FAQs

  • Does my Brokerage IRA Allow me to Self-Direct?

    Legally speaking, a self-directed IRA is no different than any other IRA. Having a self-directed IRA simply means that you are allowed to direct the investments of the IRA.

    Many custodians claim that they allow you to self-direct your IRA investments. But, in reality, they either restrict your investments or limit your self-directed investments to a large family of mutual funds. They do not allow you to invest in non-traditional assets, such as real estate. Self-directed custodians permit your IRA to invest into any asset that not disallowed by the IRS.

  • What can my Solo-K or IRA Invest Into?

    The investments that you make outside your IRA can now be made within it.
    As the investor, have tremendous flexibility to make the investments of
    your dreams. Wouldn’t you love to be able to invest your IRA in:

    Real Estate
    Commercial
    Residential
    Raw Land

    Trust Deeds, Mortgages & Mortgage Pools

    Private Notes and Loans

    Private Stock Offerings

    Limited Liability Companies (LLCs)

    Limited Partnerships (LPs)

    Tax Certificates

    Accounts Receivables

    Options

    Futures

    Annuities

    Currency

    Commercial Paper

    Stocks, Bonds, Mutual Funds (yes, even from a self-directed account)

    And many other assets….all from one account!

  • IRA Custodians — Why are they Required and Who are They?

    The government allows certain institutions to handle the accounting and reporting of IRAs. Under the law, all custodians can allow you to invest your IRA in the same types of investments (e.g., stocks, bonds, real estate, notes, tax liens, etc.). However, the majority of custodians have made the decision to restrict the types of investments you can make. This is not based upon law, but it is based upon what the custodian wants to offer.

    However, there are a growing number of custodians who allow non-traditional investments. While PGI can work with any IRS-approved, self-directed IRA custodian, we have aligned ourselves with the custodians we believe provide the best service for the least amount in fees.

  • What Accounts can be Self-Directed

    Practically, any! However, the most common plans to be self-directed are Solo-K plans and any type of IRA. This would include Traditional, Roth, SEP and SIMPLE IRAs.

    While practically any plan can be self-directed, the only funds that cannot specifically be rolled over into a Solo-K are Roth IRA funds. In addition, while a SIMPLE IRA can be rolled over into a Solo-K, the plan has had to have been in effect for at least two years.

    Look at this IRS Rollover Chart to see what your options are.

  • Solo-K or IRA — What Types of Real Estate May I Invest in?

    Absolutely. Although less than 3% of retirement accounts
    are invested in non-traditional investments (anything other
    than Dow & Nasdaq stocks, bonds, CDs, etc), and less than 2%
    are invested in Real Estate, that is changing. More and more,
    individuals are becoming more and more frustrated with the
    options offered by their current custodians. Individuals are
    exploring investments that they can see and touch and that have
    some tangible value such as Real Estate. They have seen the
    outstanding returns that investors have historically received
    in Real Estate and want to move all or part of their retirement
    money into various Real Estate investments.

    Within the broad category of Real Estate, there are many options
    for investment:

    Residential Rentals
    Commercial Properties
    Condominiums
    Mobile Homes
    Raw Land
    Real Estate in Foreign Countries
    Trust Deeds / Mortgages and Mortgage Pools

  • IRS’ Opinion on a Solo-K or IRA Investing in Real Estate?

    The IRS makes the following statement on their website:

    “…..because of administrative burdens, many IRA trustees
    do not allow IRA owners to invest IRA funds in real estate.
    IRA law does not prohibit investing in real estate but trustees
    are not required to offer real estate as an option.”

  • Can My Solo-K or IRA Purchase Property I Already Own?

    No, No and No. Want to ask again? The answer is still NO! This would be considered a prohibited transaction (self-dealing).

    (see IRC 4975). You many not purchase property which is currently owned by you
    or any other disqualified person (see below).

  • Broker Says My Solo-K or IRA Cannot Invest in Real Estate?!

    Likely because your current broker won’t let you invest
    in real estate through their custodian. It is not that you
    cannot, it is more the fact that your current custodian doesn’t
    offer those assets for investing…but, they could if they wanted
    to. As we have said before, the reasons they don’t offer these
    assets is because there is not a user-friendly way for them to be
    paid.

