Directed Solo 401k rules require the presence of self-employment activity to adopt a Solo 401k. In other words, it is understood that not all businesses are profitable every year, especially in light of recent unfavorable economic conditions. The key is not to make Solo 401k contributions in years that you do not generate self-employment income from services performed. 

Question: Reading the web site I found the option below which is one thing I want to use the solo 401k for.

I want to use an interactive broker account which is a margin account.

Is it as simple as opening the interactive broker account with the Solo 401k account name and EIN number?

Answer: We have a number of clients who have opened brokerage account for their Solo 401k with Interactive Brokers. In addition to completing Interactive’s brokerage account forms, they will need executed copy of your Solo 401k Adoption Agreement and Trust/Plan document which is where Solo 401k providers like us come in. Lastly, they will open the brokerage account in the name of the Solo 401k and under the Solo 401k plan’s EIN.

Question: Also, do I need one EIN number for my self-employed business and another for the Solo 401k?

Answer: Yes you need to establish a separate EIN for your Solo 401k. Please visit Solo 401k EIN to learn the steps. The EIN can be obtained in minutes via the IRS website.

Self-Directed Solo 401k contribution question

After I open Solo 401k plan, I plan to roll over an IRA into this Self-Directed Solo 401k . The amount is $95K.

I noticed I can put in $50K + $5,500 since I am over 50 for 2012.  So, do I roll over $55,500 to my Solo 401k and wait till January 2013 to transfer the rest?

What is the $50K based on? My self-employment income in 2012 will be less than $20K.  Does that impact the $49K or can I still contribute the maximum since I am rolling it over my Solo 401k?

I need to be able to put in the maximum amounts.  Please let me know.

Thanks,

Yanni

Answer: Rollover/transfers are not subject to the annual Solo 401k contribution limits.  In other words, the Sol 401k rules permit unlimited transfer/rollover amounts from IRAS, except for Roth IRAs, which the rules do not allow to transfer/rollover to Solo 401k.

Answer: The annual Solo 401k maximum contribution of $50,000 for tax year 2012 is based on net self-employment income minus 1/ 2 of self-employment tax. Therefore, if your net self-employment income for 2012 is $20,000, to calculate your maximum tax-deductible contribution you would first subtract ½ of self-employment tax; then contribute the remaining amount as a tax deductible contribution since it would be well below the $50,000 plus $5,500 catch-up limit for those age 50 or older. Please use our online contribution calculator to calculate your tax-deductible contribution.  To calculate your Solo 401k contribution, please visit Solo 401k contribution calculator.

Rollover SIMPLE IRA to Solo 401k Rules

While the Self-Directed Solo 401k is quite popular because it allows for higher contributions than other plans such as the SIMPLE IRA, owner-only business owners who are currently participating in a SIMPLE IRA and are considering rolling over or transferring their SIMPLE IRA to a Self-Directed Solo 401k (a/k/a Solo 401k, Individual 401k) with checkbook control to gain access to Solo 401k loan and/or make alternative investment purchases in assets such as real estate, tax liens, precious metals, private company shares, promissory notes, foreign currency, etc., you first need to consider the following SIMLE IRA rollover/transfer rules before continuing to open Solo 401k. 

Important SIMPLE IRA Transfer/Rollover to Solo 401k Rules

To qualify as a tax-free direct rollover, SIMPLE IRA assets may be rolled over into an employer sponsored plan such as a Solo 401k after two years of participation in the employer’s SIMPLE IRA plan. The 2-year window starts on the first day the SIMPLE IRA contribution was made. This doesn’t mean that you cannot open Solo 401k, just that you cannot rollover the existing SIMPLE IRA assets to Solo 401k until the 2 year waiting period has passed. Therefore, you have the option to participate in two retirement plans for the self-employed simultaneously, but still need to adhere to the rollover and contribution rules. For more information regarding participating in a SIMPLE IRA and qualified plan such as Solo 401k plan at the same time See http://www.irs.gov/pub/irs-drop/not98-4.pdf  [Q. b-3 “Can an employer make contributions under a SIMPLE IRA plan for a calendar year if it maintains another qualified plan?” ]

EXAMPLE of 2 year waiting period of Rollover of SIMPLE IRA to Solo 401k:

Jane Long is self-employed and maintains a SIMPLE IRA plan. Jane made her first contribution to her SIMPLE IRA on March 5, 2010. Jane is restricted by the 2 year rule from transferring her SIMPLE IRA funds/assets prior to March 5, 2012 into a Solo 401k because the two-year waiting period would not be satisfied. However, Jane can still open Solo 401k with a Solo 401k provider that offers Solo 401k checkbook control and make ongoing contributions to just her Solo 401k. Jane also has the option to contribute to both the SIMPLE IRA and Solo 401k but may not exceed the annual contribution limits between both plans. See http://www.irs.gov/pub/irs-drop/not98-4.pdf  

Lastly, it’s important to note that assets in employer-sponsored plans such as Solo 401k are not allowed to be rolled over to SIMPLE IRAs per IRS regulations.

