published by sense financial services llc · sense financial services llc |(949) 228 retirement...

A

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Sense Financial Services LLC |(

Published by Sense Financial Services LLC

Edited by Vanessa Pham and Minna Nah

Copyright 2015. All rights reserved. No part of this book may be reproduced, scanned, or distributed in any printed or electronic form without permission.

Sense Financial Services LLC |(949) 228-9394| www.SenseFinancial.com|[email protected]

Services LLC

Edited by Vanessa Pham and Minna Nah

All rights reserved. No part of this book may be reproduced, scanned, or distributed in any printed or

[email protected]

All rights reserved. No part of this book may be reproduced, scanned, or distributed in any printed or


About the Author


Dmitriy Fomichenko is the founder and president of Sense Financial Services LLC, a boutique financial firm specializing in self-directed retirement accounts with checkbook control.began his career in financial planning and real estate investing in 2000. He owns multiple investment properties in various states and is a licensed California Real Estate Broker. Over the years, he has instructed hundreds of investment and financial planning seminars and has mentored thousands

Sense Financial Services was born through a series of conversations Dmitriy had with the real estate investors whohe mentored. While many were highly successful in their real estate investments, the same investors were losing money in their retirement accounts. This prompted Dmitriy to spend several months consulting with industry experts and researching the powerful concept of self-directed retirement accounts. He integrated the knowledge and experience gained from his many years of experience along with his newly acquired expertise in Self-Directed IRAs and 401ks to begconsulting individual investors to put modiligence into their retirement and investment planning.

Dmitriy founded Sense Financial Services to help his clients maximize their returns on investments while protecting their hard-earned money. He is very passionate about helping families and individuals achieve financial freedom by following proven Biblical principles of financial planning and investing.

Dmitriy resides in Southern California with his wife and old daughter. In his spare time, he enjoys studying systematic theology, spending time with his family and visiting new places.

[email protected]

is the founder and president of Sense cial firm specializing in

directed retirement accounts with checkbook control. He began his career in financial planning and real estate investing in 2000. He owns multiple investment properties in various

ate Broker. Over the of investment and financial

planning seminars and has mentored thousands of investors.

Sense Financial Services was born through a series of conversations Dmitriy had with the real estate investors whom

While many were highly successful in their real estate investments, the same investors were losing money in their retirement accounts. This prompted Dmitriy to spend several months consulting with industry experts and

directed retirement He integrated the knowledge and experience gained

from his many years of experience along with his newly Directed IRAs and 401ks to begin

consulting individual investors to put more thought and diligence into their retirement and investment planning.

Dmitriy founded Sense Financial Services to help his clients maximize their returns on investments while protecting their

earned money. He is very passionate about helping s and individuals achieve financial freedom by following

proven Biblical principles of financial planning and investing.

Dmitriy resides in Southern California with his wife and 9-year he enjoys studying systematic

y, spending time with his family and visiting new places.


Contents About the Author ................................

Introduction ................................

Part I: The Problem with Conventional Retirement Accounts

The Stock Market is No Longer Ideal for Retirement Savings

Alternative Investments with Better Return and Lower Risk

Alternative Investments Made Possible with Self

Part II: Self-Directed IRA ................................

What Investments Can I

How does a Self-Directed IRA Work?

Are There any Disadvantages with a Self

How Does a Self-Directed IRA LLC Work?

Do I Need to Ask Permission t

Why Not Just Use a Custodian?

How a Real Estate Developer Used His Expertise to Grow His Retirement Account

Part III: Solo 401k – The Ultimate Retirement Plan

What is a Solo 401k? ................................

Eligibility Requirements:

Benefits of Solo 401k: ................................

1. High Contribution Limit

2. Checkbook Control ................................

3. Non-traditional Investment Options

4. Loan Option Available

5. No Income Limit for

6. UBIT Exemption for Non

7. Ability to Combine Multiple Accounts

8. Cost-Effective Administration

How to Save $10,000 in Taxes

Part IV: Real Estate Investing with a Solo 401k or Checkbook IRA

Real Estate vs. Stock Market

Why the Self-Directed IRA LLC is a

Why the Solo 401k Plan is a

Prohibited Transactions: Understand the Rules of Investing with the Solo 401k and IRA

Non-recouse Financing: How to leverage real estate investments within a self directed account

$850 in Monthly Rent on a $30,000 P

Conclusion ................................................................


................................................................................................................................

................................................................................................................................

Conventional Retirement Accounts ................................................................

The Stock Market is No Longer Ideal for Retirement Savings ................................................................

Alternative Investments with Better Return and Lower Risk ................................................................

Alternative Investments Made Possible with Self-Directed IRA or 401k ................................

................................................................................................................................

I Make with a Self-Directed IRA? ................................................................

Directed IRA Work? ................................................................................................

Are There any Disadvantages with a Self-Directed IRA? ................................................................

Directed IRA LLC Work?...............................................................................................

Need to Ask Permission to Make an Investment? ................................................................

Custodian? ................................................................................................

How a Real Estate Developer Used His Expertise to Grow His Retirement Account .............................

The Ultimate Retirement Plan ................................................................

................................................................................................

Eligibility Requirements: ................................................................................................

................................................................................................

ntribution Limit ................................................................................................

................................................................................................

traditional Investment Options .............................................................................................

Option Available ................................................................................................

or Roth Account................................................................................................

or Non-Recourse Financing ................................................................

Combine Multiple Accounts ................................................................

Effective Administration ................................................................................................

n Taxes with Solo 401k ................................................................

Real Estate Investing with a Solo 401k or Checkbook IRA ................................................................

Market ................................................................................................

irected IRA LLC is a Great Investment Vehicle for Real Estate? ................................

lan is a Great Investment Vehicle for Real Estate? ................................

Prohibited Transactions: Understand the Rules of Investing with the Solo 401k and IRA

How to leverage real estate investments within a self directed account

0 in Monthly Rent on a $30,000 Purchase with a Solo 401k ................................

................................................................................................

[email protected]

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Prohibited Transactions: Understand the Rules of Investing with the Solo 401k and IRA ................... 24 How to leverage real estate investments within a self directed account ..... 24

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Sense Financial Services LLC |(949) 228

Retirement planning is a complicated process. Anything that involves the tax codes and IRS regulations often is. Among the information out there, it is rareplanning that focuses on the needs of investors.

When it comes to self-directed retirement plans,

Self-directed retirement plans such as the Checkbook IRA and Solo 401k plan are not new. The Solo 401k plan, for example, has been around as early as 2001. Why does iinvestors? It is not in Wall Street’s best interest to letoptions because it takes money away from their hands

Over the years, I have met and mentored many real estate investors.these investors faced was that they haretirement accounts. Many of them hashort in terms of earnings and risk management

The truth is, every investor has the of us has the option to self-direct ouUnfortunately, not many people know about this option. Even if they have heard of the concept, reliable information and resources are hard to come by.

The lack of comprehensive information on the topic of self directed write this book. In the IRA Makeover eoptions and how you can take control of your hardcontrol of your retirement savings, but also how to put your savings to good use, such as real estate investments and more. The book will also include some of my favorite success stories of my clients and fellow investors, who have found the way to grow their funds using thei

I hope you will find the answers to your retirement planning will inspire you to take control of your hard


Introduction

Retirement planning is a complicated process. Anything that involves the tax codes and IRS regulations Among the information out there, it is rare to find a comprehensive guide on retirement

planning that focuses on the needs of investors.

directed retirement plans, information resources are even harder to find.

directed retirement plans such as the Checkbook IRA and Solo 401k plan are not new. The Solo 401k plan, for example, has been around as early as 2001. Why does it remain a mystery to

’s best interest to let you know about these self-directed retirement because it takes money away from their hands.

Over the years, I have met and mentored many real estate investors. One of the common problems that these investors faced was that they had very little say when it came to the investment choices in their retirement accounts. Many of them had thriving real estate portfolios, but their retirement

management. And they couldn’t do anything about it.

option to take control of their retirement future. Each and every one our money without losing the tax benefits that qualified

know about this option. Even if they have heard of the concept, reliable information and resources are hard to come by.

The lack of comprehensive information on the topic of self directed retirement planswrite this book. In the IRA Makeover eBook, I will discuss in detail different self-directed retirement options and how you can take control of your hard-earned money. You will learn not only how to take

rement savings, but also how to put your savings to good use, such as real estate The book will also include some of my favorite success stories of my clients and

fellow investors, who have found the way to grow their funds using their own expertise.

to your retirement planning questions in this book. I also hope this book will inspire you to take control of your hard-earned money.

[email protected]

Retirement planning is a complicated process. Anything that involves the tax codes and IRS regulations to find a comprehensive guide on retirement

are even harder to find.

directed retirement plans such as the Checkbook IRA and Solo 401k plan are not new. The Solo 401k t remain a mystery to so many

directed retirement

One of the common problems that investment choices in their

, but their retirement accounts fell . And they couldn’t do anything about it.

. Each and every one qualified plans offer.

know about this option. Even if they have heard of the concept, reliable

s prompted me to directed retirement

earned money. You will learn not only how to take rement savings, but also how to put your savings to good use, such as real estate

The book will also include some of my favorite success stories of my clients and r own expertise.

questions in this book. I also hope this book

The Problem with Conventional Retirement Accounts

Page 2

Part I:

The Problem with Conventional Retirement Accounts

The Stock Market is No Longer Ideal for Ret

Account owners of conventional retirement plans are left with two options. They can either leave their life savings at risk of a stock market Either way, investors are faced withrising inflation rate.

Historic evidence shows that millions of retirement accounts in the US plummeted in value after

the financial crisis in 2008.

Page 3

The Stock Market is No Longer Ideal for Retirement Savings For years, people often thought of the stock market when talking about retirement plans. The idea Americans could put their money into a taxaccount, invest that money into the stock market or mutual funds, and let it grow into a healthy nest eggreality has not been so simple. Historic evidenmillions of retirement accounts in the Uvalue after the financial crisis in 2008.

retirement plans are left with two options. They can either leave their a stock market crisis, or they can play it safe with low-return

d with the risk of losing their savings either to a market crash or to

Historic evidence shows that millions of retirement accounts in the US plummeted in value after

the financial crisis in 2008.

of the stock market when . The idea was that

put their money into a tax-deferred account, invest that money into the stock market or mutual

nest egg. However, the vidence shows that

accounts in the U.S. plummeted in

retirement plans are left with two options. They can either leave their target date funds.

the risk of losing their savings either to a market crash or to the

Alternative Investments with Better Return and Lower RiskThe reality of the market forces investors to seek other ways investments, therefore, have becogenerate good returns through passive profitable returns. This can be done with commercial real estate, trust deeds, more, instead of investing in stocks and mutual funds.

By purchasing rental properties, for examplepayments and value appreciation. The returnAs a tangible asset, real estate can also guard against inflationand offer more security. This is a significant advantage over all or most of its value with no collatera

Alternative Investments Made Possible The problem, however, is that conventionallimited number of investment optionsand other alternative investments within retirement plans, most custodians and plan administratorsnot allow investments in alternative products outside of stocks, bonds, mutual funds as they dofinancially benefit from these investments

The trouble with your current retirement account is that your custodian will limit your investment choices to those that are profitable to their companies. their retirement funds, or wish to invest in other types of assets, the solution is to step away from conventional retirement plans. An underperformingdirected IRA or 401k. With the selfopportunities, gain a greater control over their money and achieve true diversificationpossible with self-directed IRA or 401k

Page 4

Investments with Better Return and Lower Risk market forces investors to seek other ways to invest for retirement.

ome a popular topic. With this investment strategy, investors can through passive sources of income. The strategy is to create predictable

. This can be done with numerous alternative investments such as residential rental real estate, trust deeds, precious metals, private lending, tax liens, crowd funding

stocks and mutual funds.

for example, investors can often count on two sources of income: The returns are predictable as the rent amounts are

ible asset, real estate can also guard against inflation, provide tax benefits due to depreciation,and offer more security. This is a significant advantage over a stock market investment, all or most of its value with no collateral available when the stock price goes down.