    Just because that isn’t something they offer doesn’t mean that you
    can’t do it. It just means that you can’t do it through them.
    It is a limitation that your broker is placing on your IRA…NOT
    a limitation that the IRS is placing on your IRA. Or your current
    broker may just not have the knowledge of your ability to invest
    in many different asset classes. Either way, you can invest in Real
    Estate and a plethora of other investments.

  • IRA Doesn’t Have Enough Funds — Can the IRA Secure a Loan?

    Yes you can use your IRA money as the down payment and then have your IRA secure a non-recourse loan for the balance.

    However, you will not be able to personally guarantee the loan, as that would constitute a Prohibited Transaction by you, a disqualified individual, extending credit to your IRA. It must be a non-recourse type of loan which means that if your IRA fails to make payments, the only recourse the lender has is against the property itself.

    Further, there will be tax ramifications to doing so…UDFI (Unrelated Debt Financed Income) tax applies when a loan is obtained so you would want to confer with your tax professional about what forms are necessary and what tax would be applicable.

  • Investing with Others — May I?

    Yes, a Solo-K or IRA may purchase an undivided (and proportionate) interest in real estate or any other asset. Obviously, this is assuming that no investment is made with any disqualified individual or violating any other Prohibited Transaction.

  • May I be the Property Manager of a Rental Property Held by my Solo-K or IRA?

    The question that comes up all the time. The simple answer is NO.

    You are serving as the fiduciary for your plan and, in that role, you cannot personally benefit from your relationship to your IRA, NOR can your IRA benefit from its relationship to you. Unfortunately, too many self-directed companies can steer their clients into this slippery slope by advising that they may be able to. Keep it simple and don’t do it.

  • May Personal Funds be Utilized to Rehab/Renovate a Property Owned by my Solo-K or IRA?

    A big, fat NO.

    Remember, you are only serving in the role as the fiduciary of the plan. In the eyes of the IRS, you do not own the property, your Solo-K or IRA does. As such, your Solo-K or IRA MUST use its funds to pay any and all expenses related to the plan, including re-hab and renovation expenses. ALL expenses of the property are paid with Solo-K or IRA funds, and all profits made on the property are  returned to the Solo-K or IRA.

  • Permissible Investments — Vacation Property

    People ask whether their Solo-K or IRA can purchase vacation property or property in vacation locales or, even, internationally.

    Of course, Solo-K plans and IRAs can purchase such property as long as it does not violate any Prohibited Transactions…which, includes the Solo-K Trustee or IRA owner’s exclusion from residing on the property.

    This prohibition is in tact even if the IRA owner pays “the going rate” for the vacation rental.

  • Can I Live in a Solo-K or IRA-Owned Property when I Retire?

    Yes. Your Solo-K or IRA would be the original owner. You would use the Solo-K or IRA funds to make the purchase and maintain the property. Any rents generated would be returned to the Solo-K or IRA.

    However, upon reaching retirement age, the property could be distributed out to you. Of course, you would have to pay taxes on the distribution of the property to you, but would incur no penalties if you took the distribution of the property after age 59 1/2 (generally).

    In fact, you may be able to even pay less taxes at time of “distribution” utilizing the “discounting” of the asset, which is permitted in most states.

  • May my Solo-K or IRA Make “Hard-Money” Loans?

    Absolutely!

    This is done quite frequently and can be a great investment for your Solo-K or IRA. Especially, when loans are made for properties, the loan can be secured by the property.

  • Disqualified Individuals — Brothers, Sisters, Aunts and Uncles!?

    Believe it or not, no, these individuals are not disqualified individuals to the account owners Solo-K or IRA.

    According to IRC 4975, only ascendants and descendents of the account holder and their spouse (if applicable) are disqualified individuals. As such, there has never been a reference to any other family members. Although some suggest that it was an error on the part of the IRS to omit these individuals from the definition, they are, nonetheless omitted. To the best of our knowledge, there has never been an IRS ruling to
    the contrary.

  • Examples of Loans my Solo-K or IRA can make?

    Friend, Acquaintance or Stranger — A friend, acquaintance or stranger may need a loan for any reason. This could be for any reason (e.g., home improvement, medical issues…even fun things like a boat!). Your Solo-K or IRA can make this loan. As you are also considered a fiduciary for your plan, you would want to make sure that you had the loan properly secured to protect, as much as possible, your Solo-K or IRA funds.

