QRP — Best Self-Directed Retirement Plan…EVER?!

Shhh….are you one of the chosen ones bestowed with the wisdom that is….shhh….QRP?! It seems to be the rave when it comes to a self-directed retirement plan, but should it be?

It has such a mysterious and sexy name, it just has to be good, right?! Based on how the product is being promoted, self-directed investors should be lined up to sign up for this be-all-and-end-all retirement plan. And, in reality, some lining up has occurred.

But, should investors be lining up?

Nothing in this post will be or should be interpreted as being critical of the promoters of these plans…I believe they are marketing geniuses! But, the promoters do give an impression that the QRP is…pick whatever words you wish or have heard…special, unique, something that no one else is doing, something that no one else is even aware of…you get the drift. Is it fair to give this impression? Probably not when you actually know what the QRP is…and, trust me, you already know WHAT it is.

Yes, the QRP is…..

A Qualified Retirement Plan, and…

You already know what it is, the QRP is just wrapped in different wrapping paper…and,

Promoters emphasize the wrapping paper of the QRP.

The QRP is a 401(k)! Whether you call it a QRP, 401(k), Individual 401(k), Solo-K, Uni-K…it does not matter. However, even if the promoters acknowledge that this is a 401(k), they will give the impression that is not just ‘ol regular 401(k). If they did, one might question the fee structure. But the QRP is a 401(k), with a slight wrinkle.

We will address that wrinkle later in a subsequent post, but the wrinkle if a wrinkle that PGI (and others) have been offering to their clients for years (in PGI’s case, over a decade). It is not a “Eureka” moment…it has always been available to you…and, just possibly, maybe with a lower professional fee structure.

Can other plans be a QRP?

Yes, yes, and yes. Again, don’t get caught up in the sexiness of the name. A QRP could be a 401(k), SEP-IRA, SIMPLE IRA, DB (Defined Benefit) Plan, Cash Balance, Pension, etc. But for the majority of you reading this, the QRP is never going to be anything more than a Solo-K Plan!

What Business Structure can Sponsor a QRP?

Just like the business structure requirements associated with a 401(k), a QRP could be sponsored by a sole proprietorship, LLC (pass-through), Sub-S or C-Corps. Remember, in reality, the QRP is nothing more than a 401(k).

Power of Perception

In this writer’s personal and humble opinion, the QRP is nothing more of less than a Solo-K. Promoters will most likely take a differing view (more on that later) on this point. I want to opine they are merely capitalizing on the titling of the plan with one small wrinkle (which we will address in the next post). In the end, it is still a Solo-K plan.

To show this power of perception, I will use a current client who contacted me asking me whether he should set up a QRP for a proposed investment in Costa Rica. He is a doctor, no money issues….you get the drift. He wasn’t wanting to terminate his 401(k) through PGI, he wanted to “add” the QRP (that is a whole other conversation that we will not address here…think of the fact that he would not need 2 401(k) plans!).

Perplexed on what he was asking, I asked him to explain more (what he told me followed by how I responded):

  1. He could rollover funds from his Solo-K into the new QRP (first, he already has a 401(k) and this would be a 401(k)…why did he need this QRP?)
  2. He could make contributions in to his QRP to the tune of $62,000 (over the age of 50 (I told him he could make the same level of contributions to his Solo-K).
  3. He could take IRS-permitted participant loan(s) from his QRP (I told him he could take IRS-permitted participant loan(s) from his Solo-K as well…with the same rules/benefits).
  4. He would have full freedom and flexibility with the administration and operation of his QRP (I told him he already had that with his Solo-K and his account provided him checkbook/wire access and the ability to invest into both Traditional and Non-Traditional assets…all from one account).
  5. He said the promoter said they had “figured out” how their QRP could be designed to permit an investment in a foreign country (Costa Rica) (I told him his Solo-K placed no restrictions on investing into property in a foreign country….he had the full ability as the Trustee to do that).
  6. He was a little sticker shocked, but said the professional fee was $6,000 (in fairness to the promoters of QRP, this professional fee is probably, give or take, 100% more than the typical fee of around $2,600 – $3,000 for set up (not counting annual fees). I reminded him how little his professional fee was in comparison).

Guess who did not set up a QRP, nor needed one?!

The next post on this topic will explain the following:

  1. The costs associated with the QRP;
  2. The differences between the QRP being marketed and an actual Solo-K
  3. Typical fee savings in selecting a Solo-K (that can provide the exact structure of what the QRP is marketing); and,
  4. The “secret” (maybe not a “secret” but a good marketing term to use) and primary difference between the QRP and the Solo-K. With this information, you will understand that what you can do in a “QRP” is exactly what you can do with the Solo-K…you just need to ask your document sponsor if they can structure the same way (most will/can be able to do so…certainly at a lower professional fee structure).