Investments Made Possible with Self-Directed IRA or 401kconventional IRAs and 401k accounts offer their participants

investment options confined to the stock market. Although the IRS allows real estate investments within retirement plans, most custodians and plan administrators

not allow investments in alternative products outside of stocks, bonds, mutual funds as they dofinancially benefit from these investments.

The trouble with your current retirement account is that your custodian will limit your investment choices to those that are profitable to their companies. For investors who would like to be in control of

to invest in other types of assets, the solution is to step away from An underperforming retirement account can be converted

With the self-directed option, account holders can explore alternativereater control over their money and achieve true diversification

directed IRA or 401k.

for retirement. Alternative me a popular topic. With this investment strategy, investors can

he strategy is to create predictable but such as residential rental &

crowd funding and much

, investors can often count on two sources of income: rental amounts are set by the lease.

, provide tax benefits due to depreciation, stock market investment, which can lose

Directed IRA or 401k participants a very

though the IRS allows real estate investments within retirement plans, most custodians and plan administrators do

not allow investments in alternative products outside of stocks, bonds, mutual funds as they do not

The trouble with your current retirement account is that your custodian will limit your investment For investors who would like to be in control of

to invest in other types of assets, the solution is to step away from converted into a self-

alternative investment reater control over their money and achieve true diversification. This is only

Part II:

Self-Directed IRA

A Self-Directed IRA is an IRA that is hdoes not place investment limitations other than what is prohibited by the IRS. It owner the ability to use his or her retirement funds to make almost any type of investment.

In addition to the tremendous IRA benefits (taxthe Self-Directed IRA structure allows you to invest growing your investments in a taxcertain "prohibited transaction” outlined in Internal Revenue Code Section 4975, a Selfinvest in most legally available investprecious metals, private business entities, public more. Tax-free growth can also be achieved with

What Investments can I make with a SelfA Self-Directed IRA offers you the ability to use investment. The IRS only describes the type of investments that are We’ll discuss Prohibited Transactions

The following are some examples of investments that can be made with Residential or commercial real estate Raw land Foreclosure property Mortgages Mortgage pools Deeds Private loans Tax liens

How does a Self-Directed IRA Work?A self-directed IRA is a retirement plan held under a custodian that gives you the ability to invest in alternative assets. The custodian, however, will be the one holding all of the assets and handlingtransactions going in and out of the

Here is how it works:

1. You open a self-directed IRA account with an IRS2. The custodian will oversee the process of

retirement plan(s), such as another IRA, 401k or 403b.3. You, as the plan owner, will give investment directions and authorization to the custodian, who

will then carry out transactions recommendations, but will decisions.

Page 6

is an IRA that is held with a special “self-directed” custodian (trust company) who does not place investment limitations other than what is prohibited by the IRS. It offers

is or her retirement funds to make almost any type of investment.

In addition to the tremendous IRA benefits (tax-deferred growth, tax deductions and Directed IRA structure allows you to invest in what you know and understandyour investments in a tax-deferred environment. Aside from life insurance, collectibles and

certain "prohibited transaction” outlined in Internal Revenue Code Section 4975, a Selfinvestments, including real estate, private or hard money lending,

private business entities, public and private stocks, commercial paperbe achieved with a self-directed Roth IRA!

an I make with a Self-Directed IRA? the ability to use your retirement funds to make virtually

investment. The IRS only describes the type of investments that are prohibited, which are very few. hibited Transactions in a later chapter.

The following are some examples of investments that can be made with a Self-Directed IRA:Residential or commercial real estate Private businesses

Limited Liability Companies Limited Liability Partnerships Private placements Precious metals Stocks, bonds, mutual funds Foreign currencies

Directed IRA Work? directed IRA is a retirement plan held under a custodian that gives you the ability to invest in

dian, however, will be the one holding all of the assets and handlingtransactions going in and out of the account, following your directions.

directed IRA account with an IRS-approved custodian. The custodian will oversee the process of a direct rollover of your money from your curretirement plan(s), such as another IRA, 401k or 403b.

will give investment directions and authorization to the custodian, who will then carry out transactions as instructed. The custodian will not make any investment

will only oversee your account activities and execute your investment

directed” custodian (trust company) who offers the account

is or her retirement funds to make almost any type of investment.

and asset protection); understand best while

Aside from life insurance, collectibles and certain "prohibited transaction” outlined in Internal Revenue Code Section 4975, a Self-Directed IRA can

private or hard money lending, private stocks, commercial paper and much, much

virtually any type of prohibited, which are very few.

Directed IRA:

Limited Liability Companies Limited Liability Partnerships

Stocks, bonds, mutual funds

directed IRA is a retirement plan held under a custodian that gives you the ability to invest in dian, however, will be the one holding all of the assets and handling all

direct rollover of your money from your current

will give investment directions and authorization to the custodian, who . The custodian will not make any investment

only oversee your account activities and execute your investment

Self

Are There any Disadvantages with a SelfOne concern I hear from my clients is related to the fees for a selfbusinesses, self-directed custodians are in business to make money. And since they are not allowed to make any investment recommendations or have any affiliation with investment providersvarious fees associated with opening and holding an account with tcustodian to another. Some may asset purchase and sale fees, administrative fees,processing fees, research fees, etc. Others may charge a fee based on the account size as a percentage of the account value. The bottom line grows in value, as you acquire additional investment

Another complaint that I often hear from my clients is the inconvenience of custodian for every transaction. The typical procedure (or even paying a simple $50 repair bill) involves first your custodian, and then waiting

Page 7

Self-Directed IRA: How It Works

Are There any Disadvantages with a Self-Directed IRA? One concern I hear from my clients is related to the fees for a self-directed IRA.

directed custodians are in business to make money. And since they are not allowed to make any investment recommendations or have any affiliation with investment providers

h opening and holding an account with them. Those feesmay charge fees for every transaction you make with your IRA,

administrative fees, expense payment fees, document fees, expedited etc. Others may charge a fee based on the account size as a percentage

of the account value. The bottom line is that the cost to maintain the account goes up additional investments and as you make more transactions with your IRA

that I often hear from my clients is the inconvenience of having to gocustodian for every transaction. The typical procedure for making an investment with a self(or even paying a simple $50 repair bill) involves first completing the appropriate form, submit

a few days before the funds can be disbursed by the custodian on

ected IRA. Just like other directed custodians are in business to make money. And since they are not allowed to

make any investment recommendations or have any affiliation with investment providers, they charge hem. Those fees vary from one

charge fees for every transaction you make with your IRA, such as document fees, expedited

etc. Others may charge a fee based on the account size as a percentage the cost to maintain the account goes up as your account

more transactions with your IRA.

having to go through the ent with a self-directed IRA

appropriate form, submitting it to few days before the funds can be disbursed by the custodian on

behalf of your IRA. I personally know not get their custodian to send money on time.

The last complaint regarding self-directed IRAs is related to the custody of the custodian. While it is uncommon, misappropriated as in the case of third party administrator, was placed under receivership following a request by the SEC to freeze all its assets. APS and its founder, Curtis L. DeYoungits investors. The company then attempted to cover it up with false accharged fees based on the inflated account value on their statements. forged letters to invest without his clients’ authorization. directed, the clients’ funds were kept under the control of APS in two master trust accounts. This their clients did not have true control over their money and were not able to detect fraudulent activities until it was too late.

The solution to the disadvantageIRA”).

The Self-Directed IRA LLC is a truly single member LLC (limited liability companypurchasing 100% of the units of the LLC. The LLC IRA account holder. Because the account holder has instructed the custodian into the LLC's checking account, the IRA holder

How does a Self-Directed IRA LLC Work?With a Self-Directed IRA LLC you will have a checkbook, debit card and all the tools that come along with a business checking account at your fingertinvestment options are the few things that you can’t do; the rest is up to your imagination.

The Self-Directed IRA LLC is a unique hybrid that utilizes a selflegal structure. Basically, the Self-Directed IRA LLC is a vehicle that will help you utilize a selfcustodian for their strengths while eliminat

Here is how it works:

1. Create the IRA account: Your retirement account is moved to a selfallows alternative investmentscrutiny.

2. Create the LLC: Our legal team creates a customized entity (in the form of a LLCto the custodian as a private placementa professional to create this structurepenalized).

Page 8

personally know several people who have lost potential deals because they could not get their custodian to send money on time.

directed IRAs is related to the cash that is not beingcustody of the custodian. While it is uncommon, this situation creates a risk for the funds to be

American Pension Services (APS). In April 2014, APSwas placed under receivership following a request by the SEC to freeze all its

and its founder, Curtis L. DeYoung, have lost over $22 million in fraudulent transactionsthen attempted to cover it up with false account statements

charged fees based on the inflated account value on their statements. DeYong was also accused of using forged letters to invest without his clients’ authorization. Even though APS advertised their plans as self

clients’ funds were kept under the control of APS in two master trust accounts. This clients did not have true control over their money and were not able to detect fraudulent activities

disadvantages described above is the Self-Directed IRA LLC (a

Directed IRA LLC is a truly self-directed vehicle with “checkbook control.” Alimited liability company) is established. The IRA account invests into the LLC by

purchasing 100% of the units of the LLC. The LLC is then owned by the IRA account and managed by the Because the account holder has instructed the custodian to transfer the IRA funds

the IRA holder now has “checkbook control” over their IRA funds.

Directed IRA LLC Work? Directed IRA LLC you will have a checkbook, debit card and all the tools that come along with

a business checking account at your fingertips. All you need to know with the Selfare the few things that you can’t do; the rest is up to your imagination.

Directed IRA LLC is a unique hybrid that utilizes a self-directed IRA custodian and a specializeDirected IRA LLC is a vehicle that will help you utilize a selfeliminating their bureaucracy and red tape and minimizing their fees.

Your retirement account is moved to a self-directed custodian who allows alternative investments that can pass their compliance procedures and withstand IRS

Our legal team creates a customized entity (in the form of a LLCto the custodian as a private placement. (This is not an ordinary LLC. It is importanta professional to create this structure; otherwise your IRA may become disqualified, taxed and

deals because they could

being invested under creates a risk for the funds to be

In April 2014, APS, a Utah-based was placed under receivership following a request by the SEC to freeze all its

have lost over $22 million in fraudulent transactions for count statements. Clients were

DeYong was also accused of using Even though APS advertised their plans as self-

clients’ funds were kept under the control of APS in two master trust accounts. This means clients did not have true control over their money and were not able to detect fraudulent activities

Directed IRA LLC (a.k.a. “Checkbook

A special purpose, ests into the LLC by

owned by the IRA account and managed by the transfer the IRA funds

ontrol” over their IRA funds.

Directed IRA LLC you will have a checkbook, debit card and all the tools that come along with Self-Directed IRA LLC

are the few things that you can’t do; the rest is up to your imagination.

directed IRA custodian and a specialized Directed IRA LLC is a vehicle that will help you utilize a self-directed

minimizing their fees.

directed custodian who that can pass their compliance procedures and withstand IRS

Our legal team creates a customized entity (in the form of a LLC) and submits it . It is important that you use

otherwise your IRA may become disqualified, taxed and

3. Open a bank account: You open a bank you wish. You are the only person with access to this accountcan monitor the balance or write a check any time you need, without custodial fees and without any delays

4. Fund the LLC bank account:instructing them to fund your new bank account via check or wire.will be in control of and have direct accesIRA investments will go to and from this account.

Self-

After you complete the steps of the structure. You can direct your retirement funds into any investment you choose (keeping in mind that you still need to abide by IRS rules). Not onlycheckbook control over your IRA,owning your investments inside of the LLC

Do I need to ask permission to make an investment? No, with a Self-Directed IRA LLC, you, the manager, make all investment decisions.