    Real Estate Developer — Of course! And this is where many loans are made in the self-directed world. Many people choose to pool their funds with an “expert” in the field. As such, you can invest your funds in the form of a loan with a developer. Developers often are needing and looking for private financing so it is a great way to get your Solo-K or IRA involved in a real estate development. And because developers often pay an above-market interest rate, the loan can be a great investment for your Solo-K or IRA. You should review all your investments with your tax or legal professional.

    Business Loan — You may have a friend with a local business or some other investment into a business. Your Solo-K or IRA can make a loan to any type of business, as long as you are not personally involved
    with the business and do not otherwise violate any Prohibited Transactions.

  • Is my Solo-K or IRA Taxed/Penalized for Making an Investment?

    No!

    As long as it is not you that is taking money out of your Solo-K or IRA to fund the investment. Remember, the IRS draws a clear distinction that your Solo-K or IRA funds are separate from you. Therefore, it is the Solo-K or IRA making the investment, not you. As such, and provided you are not violating any Prohibited Transaction rules, the investment would not be taxed or penalized.

    If your Solo-K or IRA is purchasing the investment, it is an investment of the Solo-K or IRA, and NOT a distribution made to you. Yes, if it was made to you, it would trigger taxes and penalties (penalties only if prior to the age of 59 1/2). Another way to look at this, when your Solo-K or IRA purchases 1000 shares of Microsoft or any other typical stock, your Solo-K or IRA is just making a different type of investment (and you are not taxed on any gains until you take distributions out in retirement years). The same concept would apply to a Solo-K or IRA-purchased piece of real estate.

    The method of purchasing real estate may be different than purchasing a stock, but the tax ramifications are the same.

  • Gains — Are they Taxable within the Solo-K or IRA?

    Not in most cases….as long as your Solo-K does not trigger UBIT and your IRA does not trigger UBIT or UDFI.

    If an IRA buys a piece of property and then sells it at a profit, the gains stay within the IRA. If you have a traditional IRA, the gains are tax-deferred. If you have a Roth IRA, the gains are tax-free.

    Note, you alter that result if you use leverage.

  • What Taxes are Applicable if my IRA Leverages an Investment?

    Unrelated Debt-Financed Income (UDFI) tax would apply.

    If you do this, you will definitely want to review your proposed investment with your tax professional to adequately determine the extent of this UDFI tax.

    If you are not using leverage, as a general rule, UDFI will not apply.

  • Does Leveraging an IRA Investment Make Sense?

    Absolutely, if executed correctly!

    Because of your increased buying power when you use leverage, the profits you make from the ability to use leverage can greatly outweigh the tax associated.

  • “Self-Dealing” — Defined

    Self-dealing is using your Solo-K or IRA funds in transactions that in some way benefit you individually (or other disqualified persons) to your plan. The purpose of your IRA is to provide for your retirement. It is not intended to benefit you prior to retirement and distribution of the funds.

  • “Self-Dealing” — More Examples!

    There can be many, many examples, but here are a few:

    1) “Self-Dealing” with a Family Member — Having your
    IRA purchase a home for your father.

    2) “Self-Dealing” with Yourself — Having your IRA
    purchase a home for yourself.

    3) “Self-Dealing” use of an IRA Property — Buying
    a rental vacation home with IRA money and then
    staying in the home.

    4) “Self-Dealing Personal Benefit from IRA — Receiving
    personal benefit from your IRA (paying yourself for
    work that you do on the property (e.g., repairing the roof)).

  • Rollovers — Can I Rollover an “Old” 401K Plan Into a SD IRA?

    Yes!

    You can move these 401(k) funds into either a Solo-K or IRA.

  • Can I Invest in Mutual Funds, Stocks, Options, Bonds as well?

    Yes. You can invest in any IRS permitted investment.  That includes publicly traded stocks, CDs, mutual funds, annuities, bonds, stock options, futures, etc.

    In fact, if you are an active swing trader or day trader, you will be able to trade your Solo-K or IRA in a manner that your current broker does not allow you to trade using your self-directed IRA assets. For example, you probably have asked your broker if you can buy or sell Options (Calls and Puts).

    Or maybe you would like to write Covered Calls or do Spreads and have been told no. The Solo-K or IRA allows you to trade your way.

  • What Can I Invest In if I Have a Self-Directed 401K?

