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Combining Retirement Funds to Invest and more | Client Q&A

AdMail Podcast
3 Minute Read

Last Updated on December 1, 2020

In this week’s episode, IRA Financial’s Adam Bergman Esq. answers questions about combining retirement funds for an investment, becoming a passive investor in a business and tax changes during a Biden presidency.




Question 1 from Joan G in Joplin, MO: Hi – can I combine my IRA and Solo 401(k) plan funds to do one real estate investment?

When it comes to using retirement funds to make a real estate investment, yes, you can combine IRA and 401(k) funds. The reason for this is that this transaction would not violate the prohibited transaction rules set forth by the IRS. Essentially, a disqualified person would not be involved in the investment. Each plan is considered its own entity. In this case, the IRA and the Solo 401(k) are the entities making the investment. Neither of which is considered a disqualified person.

On the other hand, if you were to use a retirement plan along with personal funds, it may break the IRS rules. You, as the account owner, are considered a disqualified person. That’s why it’s never a good idea to co-mingle retirement funds and personal funds. The investment made by your plan should only benefit the plan itself, and not the account owner. The investments held in the plan are not really yours until you withdraw them.

Question 2 from Mike Z in Fresno, CA: I want to invest in a manufacturing business as a passive investor – should I do a Self-Directed IRA or ROBS?

The key point of this question is the type of investment Mike wants to make. He specifically states he wants to be a passive investor. Since this is the case, the best way to invest is with a Self-Directed IRA. Since you are not an active participant in the business, you don’t need to do a ROBS, or Rollover for Business Startup.

The ROBS solution is a great idea if you want to be involved in the business. It allows you to roll over current retirement funds into a new 401(k) plan, which can then be invested in a new (or current) business. It also allows one to work for that business. Since Mike wants to simply invest in a business, he doesn’t need to go with the ROBS.

One last thing to consider is the implication of the UBTI rules. If the business is a passthrough entity, such as an LLC, and is in the manufacturing industry, you may get hit with an extra tax. If it’s a C corporation or similar, there’s no reason to apply the UBTI tax. The tax goes as high as 37%, so it’s important to know what type of business you want to invest in.

Question 3 from Jeremy K in Concord, NH: What are the chances my taxes will go up in a Biden presidency?

As we know now, Joe Biden has won the presidency. What’s unclear is who is going to control the Senate. There are two seats in Georgia going to a run-off. If the Democrats win both of those seats, they will gain control of the Senate. Of course, if the Republicans win one of those seats, they will maintain control of the Senate.

There’s a lot riding on these two races. If the Dems do take over the Senate, we will see sweeping tax changes as outlined by President-elect Biden. These changes will mostly affect those earning $400,000 or more annually. Of course, if the Senate remains red, it’s unlikely that any major changes will occur for at least two years, until the next Senate seats are up. This is a wait and see answer, that can go one way or the other depending on what happens in the great state of Georgia.

AdMail – Keep it Coming

We hope you enjoyed the latest episode of AdMail. Mr. Bergman will continue to respond to questions each week so long there is a demand for them! If you have any questions for him, email him at abergman@irafinancial.com.

As with his other podcasts, you can check out AdMail on SoundCloud. Be sure to subscribe to know when the next one pops up! Thanks for listening and have a great day, Self-Directed Nation!

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