Page 9

You open a business checking account for this entity. You can choose any the only person with access to this account as manager of the LLC

the balance or write a check any time you need, without incurring anys and without any delays.

Fund the LLC bank account: You submit an investment authorization form to the custodian instructing them to fund your new bank account via check or wire. As manager of the LLC, you

and have direct access to all your money. All income and expenses from the IRA investments will go to and from this account.

-Directed IRA LLC: How It Works

s of the IRA LLC process, you will have absolute control over this new can direct your retirement funds into any investment you choose (keeping in mind that

you still need to abide by IRS rules). Not only do you have the flexibility and convenience of having checkbook control over your IRA, you will also have the added liability protection associated with owning your investments inside of the LLC.

Do I need to ask permission to make an investment? Directed IRA LLC, you, the manager, make all investment decisions.

You can choose any as manager of the LLC. You

incurring any additional

You submit an investment authorization form to the custodian As manager of the LLC, you

s to all your money. All income and expenses from the

you will have absolute control over this new can direct your retirement funds into any investment you choose (keeping in mind that

do you have the flexibility and convenience of having lity protection associated with

A Self-Directed IRA LLC gives you what is callwant to make an IRA investment,account.

Why not just use a custodian? When the money is managed by a traditional account is in no way self-directed. Typically, tstatement. Almost all custodians only handle the typical IRAs An individual puts money aside for retirement savings with a

brokerage firm that empowers the individual to make investments that custodian’s compliance department.

In most cases, the individual can trade stunder the custodian, administrator or

Depending on the type of IRA the individual has structured, gains can be taxexempt.

Contribution limits vary depending on age, employment st Some individuals have found their way to the Selfof these flexible self-directed IRA custodianassets titled in the custodians name FBO (Example: ABC Trust Company, custodian FBO John Smith) The extent of bureaucracy necessary is at the Custodians who offer this type of plan have a fee for fees you can expect. Fees Fees Fees Annual asset fees Invoice fees Fees based on % of the account RMD calculation fees Wire fees Entrance fees

Red Tape Waiting for custodian to cut a check Unnecessary annual appraisals Mortgage reviews Investment limitations Asset evaluation

Page 10

Directed IRA LLC gives you what is called “checkbook control.” The process is simple., you write a check or wire funds directly from your LLC

Why not just use a custodian? the money is managed by a traditional custodian, administrator or brokerage firm

Typically, the only interaction afforded is the ability to view

Almost all custodians only handle the typical IRAs An individual puts money aside for retirement savings with a custodian,

rokerage firm that empowers the individual to make investments that are allowable custodian’s compliance department.

the individual can trade stocks, bonds and mutual funds from a select inventory dministrator or broker.

Depending on the type of IRA the individual has structured, gains can be tax

Contribution limits vary depending on age, employment status and adjusted gross income.

Some individuals have found their way to the Self-Directed IRA custodian. If the account is held by one directed IRA custodians, the individual is empowered to purchase non

n the custodians name FBO (for benefit of) the individual (Example: ABC Trust Company, custodian FBO John Smith).

The extent of bureaucracy necessary is at the custodian’s discretion and is always paid for out of the IRA. of plan have a fee for anything and everything. Below is a small list of

based on % of the account

Fees to buy Exit fees Fees to sell Check fees Return check fees

ustodian to cut a check ppraisals

IRS or Attorney Opinion letters Minimum distributions Private placement memorandums Waiting for custodian approval And the list goes on…

The process is simple. When you you write a check or wire funds directly from your LLC checking

rokerage firm, this type of afforded is the ability to view an annual

ustodian, administrator or are allowable by the

ocks, bonds and mutual funds from a select inventory

Depending on the type of IRA the individual has structured, gains can be tax-deferred or tax-

atus and adjusted gross income.

If the account is held by one al is empowered to purchase non-traditional

s discretion and is always paid for out of the IRA. elow is a small list of

IRS or Attorney Opinion letters

emorandums pproval

How a Real Estate Developer Use Taking control of your retirement account and investing in the assets can control will allow you to secure satisfaction using the opportunities and features presented by the

Mike Foley already had a self-directed account with Provident Trust when he learned about self-directed option with checkbook control. Mike thought that the truly self-directed he discovered the advantages of checkbook control

As a real estate developer, Mike has a lot of experience in real estate business— from development, construction, and even flipping houses. He is an active member real estate clubs in Southern California where people come together for training and discussions about real estate. Mike has a strong passion for educating others successful real estate investors. He always keeps up to date with the real estate market not only in Southern California but also in some European and Asian countries.

As a successful real estate developer and educator, Mike is also involved in charity work as a way of giving back. His recent contribution was in Vietnam where his group had a fund raising project to provide housing for poor families

With his knowledge and involvement in real estate, Mike believes that with a Self-Directed Solo put his knowledge and skills to good use and return for his retirement savings.

When Mike was introduced to Selfgreat solution for his needs. The fact that he knew his own account made him more confident with his decision. Sense Financial assisted him throughout the process of setting up and rolling over his previous He was very pleased with how Sense Financiahim set up the ultimate retirement plan for his needs.

Mike’s Solo 401k plan now includes rental properties as well as mobile homes. Part of his retirement savings is also invested in notes and pre

Page 11

“My Solo 401k account now owns rental properties and real estate notes.”

Michael Foley, CEOThe Foley Group

How a Real Estate Developer Used His Expertise to Grow His Retirement Account

Taking control of your retirement account and investing in the assets that you know, understand and secure a better financial future. A Sense Financial client has achieved such

satisfaction using the opportunities and features presented by the self-directed Solo 401k.

directed account with Provident Trust when he learned about directed option with checkbook control. As someone who knows a great deal about real estate,

directed Solo 401k would be a great investment vehiccheckbook control.

As a real estate developer, Mike has a lot of experience in real from development, construction, and even

flipping houses. He is an active member and speaker for several state clubs in Southern California where people come

or training and discussions about real estate. Mike has a strong passion for educating others on how to become

. He always keeps up to date with the real estate market not only in Southern California but also in

n and Asian countries.

As a successful real estate developer and educator, Mike is also involved in charity work as a way of giving back. His recent contribution was in Vietnam where his group had a fund raising project to provide housing for poor families.

With his knowledge and involvement in real estate, Mike Solo 401k, he will be able to

put his knowledge and skills to good use and generate a healthy

was introduced to Self-Directed Solo 401ks checkbook control feature, he found The fact that he knew me personally, and that he could be hands

his own account made him more confident with his decision. Sense Financial assisted him throughout the process of setting up and rolling over his previous custodial account into a Self-DHe was very pleased with how Sense Financial answered all his questions and the work they did to help him set up the ultimate retirement plan for his needs.

Mike’s Solo 401k plan now includes rental properties as well as mobile homes. Part of his retirement also invested in notes and precious metals. These investment choices are part of the reason

“My Solo 401k account now owns rental properties and real estate notes.”

Michael Foley, CEO The Foley Group

His Expertise to Grow His Retirement Account

that you know, understand and future. A Sense Financial client has achieved such

Solo 401k.

directed account with Provident Trust when he learned about our truly As someone who knows a great deal about real estate,

Solo 401k would be a great investment vehicle especially when

he found it to be a and that he could be hands-on with

his own account made him more confident with his decision. Sense Financial assisted him throughout Directed Solo 401k.

l answered all his questions and the work they did to help

Mike’s Solo 401k plan now includes rental properties as well as mobile homes. Part of his retirement hese investment choices are part of the reason

why he wanted to switch to checkbook control. There are of his retirement account. Getting approval from a custodian would only slow down the process.the Solo 401k plan from Sense Financial, account holders can going through a custodian. That is a freedom he needs to successfully grow his retir

Aside from real estate investments and the freedom of checkbook control, Mike sees fantastic tax-sheltering vehicle because also has the ability to make post-tax contributions into contributions can be claimed as taxyou really have a great variety of choices on what you can invest. I like the control and I like the possibilities. I would say those were by far the two biggest benefits.”

He is very pleased with how much time and money he saved401k plan. He is also happy with the positive experience and Financial team, which he thinks is difficult to find these days. Mike believehave the same control over his retirement future if he still had allmarket.

Page 12

why he wanted to switch to checkbook control. There are many frequent transactions going in and out etting approval from a custodian would only slow down the process.

Sense Financial, account holders can make all investment decisionhat is a huge advantage for someone like Mike. The Solo 401k

freedom he needs to successfully grow his retirement nest egg.

Aside from real estate investments and the freedom of checkbook control, Mike sees vehicle because of its high contribution limits of nearly $50,000 each year. He

tax contributions into the Roth account of his Solo 401kas tax deductions. According to Mike, “If you’ve got a self

you really have a great variety of choices on what you can invest. I like the control and I like the possibilities. I would say those were by far the two biggest benefits.”

with how much time and money he saved by switching to a truly . He is also happy with the positive experience and convenient process provided by

, which he thinks is difficult to find these days. Mike believes that he wouldn’t be able to e the same control over his retirement future if he still had all of his funds invested in the stock

frequent transactions going in and out etting approval from a custodian would only slow down the process. With

make all investment decisions without Solo 401k gives him the

Aside from real estate investments and the freedom of checkbook control, Mike sees the Solo 401k as a of nearly $50,000 each year. He

Roth account of his Solo 401k. All pre-tax got a self-directed 401k,

you really have a great variety of choices on what you can invest. I like the control and I like the

truly Self-Directed Solo rovided by the Sense

that he wouldn’t be able to his funds invested in the stock

Solo 401k –

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Part III:

The Ultimate Retirement Plan

The Ultimate Retirement Plan

I’ve saved the best available retirement the best way to control and grow your retirement wealth the Self-Directed Solo 401k plan is the give you control over your retirement account, eliminate custodian fees forever and open the world of investment opportunities, it also has awesome tax advantages enabling you to pay yourself instead of Uncle Sam. The Solo 401k has the potential to save youif you decide to maximize its benefits.

What is a Solo 401k? The Solo 401k is a Qualified Retirement business owners. The plan has all ofand control for the plan holder. The Solo 401ktraditional 401k,

Eligibility Requirements: Self-employment activity: Self

for the plan. The business or selfindependent contractor, sole proprietorship, partnership, LLC, and corporation.

Page 14

retirement option for the end. In my opinion, what you are about the best way to control and grow your retirement wealth if you qualify for it. Because of its advantages

irected Solo 401k plan is the ultimate wealth building machine! Not only will over your retirement account, eliminate custodian fees forever and open the world of

investment opportunities, it also has awesome tax advantages enabling you to pay yourself instead of . The Solo 401k has the potential to save you tens of thousands of dollars in taxes

benefits.

etirement Plan (QRP) designed for self-employed individuals and small of the tax benefits of a traditional 401k but with much more flexibility

and control for the plan holder. The Solo 401k complies with most rules and regulations just like a

Solo 401k: How It Works

: Self-employed individuals and owners of small business are qualified

for the plan. The business or self-employed activity can be in any capacity, including independent contractor, sole proprietorship, partnership, LLC, and corporation.

what you are about to read is . Because of its advantages, Not only will the Solo 401k

over your retirement account, eliminate custodian fees forever and open the world of investment opportunities, it also has awesome tax advantages enabling you to pay yourself instead of

nds of dollars in taxes every year

employed individuals and small raditional 401k but with much more flexibility

most rules and regulations just like a

employed individuals and owners of small business are qualified employed activity can be in any capacity, including

independent contractor, sole proprietorship, partnership, LLC, and corporation.