    The investments that you make outside your Solo-K can now be made within it. You have tremendous flexibility to make the investments you choose to make. Wouldn’t you love to be able to invest your Solo-K funds in:

    • Residential Real Estate
    • Commercial Real Estate
    • Raw Land
    • Trust Deeds / Mortgages, and Mortgage Pools
    • Private Notes and Loans
    • Private Stock Offerings
    • Limited Liability Companies (LLCs)
    • Limited Partnerships (LPs)
    • Tax Certificates
    • Receivables
    • Stocks, Bonds, Mutual Funds
    • Annuities
    • Options
    • Currency
    • Futures
    • Commercial Paper
    • And MANY other investments!
  • How do I Know this is Legal?

    This is a question that is frequently asked by investors who have never heard that they could invest in anything other than stocks and bonds. They have no idea that they can invest in Real Estate and many other investments. However, Real Estate has been an allowed investment since the day 401(k)s were created.

    Find out for yourself by going to the Internal Revenue Service’s website at www.IRS.gov. Request Publication 590. On pages 40-41 you will see what investments are not allowed (see below – collectibles, life insurance, s-corporation stock, etc.). Real Estate is NOT mentioned as a disallowed investment just like stocks, bonds, mutual funds are not mentioned as a disallowed investment.

  • Can a Solo-K or IRA Purchase Real Estate I Already Own?

    No!

    This would be considered a prohibited transaction (see IRC 4975). Your Solo-K or IRA may not purchase real estate which is currently owned by you or any other disqualified person.

  • Solo-K or IRA Making Real Estate Investment – How Fast is it?

    Solo-K or an IRA LLC (or Trust) plan easily allows you to invest in real estate. Because the Solo-K, IRA LLC or IRA Trust will have its own checkbook, you simply write a check to the title company, etc., and title the real estate in the name of the plan.

  • Rental Properties or Other Investment Returns — Where do the Returns Go?

    Any investment returns of any kind will be returned back to the respective retirement account which made the investment. However, there are a few potential accounts these returns could be made to:

    Solo-K — If you have your plan’s account at a local bank, credit union or brokerage firm and you made the investment from that account, the return would be sent back to the plan’s account, wherever it may be housed.

    Solo-K LLC — Some people elect to create a Solo-K LLC designed to make investments on behalf of its member, the Solo-K plan. Benefits for using a Solo-K LLC may run the gamut of additional asset protection or preference (e.g., the plan owning a rental property but not wanting tenants to make rent checks payable directly to your Solo-K plan). With the LLC, the Solo-K is still the owner (member) and you will be the manager of the LLC.

    While the funds come back to the LLC, as manager of the LLC and Trustee of the Solo-K, you can move funds back and forth between the accounts as you feel is best for the plan. Obviously, keep accurate records of all transactions. For example, if your plan owns a rental property in the LLC and the amount of money in the LLC is such that you may want to momentarily move it back to the plan (e.g., plan’s brokerage account so it can invest in assets such as mutual funds), you can. The LLC assets belong to the Solo-K, as its member.

    IRA LLC — The most used plan with a self-directed IRA, but it may not be the best for everyone.

    The IRA LLC will typically be opened and funded at a bank or credit union. Since the investment would be from the LLC, all returns would be deposited into the LLC account. Similar to the Solo-K, the IRA is the sole member of the LLC.  As the account owner, you assume the role of the manager, choosing which investments you wish to make while complying with IRS and DOL Prohibited Transaction rules.  When the LLC makes investments, all returns flow back to the LLC. You can send funds back to the IRA custodial account (with the IRS custodian), but you will probably not elect to do so as self-directed custodians are passive in nature and do not sell any form of securities.

    IRA Trust — Becoming a very attractive option for IRA investing….especially for those individuals in states that have high LLC fees (e.g., CA, MD, MA, TN)

    The IRA Trust will typically be opened and funded at a bank or credit union. Since the investment would be from the Trust, all returns would be deposited into the Trust account. Similar to the Solo-K, the IRA is the sole grantor of the LLC.  As the IRA account owner, you assume the role of Trustee of the Trust, choosing which investments you wish to make while complying with IRS and DOL Prohibited Transaction rules.  When the Trust makes investments, all returns flow back to the Trust. You can send funds back to the IRA custodial account (with the IRS custodian), but you will probably not elect to do so as self-directed custodians are passive in nature and do not sell any form of securities.

  • Can My Solo-K or IRA Co-Invest with Friends?

