De-Mystifying the QRP

In a previous post we discussed that a QRP is really nothing more than a marketing term. Kudos are due to the marketers associated with the QRP, as they have created a bit of sexiness and mystery to the product. The goal in this post is not to promote or criticize the QRP, but to de-mystify the QRP….what is it and it is any different than a Solo-K?

What is the QRP? Generally speaking, the “QRP” is a fancy moniker for, yes, a Solo-K!

As a reminder, the QRP is nothing new and can really refer to any retirement plan including a SEP-IRA, SIMPLE IRA, Pension Plan, DB (Defined Benefit) Plan or Cash Balance.

QRP Cost

The promoters of the QRP will indicate that this is much more than a 401(k), thus possibly justifying a higher fee structure for their plan. Which leads to the question: what is the fee structure for the QRP? As an example with one promoter:

  1. Initial set up fee — $2,600.
  2. Annual fees for your plan — $400 ($399 to be exact)

In fairness to any company, please review their professional fees with them and, as they say, compare “apples to apples.” The example that is provided is a current fee (June 30th, 2019) structure for a company promoting the QRP concept. Companies can, at any time, lower or increase their professional fees.

A tad expensive? Do you need to spend this amount for a plan with the exact same structure and benefits? No.

But is there more?

Yes!

The QRP promoters will indicate this higher professional fee is justified by the benefits the QRP will provide. So, let’s see what these “benefits” are compared to a Solo-K (my responses are in parenthesis).

The promoters may say :

With the QRP, you can put in significant contributions, up to potentially $62,000! (guess what…that is the same as the Solo-K).

You can take out loan from your QRP! (bingo, you can do that with your Solo-K too).

No UDFI tax associated with leveraged real estate investments (you got it…same applies to a Solo-K).

No custodian requirements (definitely the same with a Solo-K).

Potentially, a lower penalty structure associated with a Prohibited Transaction than an IRA (you know what I am going to say…yes, same with the Solo-K).

Opportunity for your QRP to have checkbook control and maintain an account that allows you to invest into both traditional and non-traditional assets (I know, it may be a broken record, but it is the same with the Solo-K).

but….there is one benefit that QRP promoters may suggest is unique to their plans. They may even say they are the only ones providing this benefit (if so, this definitely not true). They certainly will create the impression that this benefit is what truly separates them from other document sponsors. What is this exclusive benefit?

Asset Protection

  1. A special-use LLC will be created for the QRP.
  2. The QRP will capitalize/fund the LLC with funds from the QRP.
  3. The LLC will make investments on behalf of the QRP, but under the umbrella of the LLC.
  4. The LLC’s member is the QRP and the QRP Trustee (typically, you, the business owner) will be the manager of the LLC.

Let’s use an example of you having $1,000,000 in your Solo-K. You decide to use $200,000 of the $1M to invest passively in a rental property. Might an attorney suggest you move the $200,000 to an LLC owned by the Solo-K? Yes. Besides asset protection issues, it may make the purchase and titling of the real estate easier. If debt financing, it may make securing a loan easier. You may have a personal preference of having the real estate owned by the LLC (through the Solo-K membership of the LLC). An example: As trustee of your plan that owns a rental property, you may prefer having rent checks made payable to the LLC, not your 401(k).

That is what the QRP promoters are setting up. It this an important consideration? Sure. Is it something only the QRP can do? Of course not! (PGI has been setting up these type of structures for over the last decade)!

But, while this is an important consideration, if you elect this LLC structure for your “QRP” does it justify an expense that is 2 – 3 times that of what another document sponsor may provide?

And, another thing…and this is not necessarily bad or wrong. But, the promoter of the QRP will typically set up this LLC for you in a specific state (e.g., Wyoming). Good or bad? Ah, it can depend on many issues as to where you live, your state regulations, the benefits of having an LLC in another state and the disadvantages of having an LLC in another state. But could it cost you more in fees…it can and very well may. So this would be another important consideration for you to consider in the overall pros/cons of utilizing this specific structure.

In short….the QRP is a Solo-K with the LLC added. No one is saying it is wrong, bad or any other negative connotation to utilize the “QRP”; however, other than its marketing, is the QRP any different than the Solo-K? IF not, do you feel a fee structure that is 2 – 3 times more than what other document sponsors can provide is in your best interest?