Absence of Full-Time Empl1000 hours per year or more, except for the

Michael Atias - Director OTA Tax Pros

In order to have a Solo 401k you need to have selfincome. A lot of people asked me: “I don’t have selfincome, but I really like this plan and its benefits. How can I become qualified?” It depends on the industry you’re in. For example, if you are in real estate, you can turn yourself into your manager and become eligible. You can pay yourself and that would become selfC or another separate LLC or an Syou are eligible for a Solo 401k. Another sugtrader. If you have of your account or percentage of your earnings? You can do the same thing, only pay yourself. Now you will create an earned income for yourself and that allolot of people do somefew clients even ifmake them eligible. There are additional options available depending on what you want to do.

Benefits of Solo 401k: Since the retirement plan is designed for only individuals and their spouses, the plan offers much more control and flexibility to the account holder. Below are some of the major benefits of a Solo 401k plan:

1. High contribution limit With Solo 401k, the account holder that of an employee and that of owner. Therefore he or she is allowed to make both salary deferral and profit sharing contributions to the plan. For the salaryperson can contribute up to $18,02015). Account holders over 50 years old are also allowed an additional catch-up contribution of $6,000, bringing the maximum salary deferral contribution to $2a person can also contribute up to contribution of up to $53,000 (or $59,000 if over age 50)Traditional IRA account.

Page 15

0

10000

20000

30000

40000

50000

60000

70000

IRA Solo 401k

Time Employees: The business cannot have any full-time employee1000 hours per year or more, except for the business owner(s) and his or her spouse.

In order to have a Solo 401k you need to have selfncome. A lot of people asked me: “I don’t have self

income, but I really like this plan and its benefits. How can I become qualified?” It depends on the industry you’re in. For example, if you are in real estate, you can turn yourself into your manager and become eligible. You can pay yourself and that would become self-employment income, which you can report on Schedule C or another separate LLC or an S-corporation of your choosing. Then you are eligible for a Solo 401k. Another suggestion is if you are a day trader. If you have an advisor, would you pay him 1 to 3% of the size of your account or percentage of your earnings? You can do the same thing, only pay yourself. Now you will create an earned income for yourself and that allows you to be a participant in the Solo 401k. A lot of people do some type of consulting on the side. Tfew clients even if it is just for a few thousands a year. That would make them eligible. There are additional options available depending on what you want to do.

the retirement plan is designed for only individuals and their spouses, the plan offers much more control and flexibility to the account holder. Below are some of the major benefits of a Solo

he account holder wears two hats: that of the business

he or she is allowed to make both salary deferral and profit sharing

salary deferral, a 000 per year (for

. Account holders over 50 years old are also up contribution of

00, bringing the maximum salary deferral contribution to $24,000. Secondly, as the business up to 25% of the earned compensation, with an upper limit of combined

(or $59,000 if over age 50). This is almost 10 times higher than a

Solo 401k

Catch up

Contribution limit

time employees who work spouse.

In order to have a Solo 401k you need to have self-employment ncome. A lot of people asked me: “I don’t have self-employment

income, but I really like this plan and its benefits. How can I become qualified?” It depends on the industry you’re in. For example, if you are in real estate, you can turn yourself into your own property manager and become eligible. You can pay yourself and that would

employment income, which you can report on Schedule corporation of your choosing. Then

gestion is if you are a day advisor, would you pay him 1 to 3% of the size

of your account or percentage of your earnings? You can do the same thing, only pay yourself. Now you will create an earned income

ws you to be a participant in the Solo 401k. A type of consulting on the side. They can find a

just for a few thousands a year. That would make them eligible. There are additional options available depending

as the business owner, with an upper limit of combined

. This is almost 10 times higher than a

2. Checkbook control The business owner also acts as the plan trustee and administratorthird party administrator (TPA) or a custodianWith a traditional qualified plan, the making an investment. The Self-Directed investments as they wish without consulting a custodian or anyone else. the ability to invest with the speed and simplicity of writing a check.

3. Non-traditional Investment OptionsThe Solo 401k is a breakthrough retirement solution, which allows account holders to expand their investment horizons. Usually, people are forced to go with stocks and mutual funds for their retirement portfolio. However, the Self-Directed Solo 401k allows account holders to choose other investment options as well, including real estate, precious metals, private businesses, tax liens and tax notes, and much more. This is one of the most attractive benefits, as investors can now use their experience and expertise to grow their retirement funds more efficiently. For example, many investors are now looking to add real estate to their retirement portfolio as a way to increase security and earnings for their future.

4. Loan option available With an IRA account, borrowing money from the account is not permitted. The IRS, however, allows loan option for Solo 401k accounts. Thaccount balance, or $50,000, whichever is less, and for any rethe loan amount, as long as the loan amount and interest are paid back at least every quarter and within 5 years. If the loan is used to purchase a primary residence for the plan owner, it can be paid pack over a period of up to 15 years.

In many cases, the interest on a Solo 401k loan can also be much lower than other conventional loanThe interest is set at prime rate plus one percent. such as credit card debt, using the Solo 401k loan can allow him or her to switch to a lower interest loan. Plus, the plan owners will pay interest back to his retirement account

Page 16

Investment options ConventionalRet. Account

Stocks Bonds Mutual Funds Real Estate Private Businesses Precious Metals Tax liens & Tax Notes

Trust Deeds Rental Properties Hard Money Lending

as the plan trustee and administrator, which eliminates the need for a third party administrator (TPA) or a custodian. This also enables the owner to have a checkbook control.

the account holder would be required to get custodial consent before irected Solo 401k, on the other hand, allows plan participants to make

investments as they wish without consulting a custodian or anyone else. Checkbook controthe ability to invest with the speed and simplicity of writing a check.

traditional Investment Options Solo 401k is a breakthrough retirement

solution, which allows account holders to expand their investment horizons. Usually, people are forced to go with stocks and mutual funds for their retirement portfolio. However,

Solo 401k allows account holders to choose other investment options as well, including real estate, precious metals, private businesses, tax liens and tax notes, and

This is one of the most attractive benefits, as investors can now use their

erience and expertise to grow their retirement funds more efficiently. For example,

investors are now looking to add real estate to their retirement portfolio as a way to increase security and earnings for their future.

an IRA account, borrowing money from the account is not permitted. The IRS, however, allows loan option for Solo 401k accounts. This means that account holders can take out up to 50% of the account balance, or $50,000, whichever is less, and for any reason. There is no tax or penalty charge on the loan amount, as long as the loan amount and interest are paid back at least every quarter and within

If the loan is used to purchase a primary residence for the plan owner, it can be paid pack over a

In many cases, the interest on a Solo 401k loan can also be much lower than other conventional loanThe interest is set at prime rate plus one percent. If the plan owner is paying back a highsuch as credit card debt, using the Solo 401k loan can allow him or her to switch to a lower interest loan.

s will pay interest back to his retirement account instead of another len

Conventional Ret. Account

Self-Directed

which eliminates the need for a to have a checkbook control.

to get custodial consent before Solo 401k, on the other hand, allows plan participants to make

heckbook control gives you

an IRA account, borrowing money from the account is not permitted. The IRS, however, allows the account holders can take out up to 50% of the

ason. There is no tax or penalty charge on the loan amount, as long as the loan amount and interest are paid back at least every quarter and within

If the loan is used to purchase a primary residence for the plan owner, it can be paid pack over a

In many cases, the interest on a Solo 401k loan can also be much lower than other conventional loans. If the plan owner is paying back a high-interest debt,

such as credit card debt, using the Solo 401k loan can allow him or her to switch to a lower interest loan. instead of another lender.

While it is often not recommended for plan owners to take money out of their retirement plan, the loan option can come handy in certain situations. In case of need, the money can be accessible with a very simple application process with no credit chec

The loan option is also preferable over early withdrawal10% penalty charge (on top of ordinary income tax) from their savings tax-free and penaltymoney into the account and let it grow taxcannot put their money back and can

5. No income limit for Roth account While an IRA account allows Roth contributions, there is an income restriction. With a Solo 401k, however, plan participants can contribute to a Roth account, with no income restriction.

The Roth option gives plan owners the ability IRA plan, the tax is deferred until the time of withdrawal. This allows plan owners to invest their contributions in full, and reinvest all of the earnings. The funds can grow but plan owners will pay income taxes when they withdraw money during retirement.

With a Roth option, taxes are paid upfront on the contributions. However, there will be no tax at the time of withdrawal. That means all returns on investments will balso avoid the risk of increasing tax rates.

With a Solo 401k plan, there is no income limit to contribute to a Roth Solo 401k. Hence, many investors can take advantage of this option to sidestep the income limit of

6. UBIT exemption for non-recourse financingFor real estate investors, the ability to leverage their property purchase can make or break a deal. However, traditional mortgages often require participant cannot provide the guarantee needed for a traditional mortgage.prohibited transaction. A retirement plan itself does not have any credit history andfinancing is not possible for any retirement plan.

The good news is the IRS allows the use of nonrecourse loan, the property will act as the collateral IRA and Solo 401k plan owners to accounts will be charged with an Unrelated Business Income Tax (UBIT) for the use of leverage.

The biggest advantage of a Solo 401k to real estate investor is that the use of nonwithin a Solo 401k plan is penalty-free. Using leverage within a Solo 401k will not trigger the UBIT.allows real estate investors to stay competitive and obtain financing for their property purchase.

Page 17

While it is often not recommended for plan owners to take money out of their retirement plan, the loan option can come handy in certain situations. In case of need, the money can be accessible with a very simple application process with no credit check required.

The loan option is also preferable over early withdrawals in most cases. Instead of paying an expensive (on top of ordinary income tax) to withdraw money early, plan owners can borrow

free and penalty-free. With the loan option, it is also possible to pay back the money into the account and let it grow tax-deferred. With an early withdrawal, the plan participants

can fall behind on their retirement savings.

imit for Roth account While an IRA account allows Roth contributions, there is an income restriction. With a Solo 401k, however, plan participants can contribute to a Roth account, with no income restriction.

The Roth option gives plan owners the ability to achieve tax-free investments. With IRA plan, the tax is deferred until the time of withdrawal. This allows plan owners to invest their contributions in full, and reinvest all of the earnings. The funds can grow without interruptionbut plan owners will pay income taxes when they withdraw money during retirement.

With a Roth option, taxes are paid upfront on the contributions. However, there will be no tax at the time of withdrawal. That means all returns on investments will be completely tax-free. Plan owners will also avoid the risk of increasing tax rates.

With a Solo 401k plan, there is no income limit to contribute to a Roth Solo 401k. Hence, many investors can take advantage of this option to sidestep the income limit of a Roth IRA.

recourse financing For real estate investors, the ability to leverage their property purchase can make or break a deal.

mortgages often require personal guarantee. For a retirementcannot provide the guarantee needed for a traditional mortgage. This would cons

prohibited transaction. A retirement plan itself does not have any credit history and hence, convefor any retirement plan.

The good news is the IRS allows the use of non-recourse financing within retirement plans. With a nonrecourse loan, the property will act as the collateral without requiring personal guarantee. This enables IRA and Solo 401k plan owners to leverage real estate purchase within the account. However, IRA

will be charged with an Unrelated Business Income Tax (UBIT) for the use of leverage.

The biggest advantage of a Solo 401k to real estate investor is that the use of non-recourse financing free. Using leverage within a Solo 401k will not trigger the UBIT.

stay competitive and obtain financing for their property purchase.

While it is often not recommended for plan owners to take money out of their retirement plan, the loan option can come handy in certain situations. In case of need, the money can be accessible with a very

in most cases. Instead of paying an expensive to withdraw money early, plan owners can borrow

free. With the loan option, it is also possible to pay back the deferred. With an early withdrawal, the plan participants

While an IRA account allows Roth contributions, there is an income restriction. With a Solo 401k, however, plan participants can contribute to a Roth account, with no income restriction.

free investments. With a regular 401k or IRA plan, the tax is deferred until the time of withdrawal. This allows plan owners to invest their

without interruption for years,

With a Roth option, taxes are paid upfront on the contributions. However, there will be no tax at the free. Plan owners will

With a Solo 401k plan, there is no income limit to contribute to a Roth Solo 401k. Hence, many investors

For real estate investors, the ability to leverage their property purchase can make or break a deal. retirement plan, the plan

This would constitute a hence, conventional

recourse financing within retirement plans. With a non-personal guarantee. This enables

estate purchase within the account. However, IRA will be charged with an Unrelated Business Income Tax (UBIT) for the use of leverage.

recourse financing free. Using leverage within a Solo 401k will not trigger the UBIT. This

stay competitive and obtain financing for their property purchase.