    Yes.

    Solo-K and IRAs may purchase an undivided (and proportionate) interest in Real Estate.

  • May my Solo-K or IRA Fund Improvements or Renovations?

    Yes.

    In fact, you must use only Solo-K or IRA funds to make the improvements and pay all expenses associated with the property.

    All expenses of the property are paid with Solo-K or IRA funds, and all profits made on the property are returned to the Solo-K or IRA (or IRA LLC). This makes sense because it is an investment of the Solo-K or IRA, not you personally.

  • May the Solo-K or IRA Purchase a Vacation Property?

    Yes.

    Doing so would not constitute a prohibited transaction. However, you cannot vacation there.

  • What are the advantages to using a Solo-K Plan when Investing in Real Estate?

    Real estate deals can be time-sensitive.

    With a Solo-K or IRA, you can act immediately to secure the down payment, etc. If you see something you like, write the check.

  • Can my Solo-K Secure a Loan?

    Yes.

    The mortgage would need to be:

    1. Non-recourse — A loan where the Solo-K  must qualify for the loan and no disqualified individual can assist with this qualification (e.g., loan co-signor).
  • Can my Solo-K or IRA make a loan to…..?

    Siblings — Yes

    According to IRC 4975, siblings are not included in the definition of disqualified persons. Thus, a loan to your brother or any other sibling would not be a prohibited transaction.

    Although some suggest that it was an error on the part of the IRS to omit siblings from the definition, they, nonetheless, were omitted. To the best of our knowledge, there has never been an IRS ruling to the contrary.

    Friends — Yes

    Friends are not disqualified persons under the Code, and therefore, your Solo-K or IRA can make a loan to them for any purpose whatsoever (boat, airplane, hot tub, home improvements, etc.).

    Real Estate Developer — Yes

    Yes. Your Solo-K or IRA can loan money to a real estate developer to finance the purchase of property or the development of a property. Developers often look for private financing so it is a great way to get your Solo-K or IRA involved in real estate development.

    Businesses — Yes

    Your Solo-K or IRA can make a loan to any type of business. However, be cognizant that there could be self-dealing issues if a Disqualified Individual to the plan is an owner or employee of that company. Since these are brief, generally-speaking, questions, you would want to review this type of investment activity with your tax or legal professional.

    Other Individuals Wanting to Invest in Real Estate — Yes

    Absolutely. And this is done frequently, and it is a great investment for your Solo-K and IRA because the loan can be secured by the property.

     

     

     

     

     

  • If I take Funds out of the Plan to Purchase Real Estate, do Taxes or Penalties Apply?

    This may be a trick question! First, you would not take out the funds personally to purchase the property, nor would you title it in your name. The investment will be made from your Solo-K or IRA and titled accordingly. There are no taxes or penalties, as long as you are not entering into a Prohibited Transaction.

    For example, as far as an asset is concerned, buying a piece of property is the same as purchasing 1000 shares of Microsoft or any other typical stock. The method of the investment is different, but it is still an asset purchased by your plan and titled in the name of your Solo-K or IRA.

  • Investments — Gains on property sales…are they taxable to the Solo-K or IRA?

    Not in most cases. As an example, and generally speaking, if an Solo-K or IRA buys a piece of property and then sells it at a profit, the gains stay within the Solo-K or IRA. If you have a traditional Solo-K or IRA, the gains are tax-deferred. If you have a Roth Solo-K or IRA, the gains are tax free.  Note, you may alter this if you use leverage with an IRA.

  • Are there any special taxes that apply when I use leverage?

    UDFI (Unrelated Debt-Financed Income) does not apply to debt financing for a Solo-K; however, UDFI does apply to an IRA. So, if wanting to leverage real estate, it is a wonderful situation when you qualify for the Solo-K, and represents a huge advantage of the IRA.

  • Investments — Outside my State or Country

    Yes! Your Solo-K or IRA can invest outside of the U.S. States. There are many great investment opportunities in other countries.

  • What Are Prohibited Transactions?

    Understanding what constitutes a prohibited transaction is very important when it comes to making investments within your Solo-K or IRA. The IRS defines a prohibited transaction as follows:

    “Generally a prohibited transaction is any improper use of your (Solo-K or IRA) account or annuity by you, your beneficiary or any disqualified person. Disqualified persons include your fiduciary and members or your family (spouse, ancestor, linear descendant, and any spouse of linear descendant).”IRS Publication 590

    IRC 4975 is the section that lays out the rules on prohibited transactions. Prohibited transactions generally involve one of the following: (1) doing business with a disqualified person; (2) benefiting someone other than the Solo-K or IRA; (3) loaning money to a disqualified person; or (4) investing in a prohibited investment.