How to open Self-Directed Roth 401k

The Self-Directed Roth 401k is really popular right now in light of evident future tax increases by the government. Those looking to open self-directed Roth 401k should be aware of the following:

The term self-directed Roth 401k is commonly used to describe the Roth option available within the Self-Directed Solo 401k.  In other words, a self-directed Roth 401k is not a separate type of Solo 401k, but rather part of the Solo 401k. This means that amounts designated/treated as Roth Solo 401k deferrals/contributions require maintained in a separate Roth deferral account—checking account or brokerage account in the case of a self-directed Solo 401k.

  

This may sound confusing to those that are new to the Self-Directed Solo 401k concept, but the following illustration should clarify the separate Roth Solo 401k accounting requirement

Separate Roth Solo 401k Accounting Example:

Fred, who is self-employed through his landscaping business with no full-time employees, decides to open Solo 401k titled “Precise Landscape Solo 401k Trust” and plans to make both after tax contributions (Roth) and pre-tax contributions (non Roth contributions).

Further, because the 401k rules require separate tracking of Roth and pre-tax contributions, Fred opens the following two checking accounts at his local bank for his Solo 401k plan, titled:

Bank Account 1: Precise Landscape Solo 401k Trust (Roth)

Bank Account 2: Precise Landscape Solo 401k Trust 

As you can see, Fred has not opened two Solo 401k plans, but instead two separate checking accounts. Therefore, Fred will be in compliance with the regulations as long as he separately tracks Roth vs. pre-tax contributions as well as investment gains.

Lastly, not all Solo 401k providers plan documents allow for Roth Solo 401k contributions, so make sure to first inquire if their Solo 401k plan document allows for Roth Solo 401k contributions before engaging their service.

How to Transfer IRA LLC to Solo 401k

 

Now that you have finally discovered that the Self-Directed Solo 401k (a/k/a Solo 401k, Individual 401k, Single K, Solo k, etc.)  is hands down better than the LLC IRA –also known as Self-Directed IRA LLC or IRA LLC, after you open Solo 401k the next step is to transfer/direct rollover the LLC IRA to Solo 401k.

Steps for Processing Transfer/Direct Rollover of IRA LLC to Solo 401k

The process of transferring your LLC IRA to your newly established Solo 401k checkbook control plan is relatively straight forward as long as you follow these steps:

Step 1: Make sure to open Solo 401k with a Solo 401k provider that allows for checkbook control Solo 401k.

Step 1: After you open Solo 401k, have the Solo 401k provider prepare IRA Direct Rollover/Transfer form and list the name of the IRA LLC to be transferred under the list of assets to be transferred section of the form.

Step 3: The custodian of the LLC IRA, whether Equity Trust, Pensco Trust, Entrust, Provident Trust, Sun West Trust, Sterling Trust (now part of Equity Trust), etc., will need to process and report the transfer/direct rollover of the IRA to the new Solo 401k by issuing Form 1099-R and using code “G” in box 7 of Form 1099-R. As such, in addition to submitting the IRA Direct Rollover/Trasfer Form, you will need to submit a final valuation for the LLC IRA to the IRA custodian.

Step 4:  After the IRA custodian receives the executed IRA Direct Rollover/Transfer Form, and IRA LLC Valuation/Appraisal, the IRA custodian will then assign the LLC IRA to the Solo 401k by preparing written assignment in the name of the Solo 401k.

Step 5: Once you, as the named trustee of the Solo 401k, receive the IRA LLC to Solo 401k assignment form from the IRA custodian, you will need to dissolve the IRA LLC by assigning the LLC assets, whether real estate, promissory notes, tax liens, precious metals, etc., to the Solo 401k. The assignment of the IRA LLC assets will need to be documented in writing. For example if real estate is currently held in the IRA LLC, you will need to prepare grant deed to document the assignment of the property from the IRA LLC to the Solo 401k.

Step 6: Deposit the liquid funds from the IRA LLC bank account to the newly established Solo 401k bank account.  Finally, dissolve the IRA LLC by filing Article of Dissolution with the state where the LLC was registered.