7. Ability to combine multiple accountsThe Solo 401k allows rollovers from other retirement plans like a traditional IRA, SEP IRA, or even a previous employer’s 401k, 457 or 403B. The only exception is into a Solo 401k account. You can rollover a Roth 401k in

Because of this, Solo 401k plan owners can rollover money from their previous retirement accounttheir Solo 401k. If a plan owner follows the appropriate process to rollover the funds, there will be no tax liability. The most common option is direct rollover. The funds from the old IRA or 401k will be issued in form of a check to the new Solo 401k plan. With a direct rollover, there is no tax or penalty, and therefore, no tax withholding required either.

The ability to accept rollovers from different retirement plandifferent retirement savings into one.this opportunity to accumulate a larger sum into one account forpurchase.

8. Cost-Effective AdministrationAs the Solo 401k is designed for individuals, ialso the plan trustee and plan administrator. investments without involving another third party. This eliminates the hasslesassociated with having a custodian. There

For active investors, this is a huge advantage. Real estate investors, for example, may need to carry out small transactions to pay for property maintenance or small repairs. If a transaction fee is charged for every check written, the costs and fees will eat away a big part of any

For the Solo 401k plan, there is also total assets. This minimizes administrative effortpass this threshold, the plan holderdecided to close the Solo 401k plan at any time during the year, they will also need to file form 5500-EZ, regardless of the account value. The form is simple to file, however, and needs to be completed by the seventh month following the end of plan

Page 18

to combine multiple accounts Solo 401k allows rollovers from other retirement plans like a traditional IRA, SEP IRA, or even a

previous employer’s 401k, 457 or 403B. The only exception is a Roth IRA, which cannot You can rollover a Roth 401k into a Roth Solo 401k, however.

this, Solo 401k plan owners can rollover money from their previous retirement accountplan owner follows the appropriate process to rollover the funds, there will be no

most common option is direct rollover. The funds from the old IRA or 401k will be issued in form of a check to the new Solo 401k plan. With a direct rollover, there is no tax or penalty, and therefore, no tax withholding required either.

from different retirement plans tax-free allows plan ownersdifferent retirement savings into one. This makes it easier to manage. Some plan owners can also take this opportunity to accumulate a larger sum into one account for a large investment, such as a property

Effective Administration As the Solo 401k is designed for individuals, it is quite simple to set up and manage. also the plan trustee and plan administrator. He or she can keep records of the transactions and make investments without involving another third party. This eliminates the hassles, delays,

. There are no transaction fees or value-based fees.

a huge advantage. Real estate investors, for example, may need to carry out small transactions to pay for property maintenance or small repairs. If a transaction fee is charged for every check written, the costs and fees will eat away a big part of any return they may get.

also no annual tax filing required for plans with less than $250,000 in This minimizes administrative efforts for plan owners of smaller accounts.

lan holder will only need to file Form 5500-EZ with the IRS.decided to close the Solo 401k plan at any time during the year, they will also need to file

EZ, regardless of the account value. The form is simple to file, however, and needs to be the seventh month following the end of plan year.

Solo 401k allows rollovers from other retirement plans like a traditional IRA, SEP IRA, or even a Roth IRA, which cannot be rolled over

to a Roth Solo 401k, however.

this, Solo 401k plan owners can rollover money from their previous retirement accounts into plan owner follows the appropriate process to rollover the funds, there will be no

most common option is direct rollover. The funds from the old IRA or 401k will be issued in form of a check to the new Solo 401k plan. With a direct rollover, there is no tax or penalty,

free allows plan owners to consolidate it easier to manage. Some plan owners can also take

a large investment, such as a property

The plan owner is ords of the transactions and make

delays, as well as the fees

a huge advantage. Real estate investors, for example, may need to carry out small transactions to pay for property maintenance or small repairs. If a transaction fee is charged for

return they may get.

ss than $250,000 in for plan owners of smaller accounts. For plans that

EZ with the IRS. If the plan owner decided to close the Solo 401k plan at any time during the year, they will also need to file final return

EZ, regardless of the account value. The form is simple to file, however, and needs to be

As a tax consultant, one thing I am aware of is the importance of proper planning. The protect not only your assets but also to save from paying the maximum amount of taxes to the federal government. For selfemployed individuals, one thing that we as tax accountants look for is deductions that aredeductions that any individual might encounter throughout their working life is the contribution to retirement accounts such as 401ks. It is going to give you the largest tax benefits known within the tax codes.

Page 19

As a tax consultant, one thing I am aware of is the importance of proper planning. The 401ks are one of the more important ways to protect not only your assets but also to save from paying the maximum amount of taxes to the federal government. For selfemployed individuals, one thing that we as tax accountants look for is deductions that are dollar-for-dollar write offs. One of the larger deductions that any individual might encounter throughout their working life is the contribution to retirement accounts such as 401ks. It is going to give you the largest tax benefits known within the tax

des. Tony Watson – Tax Consultant

Robert Hall & Associates

As a tax consultant, one thing I am aware of is the importance of s are one of the more important ways to

protect not only your assets but also to save from paying the maximum amount of taxes to the federal government. For self-employed individuals, one thing that we as tax accountants look for is

dollar write offs. One of the larger deductions that any individual might encounter throughout their working life is the contribution to retirement accounts such as 401ks. It is going to give you the largest tax benefits known within the tax

Tax Consultant Robert Hall & Associates

How to save $10,000 in taxes with Solo 401k

With all the benefits of a Solo 401k plan, plan offers. Many of my clients have come to realize how much they can save in taxes simply by contributing to their Solo 401k plan.

Many investors set up a Solo 401k to break away all the restrictions. maximize their growth potential. What many don’t realize is that save $10,000 in taxes every year.

The Solo 401k plan offers one of the highest contribution limits among qualified plans. The total contribution limit, including elective deferral and profit sharing, can be as high as $53,000 as of 2015. Plan owners who are at least 50 years old are also allowed $6,000, bringing a total contribution limit to $59,000.

Consider the case of a plan owner who contributes the maximum of $53,000 to his Solo 401k plan. Because the Solo 401k plan is tax-deferred, the contribution will$53,000. Assuming an income tax rate of 20%, the reduced amount will translate to a $10,600 saving in income taxes. In some case, the decrease in taxable income can even help the plan owner drop to a lower tax bracket. This means an even bigger tax saving for the year.

Also, if the spouse of the business owner also participates in the business, he or she can also contribute to the Solo 401k plan. Together, the couple can contribute a maximum of $106,000 a year, or $if both are 50 years or older. This means the tax savings can double for couples.

Speaking of the Solo 401k plan, Tony Watson, a tax consultant at Robert Hall & Associates, commented: “The Solo 401k for self-employed individuals is going to give yothe tax codes.”

How do you take advantage of this tax benefit? Simply contribute to your Solo 401k plan and save for your own retirement. Compared to other taxof the easiest and most effective ways to reduce your taxable income for the year. Having a Solo 401k plan will help to not only protect your assets, but also

Page 20

How to save $10,000 in taxes with Solo 401k

With all the benefits of a Solo 401k plan, I would be remiss if I didn’t mention the tax benefits that this plan offers. Many of my clients have come to realize how much they can save in taxes simply by contributing to their Solo 401k plan.

Many investors set up a Solo 401k in order to rollover their money from an old retiremebreak away all the restrictions. The Solo 401k allows them to put their money to good use and

maximize their growth potential. What many don’t realize is that the Solo 401k can help them to

o 401k plan offers one of the highest contribution limits among qualified plans. The total contribution limit, including elective deferral and profit sharing, can be as high as $53,000 as of 2015. Plan owners who are at least 50 years old are also allowed an additional catch-up contribution of $6,000, bringing a total contribution limit to $59,000.

Consider the case of a plan owner who contributes the maximum of $53,000 to his Solo 401k plan. deferred, the contribution will effectively reduce his taxable income by

$53,000. Assuming an income tax rate of 20%, the reduced amount will translate to a $10,600 saving in income taxes. In some case, the decrease in taxable income can even help the plan owner drop to a

ket. This means an even bigger tax saving for the year.

Also, if the spouse of the business owner also participates in the business, he or she can also contribute to the Solo 401k plan. Together, the couple can contribute a maximum of $106,000 a year, or $if both are 50 years or older. This means the tax savings can double for couples.

Speaking of the Solo 401k plan, Tony Watson, a tax consultant at Robert Hall & Associates, commented: employed individuals is going to give you the largest tax benefit known within

take advantage of this tax benefit? Simply contribute to your Solo 401k plan and save for your own retirement. Compared to other tax-planning strategies, contributing to a Solo 401k plan isof the easiest and most effective ways to reduce your taxable income for the year. Having a Solo 401k

help to not only protect your assets, but also to minimize your taxability to Uncle Sam.

mention the tax benefits that this plan offers. Many of my clients have come to realize how much they can save in taxes simply by

to rollover their money from an old retirement account and allows them to put their money to good use and

help them to easily

o 401k plan offers one of the highest contribution limits among qualified plans. The total contribution limit, including elective deferral and profit sharing, can be as high as $53,000 as of 2015.

up contribution of

Consider the case of a plan owner who contributes the maximum of $53,000 to his Solo 401k plan. effectively reduce his taxable income by

$53,000. Assuming an income tax rate of 20%, the reduced amount will translate to a $10,600 saving in income taxes. In some case, the decrease in taxable income can even help the plan owner drop to a

Also, if the spouse of the business owner also participates in the business, he or she can also contribute to the Solo 401k plan. Together, the couple can contribute a maximum of $106,000 a year, or $118,000

Speaking of the Solo 401k plan, Tony Watson, a tax consultant at Robert Hall & Associates, commented: u the largest tax benefit known within

take advantage of this tax benefit? Simply contribute to your Solo 401k plan and save for planning strategies, contributing to a Solo 401k plan is one

of the easiest and most effective ways to reduce your taxable income for the year. Having a Solo 401k minimize your taxability to Uncle Sam.

Real Estate 401k or

Page 21

Part IV:

Real Estate Investing with a Solo 401k or Checkbook IRA

Real estate vs. Stock marketThe recent financial crisis greatly affected the majority of 401k accounts and other retirement plans, mainly because they were heavily invested in stocks and bonds. It’s a common saying that you snever put all your eggs in one basket. SSolo 401k and IRA LLC allow you almost any type of legally available investments, why would you? The reality is that the stock market has never been known for its stabilitysudden downturn can cause a loss of much, if not all, your investments.

Unlike stocks, real estate investments are not likely to risk all your capital. In the worst scenario, the property itself will act as collateral to help recover your loss.

Even within real estate, there are many investment choices at different levels of risk to fit your preference. The Solo 401k allows investment in rental properties, house flipping, trust deeds, commercial building, notes, and so on. The level of risk, potential return, and amounwork involved depend on each type of investment.