    In plain English, prohibited transactions are those transactions that violate the basic intent of these provisions. Your Solo-K or IRA must benefit rather than benefiting you personally. In other words, there can be no “self-dealing” transactions. However, there are many ways in which you can invest your Solo-K or IRA and not be in violation of the prohibited transaction law. And when your Solo-K or IRA benefits, you benefit!

  • What Are Prohibited Investments?

    The Internal Revenue Code does not specifically authorize investments within a Solo-K and IRA; rather, the code outlines what types of investments are not allowed. The Prohibited Investments include:

    • Artwork
    • Rugs
    • Antiques
    • Metals
    • Gems
    • Stamps
    • Collectible Coins
    • Beverages
    • Stock in an S-Corporation
    • And certain other tangible personal property

    An IRA, in addition to this list, cannot invest in life insurance contracts

  • Who are Disqualified Individuals?

    • the Solo-K or IRA holder and their spouse (if any);
    • the Solo-K or IRA holder’s ancestors, lineal descendants and their spouses;
    • investment advisors and managers to a disqualified person or the plan;
    • any corporation, partnership, trust or estate in which the Solo-K or IRA holder has a 50% or greater interest; and,
    • anyone providing services to the Solo-K or IRA such as a trustee or custodian.
  • How am I a disqualified person?

    There is a clear distinction between your Solo-K and IRA and you individually. You and your Solo-K and IRA are not the same. Your Solo-K is a Trust and your IRA is an Individual Retirement Arrangement for your benefit after you retire (in most cases). Provided you do not violate Prohibited Transactions and your Solo-K or IRA is properly structured, you can make investment choices for either plan.

  • What would be classified as Self-Dealing?

    Self-dealing is using your Solo-K or IRA in transactions that in some way benefit you (or other disqualified persons) individually. The purpose of your Solo-K or IRA is to provide for your retirement. It is not intended to benefit you prior to retirement.

  • Examples — IRS Prohibited Transactions and Self-Dealing Transactions?

    • Self-dealing with a family member (having your Solo-K or IRA purchase a home from your father).
    • Self-dealing with yourself (having your Solo-K or IRA purchase a home from yourself).
    • Personal use of a Solo-K or IRA owned property (buying a rental vacation home with Solo-K or IRA money and then staying in the home when on vacation).
    • Receiving personal benefit from your Solo-K or IRA (paying yourself for work that you do on the property such as repairing the roof).
  • What are Exemptions of Prohibited Transactions?

    Exemptions are permission to invest in something or in some way that is technically a prohibited transaction. For example, it is a prohibited transaction to rent property owned by your Solo-K or IRA to your child. An exemption would allow you to do so.

  • Can I invest in an existing business?

    Yes. This can be done as the purchase of stock or as a loan to the business.

    It is important that when investing into an active business that the investment is passive in nature. If it is not passive, you would want to visit with a tax or legal professional to determine if the Solo-K is subject to UBIT (Unrelated Business Income Tax).

  • Can I buy Stocks, CDs, Bonds, Options, etc.?

    Yes.

    You can invest into any Solo-K-permitted investment. This includes publicly traded stocks, CDs, mutual funds, annuities, bonds, stock options, futures, etc. In fact, if you are an active swing trader or day trader, you will be able to trade your Solo-K in a manner that your current broker does not permit. For example, you probably have asked your broker if you can buy or sell Options (Calls and Puts). Or maybe you would like to write Covered Calls or do Spreads and have been told no.

    The Solo-K Plan allows you to trade your way.

  • I have a 401(k) with an old employer. Can I move it into the Self-Directed 401(k) Plan?

    Yes. You can move these 401(k) funds into your Solo-K plan.

  • I have a 401(k) with my current employer. Can I move it into the Self-Directed 401(k) Plan?

    The 401(k) plan documents  of your employer will specify what you can do. Many employers will not permit the rollover of funds from the employer’s plan, but more and more employer’s are permitting this to benefit their employees. Ask your company’s HR department or 401(k) plan administrator if “in service transfers” are allowed. If the answer is “yes,” then you can inquire of how much and what funds from the plan can be rolled over.