With the housing market heating up, which require more work but can potentially offer higher reward. Alternatively, investors who do not want to invest too much time in managing their portfolio can choose to invest in trust deeWith these types of investment, there is little to no effort required once the purchase is settled, and the retirement plan will receive a fixed payment whether the property is vacant or not. Even if you are not ready to jump head first into is a great way to diversify your assets and minimize risk. Instead of having all savings invested in stocks and bonds, investors are now looking to add alternative investments to their retirement areal estate being one of the most popular choices. By adding different asset classes to your portfolio, you will create a well-balanced and diversified retirement

Page 22

Real estate vs. Stock market greatly affected the majority of 401k accounts and other retirement plans, heavily invested in stocks and bonds. It’s a common saying that you s

eggs in one basket. Since the Solo 401k and IRA LLC allow you almost any

ilable investments, why The reality is that the stock market

has never been known for its stability. A cause a loss of much, if

Unlike stocks, real estate investments are not the worst case

scenario, the property itself will act as collateral

, there are many investment choices at different levels of risk to

Solo 401k allows investment in rental properties, house flipping, trust deeds, commercial building, notes, and so on. The level of risk, potential return, and amounwork involved depend on each type of investment.

up, many investors are attracted to rental properties or house flipping, which require more work but can potentially offer higher reward. Alternatively, investors who do not want to invest too much time in managing their portfolio can choose to invest in trust deeWith these types of investment, there is little to no effort required once the purchase is settled, and the retirement plan will receive a fixed payment whether the property is vacant or not.

Even if you are not ready to jump head first into the real estate pool, adding real estate to your portfolio is a great way to diversify your assets and minimize risk. Instead of having all savings invested in stocks and bonds, investors are now looking to add alternative investments to their retirement a

one of the most popular choices. By adding different asset classes to your portfolio, balanced and diversified retirement account.

Solo 401k/

IRA LLC

Rental properties

Tax notesTrust deeds

Property notes

Commercial buildings

greatly affected the majority of 401k accounts and other retirement plans, heavily invested in stocks and bonds. It’s a common saying that you should

trust deeds, commercial building, notes, and so on. The level of risk, potential return, and amount of

investors are attracted to rental properties or house flipping, which require more work but can potentially offer higher reward. Alternatively, investors who do not want to invest too much time in managing their portfolio can choose to invest in trust deeds or notes. With these types of investment, there is little to no effort required once the purchase is settled, and the

the real estate pool, adding real estate to your portfolio is a great way to diversify your assets and minimize risk. Instead of having all savings invested in stocks and bonds, investors are now looking to add alternative investments to their retirement accounts, with

one of the most popular choices. By adding different asset classes to your portfolio,

House flipping

Tax liens

Tax notes

Why the Self-directed IRA LLC

As mentioned above, a Self-Directed IRA LLCincluding real estate. This is a tremendous advantage to help investors diversify and grow their savings.

With a Self-Directed IRA LLC, almost any rchoose to invest their IRA funds into single or multipotential from rental payments. Others can choose a more handstrust deeds. With these types of passive investment, plan holders are guaranteedpassive income while skipping all the responsibilities of a landlord. Because of theplan holders of the Self-Directed IRA LLC preference.

In addition to flexibility, the checkbook feature makes investing in real estate much easier. consult a custodian can delay the processinvestments and have the required knowledge and experienceinvestors can step up and make important decision before the opportunities are gone.

Ability to invest in real estate

Checkbook Control

Page 23

directed IRA LLC is a great investment vehicle for rea

Directed IRA LLC is allowed to invest in many non-including real estate. This is a tremendous advantage to help investors diversify and grow their savings.

almost any real estate investment is fair game. Real estate investors can choose to invest their IRA funds into single or multi-family properties, which provide highpotential from rental payments. Others can choose a more hands-off approach with property notetrust deeds. With these types of passive investment, plan holders are guaranteed apassive income while skipping all the responsibilities of a landlord. Because of the wide range of options

Directed IRA LLC are sure to find investments that fit their investing style and

, the checkbook feature makes investing in real estate much easier. delay the process. Plus, not all custodians are specialized in real estate

and have the required knowledge and experience. With the checkbook controlinvestors can step up and make important decision before the opportunities are gone.

• Real estate investments allowed• Invest in properties, trust deeds, or notes

• Total control over the account• Ability to make decisions quickly

is a great investment vehicle for real estate

-traditional assets, including real estate. This is a tremendous advantage to help investors diversify and grow their savings.

. Real estate investors can properties, which provide high-earning

off approach with property notes or a steady stream of

wide range of options, are sure to find investments that fit their investing style and

, the checkbook feature makes investing in real estate much easier. Having to ialized in real estate

checkbook control feature, investors can step up and make important decision before the opportunities are gone.

Invest in properties, trust deeds, or notes

Why the Solo 401k plan is a great investment vehic

The Solo 401k comes with many advantages, including tax benefits, flexibility, loan options and many others. A few of these benefits are especially helpful for real estate investors.IRA LLC, a Solo 401k account offers the same flexibility and checkbook control, which gives real estate investors powerful advantages to succeed.

Besides these advantages, a Solo 401k offers additional features that can benefit real estate investors. Investing in real estate requires higher capital $5,500 annually, it could take years before youreal estate. The Solo 401k, however, allows a maximum contribution of $5you can save up enough funds faster.

Even better is the ability to leverage your investment. While a Selfthe use of financing can lead to an Unrelated Business Income Tax. That’s not the case with Account holders can choose to finance their purchase with a nontheir investments without triggering UBIT charges

Prohibited Transactions: Understand the Rules of and IRA The Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code (IRC) do not specify what investments a Solo 401k Planwhat is prohibited from investment. These types of transaction

The Solo 401k and IRA Rules prohibit sotransactions. These rules are meant to encourage people to use qualified retirement plans to grow

Checkbook Control

High Contribution Limit

UBIT Exemption

Page 24

is a great investment vehicle for real estate

Solo 401k comes with many advantages, including tax benefits, flexibility, loan options and many others. A few of these benefits are especially helpful for real estate investors. Similar to a Self

unt offers the same flexibility and checkbook control, which gives real estate investors powerful advantages to succeed.

se advantages, a Solo 401k offers additional features that can benefit real estate investors. res higher capital upfront. With an IRA’s maximum contribution limit

00 annually, it could take years before you’re able to put away enough money to start investing in Solo 401k, however, allows a maximum contribution of $53,000 in 201

you can save up enough funds faster.

is the ability to leverage your investment. While a Self-Directed IRA can invest in real estate, the use of financing can lead to an Unrelated Business Income Tax. That’s not the case with Account holders can choose to finance their purchase with a non-recourse loan and effectively leverage

without triggering UBIT charges.

Prohibited Transactions: Understand the Rules of Investing with the

Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code (IRC) do not specify what investments a Solo 401k Plan or an IRA is allowed to have. Instead, they describe who or

from investment. These types of transactions are known as Prohibited Transactions.

prohibit so-called “disqualified persons” from taking parttransactions. These rules are meant to encourage people to use qualified retirement plans to grow

• Total control over the account• Able to make quick decisions

• Tax-deferred or tax-free savings• More capital to invest

• Leverage real estate purchases• Invest in larger properties

le for real estate

Solo 401k comes with many advantages, including tax benefits, flexibility, loan options and many Similar to a Self-Directed

unt offers the same flexibility and checkbook control, which gives real estate

se advantages, a Solo 401k offers additional features that can benefit real estate investors. ’s maximum contribution limit of

put away enough money to start investing in 2015, which means

Directed IRA can invest in real estate, the use of financing can lead to an Unrelated Business Income Tax. That’s not the case with Solo 401k.

recourse loan and effectively leverage

Investing with the Solo 401k

Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code (IRC) do not have. Instead, they describe who or

s are known as Prohibited Transactions.

” from taking part in prohibited transactions. These rules are meant to encourage people to use qualified retirement plans to grow

savings; at the same time, the restrictions block participants inbenefits for their personal benefit. These regulations were based on a congressional assumption that certain transactions are inherently suspicious.

Disqualified Person

There are some related definitions, but a “disqualified person” (Internal Revenue Code Section 4975(e)(2)) generally include the retirement pparticipant, and entities in which the client holds a contr

Under Code Section 4975, a disqualified person is described as:

1. A fiduciary (such as the plan participant, or individualPlan)

2. A person offering services to the 3. Any employer whose employees are included in

plans but does include owner(s) of a business that sets up a qualified retirement plan)4. An employee organization which has5. A 50% owner of 3 or 4 above6. A family member of 1, 2, 3 or 4 above (including the fiduciary’s spouse,

grandparents and parents, grandchildrenand children, but not parents

7. An entity (partnership, corporation, estate or trust) owned or controlled more than 50 percent by 1, 2, 3, 4 or 5. To determine if an entity is a disqualified person, we will consider the indirect stock-holdings/interest which would be consideredmembers of a fiduciary’s family are the family members under Code Sec. 4975(e)(6) (lineal descendants) for purposes of determining disqualified persons.

8. A 10 percent owner, director, officer, or highly compensated employee 9. A 10 percent or more joint venture or partner of a person described in

Solo 401k Prohibited Transactions

IRS Section 4975 prohibits a Solo 401k prohibited transactions generally fall into three categories: of interest prohibited transactions and

Self-Dealing Prohibited Transactions

A Self-Dealing Prohibited Transaction usually

Page 25

ame time, the restrictions block participants in retirement plans from exploiting. These regulations were based on a congressional assumption that

certain transactions are inherently suspicious.

here are some related definitions, but a “disqualified person” (Internal Revenue Code Section retirement plan participant, ancestors or lineal descendants of that

participant, and entities in which the client holds a controlling equity or management interest.

Under Code Section 4975, a disqualified person is described as:

lan participant, or individual authorized to make investments for

services to the plan (such as a custodian or a trustee) Any employer whose employees are included in the plan (usually this doesn’t apply to Solo 401k

lans but does include owner(s) of a business that sets up a qualified retirement plan)An employee organization which has any member included in the Solo 401k planA 50% owner of 3 or 4 above A family member of 1, 2, 3 or 4 above (including the fiduciary’s spouse,

parents, grandchildren and children, spouses of the fiduciary’s grandchildren and children, but not parents-in-law) An entity (partnership, corporation, estate or trust) owned or controlled more than 50 percent by 1, 2, 3, 4 or 5. To determine if an entity is a disqualified person, we will consider the

holdings/interest which would be considered under Code Sec. 267(c), except that members of a fiduciary’s family are the family members under Code Sec. 4975(e)(6) (lineal descendants) for purposes of determining disqualified persons. A 10 percent owner, director, officer, or highly compensated employee of 3, 4, 5 or 7A 10 percent or more joint venture or partner of a person described in 3, 4, 5 or 7

IRS Section 4975 prohibits a Solo 401k plan participant from making certain transactions. The kindsprohibited transactions generally fall into three categories: self-dealing prohibited transactions,

ransactions and direct prohibited transactions.

ibited Transactions

Dealing Prohibited Transaction usually involves one of these acts below:

retirement plans from exploiting tax . These regulations were based on a congressional assumption that

here are some related definitions, but a “disqualified person” (Internal Revenue Code Section lan participant, ancestors or lineal descendants of that

olling equity or management interest.

make investments for the

the plan (usually this doesn’t apply to Solo 401k lans but does include owner(s) of a business that sets up a qualified retirement plan)

lan

A family member of 1, 2, 3 or 4 above (including the fiduciary’s spouse, children, spouses of the fiduciary’s grandchildren

An entity (partnership, corporation, estate or trust) owned or controlled more than 50 percent by 1, 2, 3, 4 or 5. To determine if an entity is a disqualified person, we will consider the

er Code Sec. 267(c), except that members of a fiduciary’s family are the family members under Code Sec. 4975(e)(6) (lineal

of 3, 4, 5 or 7 3, 4, 5 or 7

articipant from making certain transactions. The kinds of ransactions, conflict

4975(c)(1)(E): The direct or indirect act by a “disqualified person” who is a fiduciary whereby he/she deals with income or assets of the Solo 401k example:

Nick, a real estate agent, uses his Solo 401k a sales commission.

Scott desires to purchase a rental property for $100K and would like does not have enough money in his account. Therefore, he uses $10,000 from his Solo 401k $90,000 from his personal fund to finance the purchase.

Conflict of Interest Prohibited Transactions

A Conflict of Interest Solo 401k Prohibited Transaction usually

4975(c)(i)(F): Receipt of any consideration by a “account from any party dealing with the Plan in connection with a transactionassets of the plan. For example:

Irene uses money from her Solo 401k but has a small ownership interest in.

Nancy uses her Solo 401k ppromotion.

Ross invests his Solo 401k pthe total asset value of the fund.

Direct Prohibited Transactions

A Direct Solo 401k Prohibited Transaction generally

4975(c)(1)(A): The direct or indirect sale, trade, or renting of property between a Solo 401k “disqualified person.” For example:

Bob uses his Solo 401k plan funds to purchase an LLC interest owned by his son. John sells an interest in a partnership belonged to Mary rents rental property belonged to

4975(c)(1)(B): The direct or indirect loaningplan and a “disqualified person.” For example:

Judy personally guarantees a mortgaginvestment property.

Mark lends his wife $10,000 from his Solo 401k

Page 26

4975(c)(1)(E): The direct or indirect act by a “disqualified person” who is a fiduciary whereby he/she deals with income or assets of the Solo 401k plan in his/her own interest or for his/her own account. For

Nick, a real estate agent, uses his Solo 401k plan funds to purchase an investment property and receives

a rental property for $100K and would like to own the property personally but does not have enough money in his account. Therefore, he uses $10,000 from his Solo 401k

finance the purchase.

Transactions

Solo 401k Prohibited Transaction usually involves one of the following:

4975(c)(i)(F): Receipt of any consideration by a “disqualified person” who is a fiduciary for his/her own account from any party dealing with the Plan in connection with a transaction that involves income or

Irene uses money from her Solo 401k plan to loan to a business which she controls and manages a small ownership interest in.

plan to loan money to a company she works for so that she can

plan in a fund that he manages and his management fee the total asset value of the fund.

A Direct Solo 401k Prohibited Transaction generally involves one of the following:

The direct or indirect sale, trade, or renting of property between a Solo 401k “disqualified person.” For example:

lan funds to purchase an LLC interest owned by his son.sells an interest in a partnership belonged to his Solo 401k plan to his father.

Mary rents rental property belonged to her Solo 401k plan to her parents.

4975(c)(1)(B): The direct or indirect loaning of money or other extension of credit between a Solo 4lan and a “disqualified person.” For example:

Judy personally guarantees a mortgage loan to her Solo 401k plan to

Mark lends his wife $10,000 from his Solo 401k plan.

4975(c)(1)(E): The direct or indirect act by a “disqualified person” who is a fiduciary whereby he/she his/her own interest or for his/her own account. For

an investment property and receives

to own the property personally but does not have enough money in his account. Therefore, he uses $10,000 from his Solo 401k plan and

involves one of the following:

erson” who is a fiduciary for his/her own that involves income or

which she controls and manages

s for so that she can earn a

lan in a fund that he manages and his management fee depends on

The direct or indirect sale, trade, or renting of property between a Solo 401k plan and a

lan funds to purchase an LLC interest owned by his son. lan to his father.

of money or other extension of credit between a Solo 401k

lan to buy a residential

Rob uses money from his Solo 401k son.

4975(c)(1)(C): The direct or indirect furnishing of goods, services, or facilities between a Solo 401k and a “disqualified person.” For example:

Peter uses funds from his Solo 401k building.

Trudy owns a rental house with her Solo 401k Maria buys a rental with her Solo 401k

4975(c)(1)(D): The direct or indirect transfer to a “disqualified person” of income or assets of a Solo 401k plan. For example:

Mark invests his Solo 401k providing management services to the fund.

John, in financial distress, uses

“S” Corporation Stock

Because of the shareholder restrictions imposed on “S” Corporations, a Solo 401k in an “S” Corporation.

However, a Solo 401k plan can own stock i

Statutory Exemptions

Under IRC Section 4975(d), Congress allowedrules, believing there was legitimate reason to allowsatisfied.

A few of the statutory exemptions in Section 4975(d) that are applicable

Any contract with a disqualified person for office space, legal, accounting or other services necessary to operate the Solo 401k that this exemption is not applicable to a Solo 401kplan) as stated in Treasury Regulation Section 54.4975

The provision of ancillary services by Receipt by a disqualified person of any benefit entitled to him

beneficiary, provided that the benefit is calculatedterms of the plan as applied to

Plan Asset Rules

Page 27

Rob uses money from his Solo 401k plan to loan to an LLC which is controlled and owned by his

4975(c)(1)(C): The direct or indirect furnishing of goods, services, or facilities between a Solo 401k and a “disqualified person.” For example:

Peter uses funds from his Solo 401k plan to buy a building and pays his son to do repairs on the

Trudy owns a rental house with her Solo 401k plan and hires her son to manage the rental.Maria buys a rental with her Solo 401k plan funds and personally fixes it up.

ndirect transfer to a “disqualified person” of income or assets of a Solo 401k

Mark invests his Solo 401k plan in a real estate fund and after that earns providing management services to the fund.

ress, uses $15,000 from his Solo 401k plan to pay a personal debt.

Because of the shareholder restrictions imposed on “S” Corporations, a Solo 401k plan cannot own stock

lan can own stock in a “C” Corporation.

Under IRC Section 4975(d), Congress allowed statutory exemptions from the prohibited transaction rules, believing there was legitimate reason to allow them and assuming that specific

of the statutory exemptions in Section 4975(d) that are applicable to Solo 401k plans include:

Any contract with a disqualified person for office space, legal, accounting or other services the Solo 401k plan provided that reasonable compensation is made. Note not applicable to a Solo 401k plan fiduciary (the trustee of

in Treasury Regulation Section 54.4975-6(a)(5). The provision of ancillary services by a bank trustee to a Solo 401k plan. Receipt by a disqualified person of any benefit entitled to him as a plan participant or

the benefit is calculated and paid in a manner that is dictated byterms of the plan as applied to all other participants and beneficiaries.

to an LLC which is controlled and owned by his

4975(c)(1)(C): The direct or indirect furnishing of goods, services, or facilities between a Solo 401k plan

his son to do repairs on the

lan and hires her son to manage the rental.

ndirect transfer to a “disqualified person” of income or assets of a Solo 401k

compensation for

lan to pay a personal debt.

lan cannot own stock

statutory exemptions from the prohibited transaction them and assuming that specific requirements are

to Solo 401k plans include:

Any contract with a disqualified person for office space, legal, accounting or other services reasonable compensation is made. Note

lan fiduciary (the trustee of the Solo 401k

as a plan participant or that is dictated by the

The Department of Labor’s (DOL) deemed “plan” assets. Considered pension plans under the Plan Asset Rules, Solo 401k to these rules.

If the aggregate Solo 401kentity, the equity interests and assets of the “investment entity” are treatedinvesting Solo 401k plan for purposes of the prohibapplicable exception.

Additionally, when a Solo 401k “operating company”, the operating company exception is no longer applicablecompany’s assets are going to be considered

As a rule, the Plan Asset Rules will apply in the following cases:

If one or more disqualified persons and IRAs/401k plans own 100% of an “operating company”, in which case all the assets of the “operating company” aIRA/401k), or

If disqualified persons and IRAs/401k plans own at least 25%which case all the assets of the “investment company” are treated asIRA/401k). To determine if the 25% threshold is reached, all IRAs/401k owners will beaccount, even when they belong to

How to Tell If a Transaction is Prohibited

Through an arrangement between the Department of Labor and the IRS, it certain transaction is prohibited and to allow

In case the IRS finds what looks likethe DOL. The DOL will review and get back

An IRA grantor who wants to be granted a prohibited transaction exemption has toDOL. Some exemptions, calledto anyone’s reliance, while other(PTEs), are only available for the applicant.

Non-Recourse Financing: How to leverage real estate investments within a self directed account As we discussed in the previous section, plan owners ofprohibited transactions, one of which is credit between a Solo 401k plan and a offer any credit guarantee so that your Solo 401k or IRA can take out a mortgage to purchase a property. This condition poses a dilemma for many real estate investors, as often mortgage lenders will require

Page 28

(DOL) Plan Asset Rules specify when the assets of an entity are “plan” assets. Considered pension plans under the Plan Asset Rules, Solo 401k

If the aggregate Solo 401k plan ownership of an entity is at least 25% of all the assets of the entity, the equity interests and assets of the “investment entity” are treated

lan for purposes of the prohibited transactions rules, unless there is an

Additionally, when a Solo 401k plan or group of related qualified plans owns 100% of an “operating company”, the operating company exception is no longer applicable

are going to be considered plan assets.

As a rule, the Plan Asset Rules will apply in the following cases:

If one or more disqualified persons and IRAs/401k plans own 100% of an “operating company”, all the assets of the “operating company” are considered Plan assets (assets of the

disqualified persons and IRAs/401k plans own at least 25% of an “investment company”, in which case all the assets of the “investment company” are treated as Plan Assets (assets of the

if the 25% threshold is reached, all IRAs/401k owners will beaccount, even when they belong to unrelated individuals.

Prohibited

Through an arrangement between the Department of Labor and the IRS, it is the DOL whotransaction is prohibited and to allow necessary exemptions.

what looks like a Solo 401k Prohibited Transaction, it transfers the case to the DOL. The DOL will review and get back to the IRS who will in turn respond to the taxpayer.An IRA grantor who wants to be granted a prohibited transaction exemption has to

Some exemptions, called “prohibited transaction class exemptions” (PTCEs), can beto anyone’s reliance, while others, known as “individual prohibited transaction exemptions”

available for the applicant.

Recourse Financing: How to leverage real estate investments within a self

As we discussed in the previous section, plan owners of self directed IRA or 401k plans need to avoid prohibited transactions, one of which is “the direct or indirect loaning of money or other extension of

plan and a disqualified person”. As the plan owner, you are not allowed to er any credit guarantee so that your Solo 401k or IRA can take out a mortgage to purchase a property.

This condition poses a dilemma for many real estate investors, as often mortgage lenders will require

when the assets of an entity are “plan” assets. Considered pension plans under the Plan Asset Rules, Solo 401k plans are subject

lan ownership of an entity is at least 25% of all the assets of the entity, the equity interests and assets of the “investment entity” are treated as assets of the

ited transactions rules, unless there is an

lan or group of related qualified plans owns 100% of an “operating company”, the operating company exception is no longer applicable and the

If one or more disqualified persons and IRAs/401k plans own 100% of an “operating company”, Plan assets (assets of the

of an “investment company”, in Plan Assets (assets of the

if the 25% threshold is reached, all IRAs/401k owners will be taken into

is the DOL who decides if a

a Solo 401k Prohibited Transaction, it transfers the case to to the taxpayer.

An IRA grantor who wants to be granted a prohibited transaction exemption has to apply to the “prohibited transaction class exemptions” (PTCEs), can be issued

“individual prohibited transaction exemptions”

Recourse Financing: How to leverage real estate investments within a self

self directed IRA or 401k plans need to avoid of money or other extension of

”. As the plan owner, you are not allowed to er any credit guarantee so that your Solo 401k or IRA can take out a mortgage to purchase a property.

This condition poses a dilemma for many real estate investors, as often mortgage lenders will require

personal guarantee. In most cases, they cannot offerany previous credit history. To address this issue, many lenders now offer nonenabling self directed retirement plans to invest in real estate with leverage.

What is a non-recourse loan?

A non-recourse loan is not guaranteed by the individual. Instead, the nonand limited to the collateral, in this case, the real estate property itself. Because the loan does not involve the individual/ account owner, it is general, non-recourse loans are considered to be more risk to the lender and thus have less attractive terms than those of conventional recourse loans.

Who offered non-recourse financing?