    The general rule is that you cannot move funds out of the plan until you terminate service OR reach the age of 59 1/2 (even if you are still employed).

    While the answer may not be to your liking, you never know until you ask!

  • I have several IRAs and old 401(k)s. Can I combine them?

    Yes, generally speaking, any pre-tax (non-Roth) funds can be rolled over into your Solo-K. One general exception may be an employer’s 401(k) plan of which you are still a participant.

    As noted, a R0th IRA cannot be rolled over into your Solo-K.

  • How can I get more information?

    PGI is here to assist. You may contact PGI:

    You may email PGI SelfDirected: john@pgiselfdirected.com

    You may call PGI SelfDirected directly: 602.684.2922

    You can fax PGI SelfDirected: 1-877-616.1428.

     

  • How do I get started?

    If you wish to set up a time to visit with John, you may email, call or text the email and telephone number below.

    If you are wanting PGI SelfDirected to forward you the order form to start your self-directed IRA or Solo-K, please feel free to email, text or call, as well.

    If you have any questions, please do not hesitate to contact John:

     

    john@pgiselfdirected.com

    602.684.2922

  • Basic Steps for Establishing your Solo-K

    There are steps to be taken for the establishment of your Sol0-K. Please review Solo-K establishment

    However, here are the basic steps that we will take to establish your plan:

    1. PGI Order Form — We will send you the order form to commence the relationship between yourself and PGI;
    2. SS-4 Form — Through the IRS SS-4 form, we will secure an EIN for your plan;
    3. Plan Documents — PGI will create and tailor your Solo-K plan documents to meet the plan’s needs;
    4.  “Host” Account — Your Solo-K will need to be housed at either a bank or brokerage firm. We will explain the pros and cons of each, and will prepare your application(s) for you if you are using one of the brokerage firms PGI works with;
    5. Funding your Solo-K Account — While PGI cannot rollover funds into your plan, we will assist you with any questions during the process of rolling over funds into the plan.

     

  • Solo-K — Am I Eligible for the Solo-K?

    Generally speaking, it is very easy to qualify for the Solo-K, but qualify you must! Too many people may establish a Solo-K for the benefits (especially compared to an IRA), when they do not qualify for the Solo-K. That being said, what are the requirements to qualify for a Solo-K?

    1. Part-time or full-time self-employment activities;
    2. No presence of any “common law” full-time employees;
    3. The business should be in business to generate earned income/profits;
    4. Operating a “hobby” is not considered self-employment activities

    Exceptions to where one would not be considered to be a common-law employee (generally):

    1. Employees under the age of 21;
    2. Employees who are working less than 1,000 hours per year;
    3. Legitimate usage of 1099 contractors (however, this can be a very confusing issue…and, if you are going to use 1099 contractors, you may want to review with your tax or legal professional, and reference IRS regulations governing independent contractors. One very helpful tool is what is commonly referred to as the IRS 20-Factor Test.
    4. Union employees; and,
    5. Non-resident alien employees

     

  • Solo-K Establishment and Qualification — Examples of Self-Employment Activity

    One must have full 0r part-time self-employment to qualify for a Solo-K plan. Of course, there must not be any common-law employees.  As a general rule, if an individual is self-employed, reporting their income on their 1040 Schedule C, has no common-law employees and their business is established with the intent of earning active income, you generally will be eligible for the Solo-K. What are some examples of what might constitute self-employment activities

    1. Real Estate Agent — A self-employed real estate agent receiving 1099 commission earnings with no common-law employees would be eligible for the Solo-K.
    2. IT Professional — Individual is employed as a W-2 employee, however, also has a side business creating websites with no common-law employees. This individual would be eligible for the Solo-K, but may have contribution limitations if they are also participating in the W-2 employer’s 401(k) plan.
    3. Miscellaneous Self-Employment Activities — Person babysits, dog sits and performs other odd jobs on their own. They would qualify for the Solo-K.

    However, with more and more gig companies utilizing the assistance of 1099 independent contractors. While an independent contractor is not considered a common-law employee, there are many businesses that utilize 1099 labor and, quite bluntly, the IRS may not agree. As such, it is important that you meet the IRS 20-Factor test.

    In addition, please feel free to read the following blogs on this topic as well.