Many lenders are now offering nonlender has his or her own requirements and rates. Some only work with residential purchases, while others also offer rehab loans. Investors should perform their due dilto find ones that fit their needs. A list of nonsensefinancial.com/non-recourse-lenders.

Using non-recourse financing within a self directed IRA

The rules for the use of non-recourse financing by the Checkbook IRA are outlined in IRC Section 514. It’s important to note that the use of nonSection 514 requires that debt-financed income, such as the income generaterecourse loan, be included in unrelated business taxable income (UBTI).

A portion of the income or gains generated by the debtThe tax, which is generally 35%, is on the portion of ithe percentage financed by the loan. For example, if an investment property is purchased using 50% financing, then 50% of the income or gains would be subject to the UBTI tax.

Using non-recourse financing within a self directed Solo 401k

The Solo 401k is not subject to the UBTI tax in the same way as the IRA. Because of an exclusion in the Unrelated Debt Financed Income rules, the Solo 401k is not subject to the UBTI tax when using nonrecourse funding to invest in an asset.

This is another advantage over self directed IRA LLC structures. Typically, investors will choose a Solo 401k when appropriate if they intend to invest in properties with their retirement funds.

Page 29

personal guarantee. In most cases, they cannot offer a loan to a Solo 401k trust or an IRA LLC without any previous credit history. To address this issue, many lenders now offer non-recourse financing, enabling self directed retirement plans to invest in real estate with leverage.

recourse loan is not guaranteed by the individual. Instead, the non-recourse loan is secured by and limited to the collateral, in this case, the real estate property itself. Because the loan does not involve the individual/ account owner, it is not considered a prohibited transaction by the IRS. In

recourse loans are considered to be more risk to the lender and thus have less attractive terms than those of conventional recourse loans.

recourse financing?

are now offering non-recourse loans to self directed retirement plans. Typically, each requirements and rates. Some only work with residential purchases, while

others also offer rehab loans. Investors should perform their due diligence and talk to different lenders to find ones that fit their needs. A list of non-recourse lenders is available on our website at

lenders.

recourse financing within a self directed IRA

recourse financing by the Checkbook IRA are outlined in IRC Section 514. It’s important to note that the use of non-recourse loans with the IRA will trigger the UBTI tax. IRC

financed income, such as the income generated from the use of the nonrecourse loan, be included in unrelated business taxable income (UBTI).

A portion of the income or gains generated by the debt-financed property will be subject to UBTI tax. The tax, which is generally 35%, is on the portion of income financed by the debt; it is proportional to the percentage financed by the loan. For example, if an investment property is purchased using 50% financing, then 50% of the income or gains would be subject to the UBTI tax.

within a self directed Solo 401k

The Solo 401k is not subject to the UBTI tax in the same way as the IRA. Because of an exclusion in the Unrelated Debt Financed Income rules, the Solo 401k is not subject to the UBTI tax when using non

invest in an asset.


a loan to a Solo 401k trust or an IRA LLC without recourse financing,

recourse loan is secured by and limited to the collateral, in this case, the real estate property itself. Because the loan does not

not considered a prohibited transaction by the IRS. In recourse loans are considered to be more risk to the lender and thus have less attractive

recourse loans to self directed retirement plans. Typically, each requirements and rates. Some only work with residential purchases, while

igence and talk to different lenders recourse lenders is available on our website at

recourse financing by the Checkbook IRA are outlined in IRC Section 514. recourse loans with the IRA will trigger the UBTI tax. IRC

d from the use of the non-

financed property will be subject to UBTI tax. ncome financed by the debt; it is proportional to

the percentage financed by the loan. For example, if an investment property is purchased using 50%

The Solo 401k is not subject to the UBTI tax in the same way as the IRA. Because of an exclusion in the Unrelated Debt Financed Income rules, the Solo 401k is not subject to the UBTI tax when using non-


How a college professor earns $850 in monthly rent on a $30,000 purchase with a Solo 401k plan When Susan Maneck began lookingplan in place. Living in Mississippi, she realizeopportunities in the local market. Susan shared: “Right now real estate in Mississippi is ridiculously low. You don't have to be genius in math to figure out where the best returns are on your investment.”

As a college professor at a university, Susan also dresearch, she realized that her optionholding at the time. With her independent consulting work, she qualified for a Somost popular options for self-employed professionals.

Comparing the Solo 401k and IRA

While it is possible to invest in real estate using an IRA orIRA, Susan found two advantages that the Solo 401k plan had over an IRA. First, borrowing is allowed with a Solo 401k plan. This is important, as Susan is planning to take out a loan for a down payment for her retirement home. With an IRA, borrowing iSolo 401k, however, Susan can borrow for any reason. In this case, she retirement home of her dreams in Tahoe.

The second advantage of a Solo 401k plan is that it allows nonpurchases. The properties that Susan is after are mostly under $50,000not applicable in her case. Even so, Susan estate investors. Sense Financial hawilling to provide non-recourse loans at competitive rates.

After considering many plan providers, Susan found Sense Financial Services firm also offered a free knowledge base and401k plan. Planning to invest her retirement savings in real estate, Susan thought this expertise unmatched advantage.

Capture Real Estate Bargains

Once the plan was established, Susan immediately started to invest.

CASE STUDY

Page 30

rofessor earns $850 in monthly rent on a $30,000 purchase with

began looking for a self-directed Solo 401k plan provider, she already ha. Living in Mississippi, she realized that there were plenty of potential investment

opportunities in the local market. Susan shared: “Right now real estate in Mississippi is ridiculously low. You don't have to be genius in math to figure out where the best returns are on your investment.”

university, Susan also did consulting work on the side. After doing her that her options were not limited to only IRA and SEP IRA plans, which she was

holding at the time. With her independent consulting work, she qualified for a Solo 401k plan, one of the employed professionals.

While it is possible to invest in real estate using an IRA or SEP IRA, Susan found two advantages that the Solo 401k plan

over an IRA. First, borrowing is allowed with a Solo 401k plan. This is important, as Susan is planning to take out a loan for a down payment for her retirement home. With an IRA, borrowing is out of the Solo 401k, however, Susan can borrow for any reason. In this case, she was able to secure the

in Tahoe.

The second advantage of a Solo 401k plan is that it allows non-recourse financing for real eSusan is after are mostly under $50,000; she figured that

not applicable in her case. Even so, Susan understands that this feature can be a huge benefit for real estate investors. Sense Financial has partnered with many non-recourse financing lenders, who are

recourse loans at competitive rates.

After considering many plan providers, Susan found Sense Financial Services to be the bestge base and exclusive seminars on real estate investments with the Solo

401k plan. Planning to invest her retirement savings in real estate, Susan thought this expertise

, Susan immediately started to invest.

“I purchased an investment property for $30,000 and it rents for $850 a month.”

rofessor earns $850 in monthly rent on a $30,000 purchase with

directed Solo 401k plan provider, she already had a game f potential investment

opportunities in the local market. Susan shared: “Right now real estate in Mississippi is ridiculously low. You don't have to be genius in math to figure out where the best returns are on your investment.”

consulting work on the side. After doing her IRA and SEP IRA plans, which she was

lo 401k plan, one of the

the question. With a able to secure the

recourse financing for real estate d that mortgages were

can be a huge benefit for real recourse financing lenders, who are

to be the best option. The exclusive seminars on real estate investments with the Solo

401k plan. Planning to invest her retirement savings in real estate, Susan thought this expertise was an

“I purchased an investment property for $30,000 and it rents

With the rollover funds in her brand new Solo 401k, Susan decided to purchase an investment property for $30,000. House flipping is not her cup of tea. Instead, Susan plans to turn the property into a rental unit. Speaking of the property, she comments: “Very little work needs to be done on this housemost of it can be done by my own tenants. I expect the house to rent out for $850 a month.”

The $850 monthly return will make this $30,000 purchase a big real estacapture this deal thanks to her knowledge working class neighborhood in Mississippi. The area took a big hit during the recession. House prices went down significantly, but began to riseforced to leave their homes down south and move northward to Mississippi. Local house prices were pushing $100,000 and up. Many homeowners purchased their houses at the peak price with lending, and ended up losing their homes to foreclosures.

What resembles a real estate roller coaster now leaves the area filled with forecldown real estate prices. Many homes are up for grabobtain mortgage financing and therefore, the field is left open for investors.

Seeing the great potential in returnaddition to the aforementioned property, another rental property with her mother. Having a Solo 401k plan allows her to quickly capture this opportunity with her retirement fund as well.

Page 31

With the rollover funds in her brand new Solo 401k, Susan decided to purchase an investment property for $30,000. House flipping is not her cup of tea. Instead, Susan plans to turn the property into a rental

peaking of the property, she comments: “Very little work needs to be done on this housemost of it can be done by my own tenants. I expect the house to rent out for $850 a month.”

The $850 monthly return will make this $30,000 purchase a big real estate win. Susan was able to deal thanks to her knowledge of the local market. The neighborhood was

working class neighborhood in Mississippi. The area took a big hit during the recession. House prices began to rise after Hurricane Katrina. At that time, many people were

down south and move northward to Mississippi. Local house prices were . Many homeowners purchased their houses at the peak price with

lending, and ended up losing their homes to foreclosures.

What resembles a real estate roller coaster now leaves the area filled with foreclosures, which down real estate prices. Many homes are up for grabs at $55,000 or less. The low pricesobtain mortgage financing and therefore, the field is left open for investors.

returns, Susan Maneck decided to capitalize on the opportunities. mentioned property, Susan is already fixing her old home for rent, while co

another rental property with her mother. Having a Solo 401k plan allows her to quickly capture this opportunity with her retirement fund as well.

With the rollover funds in her brand new Solo 401k, Susan decided to purchase an investment property for $30,000. House flipping is not her cup of tea. Instead, Susan plans to turn the property into a rental

peaking of the property, she comments: “Very little work needs to be done on this house, and most of it can be done by my own tenants. I expect the house to rent out for $850 a month.”

te win. Susan was able to was a predominantly

working class neighborhood in Mississippi. The area took a big hit during the recession. House prices urricane Katrina. At that time, many people were

down south and move northward to Mississippi. Local house prices were . Many homeowners purchased their houses at the peak price with predatory

osures, which drag at $55,000 or less. The low prices make it hard to

the opportunities. In ing her old home for rent, while co-owning

another rental property with her mother. Having a Solo 401k plan allows her to quickly capture this

While the stock market may have worked always predictable. Is it wise then hands?

Traditional retirement plans have beenstocks and bonds when it comes to our retirement savingsmarket, there are many more options available.

With the use of self-directed retirement plans, such as the Solo 401k and selfno longer limited to the stock market.lending, and much more. Real estate assets, such as rental property or trust deeds, can be completely under your control. Rent or interestrisk of an unpredictable stock market, 401k and self-directed IRA plan are great ways to take control of your retirement plan anyou know best.

Page 32

Conclusion may have worked in favor of investors in the past, we can all agree that it is not

then to leave our life savings in something that is completely out of our

have been tied to the stock market for too long. We automatiwhen it comes to our retirement savings. The truth is, if you look beyond the stock

options available.

directed retirement plans, such as the Solo 401k and self-directed IRA, no longer limited to the stock market. Investors can choose among real estate, precious metals,

and much more. Real estate assets, such as rental property or trust deeds, can be completely your control. Rent or interest payments are predetermined. So why leave all your savings at the

risk of an unpredictable stock market, when you can invest in something under your control?directed IRA plan are great ways to take control of your retirement plan an

, we can all agree that it is not to leave our life savings in something that is completely out of our

tied to the stock market for too long. We automatically think of . The truth is, if you look beyond the stock

directed IRA, the option is Investors can choose among real estate, precious metals, private

and much more. Real estate assets, such as rental property or trust deeds, can be completely So why leave all your savings at the

you can invest in something under your control? The Solo directed IRA plan are great ways to take control of your retirement plan and invest in what

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