    Solo-K — Employees, 1099 Contractors

    Solo-K — Contractors?

    Solo-K — Contractors?

     

  • IRS — Solo-K and Self-Directed IRAs are Legal?

    This is a question that is frequently asked by investors who have never
    heard that they could invest in anything other than stocks and bonds.
    They have no idea that they can invest in Real Estate and many other
    investments. However, Real Estate has been an allowed investment since
    the day IRAs were created almost thirty years ago.

    Find out for yourself by going to the Internal Revenue Service’s website”

    www.irs.gov. Request
    Publication 590. On pages 40-41 you will see what
    investments are not allowed (see below – collectibles, life insurance,
    s-corporation stock, etc.). Real Estate is NOT mentioned as a disallowed
    investment just like stocks, bonds, mutual funds are not mentioned as a
    disallowed investment.

  • What is an IRA?

    Let’s take it directly from the IRS…..

    An individual retirement arrangement (IRA) is a tax-favored personal savings arrangement, which allows you to set aside money for retirement. There are several different types of IRAs, including traditional IRAs and Roth IRAs. You can set up an IRA with a bank, insurance company, or other financial institution.

  • What is a Self-Directed IRA?

    More of a marketing term than a legal term, a self-directed IRA is an IRA account whereby the IRA custodian permits investments in non-traditional assets such as real estate.

  • What is a Self-Directed IRA LLC?

    In the case of a self-directed IRA LLC, the IRA custodian permits the IRA to capitalize a single-member, disregarded entity LLC owned by the IRA to make investments on behalf of the IRA.

    More of a marketing term, the IRA LLC structure permits the IRA account owner, acting as manager of the LLC, to have “checkbook control” of the IRA assets for investment purposes.

     

  • What Steps are taken to Create an IRA LLC?

    While a brief explanation, here are the steps for establishing a self-directed IRA (with checkbook control):

    1. Open IRA account with “passive” IRA custodian that permits self-directed IRAs through the use of an IRA LLC;
    2. Filing for the Articles of Organization for the IRA-member, disregarded entity LLC;
    3. File for an IRS EIN for the newly-created LLC;
    4. Preparation of the special-purpose LLC Operating Agreement (this OA outlines how the LLC must operate and has specific IRS-compliant language);
    5. Establishment of the LLC account at either a bank, credit union or brokerage firm;
    6. Make investments on behalf of the IRA-member LLC as manager of the LLC; and,

    I didn’t forget….you will either transfer (IRA to IRA) or rollover funds (e.g., old employer’s 401(k) to IRA) to your new IRA. Once funded, the IRA custodian, at your direction, will capitalize the LLC account with IRA funds via check, wire or ACH transaction. It is important to note that the funding will not be to you (e.g., IRA account owner, manager of LLC), rather the LLC owned by the IRA.

    Happy investing…just follow all IRS rules.

  • How long will it take for my IRA LLC to be funded?

    Some companies slightly misrepresent the answer to this question by indicating that it will be very quick. Consider the steps:

    1. Opening the IRA account online (usually will have the account number in 1 or 2 business days);
    2. Creating the LLC (depending on the State, this could be less than a day to 2 weeks);
    3. Filing for an EIN for the LLC (this will be a same-day process);
    4. Preparation of the special-purpose LLC Operating Agreement (this will usually be 1 – 2 days);

    Now, consider:

    1. When you request your funds from an IRA or a qualified plan, the “movement of these funds” will typically be anywhere from a 5 – 10 business day process. While many other custodians can wire funds, many do not wire or express the funds (e.g., overnight delivery).
    2. Your funds, once received by the new IRA custodian, will be “held” for at least 1 – 2 business days;
    3. Once cleared, the time involved in sending the funds to your IRA LLC. True, you can wire, which will speed up the process, but otherwise the funds are sent either ACH or physical check (payable to the LLC).

    So:

    1. When a company tells you this can be done in one week, you may want to consider the rest of these steps that are needing to be taken. Possible, yes. But, as I say, “all the stars need to be in alignment”.
    2. Expect a full 10-15 business days from start to finish in funding your IRA LLC.
  • How much can I contribute to an IRA?

    If you are speaking a traditional or Roth IRA vs. a SIMPLE IRA or SEP IRA, the following contribution limits apply for 2019:

    Under the age of 50 — $6,000

    Over the age of 50 — $7,000