New report issued by IRA Financial Group highlights advantages of the Solo 401(k) Plan for real estate investments.
IRA Financial Group, the leading provider of Self-Directed Solo 401(k) Plans, announces a report that highlights the advantages of using a Solo 401(k) Plan to invest in real estate. A Solo 401(k) Plan is an IRS approved retirement plan, which is suited for business owners who do not have any employees other than themselves and perhaps their spouse. The “One-Participant 401(k) Plan” or Individual 401(k) Plan is not a new type of plan. It is a traditional 401(k) Plan covering only one employee. Unlike a Traditional IRA, which only allows an individual to contribute $5500 annually or $6500 if the individual is over the age of 50, a Solo 401(k) Plan offers the Plan participant the ability to contribute up to $56,500 each year. Before the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) became effective in 2002, there was no compelling reason for an owner-only business to establish a Solo 401(k) Plan because the business owner could generally receive the same benefits by adopting a profit sharing plan or a SEP IRA. After 2002, EGTRRA paved the way for an owner-only business to put more money aside for retirement and to operate a more cost-effective retirement plan than a Traditional IRA or 401(k) Plan.
There are a number of options that are specific to Solo 401(k) Plans that make the Solo 401(k) Plan a far more attractive retirement option for a self-employed individual than a Traditional IRA.
A Solo 401(k) Plan includes both an employee and profit sharing contribution option, whereas, a Traditional IRA has a very low annual contribution limit. This allows investors to reach their maximum contribution amount quicker. Additionally, a Solo 401(k) Plan can be made in pre-tax or Roth (after-tax) format. In the case of a Traditional Self-Directed IRA, contributions can only be made in pre-tax format. In addition, a contribution of $17,500 ($23,00, if the plan participant is over the age of 50) can be made to a Solo 401(k) Roth account.
With a Solo 401K Plan, investors can borrow up to $50,000 or 50% of the account value, whichever is less. The loan can be used for any purpose. With a Traditional Self-Directed IRA, the IRA holder is not permitted to borrow even $1 dollar from the IRA without triggering a prohibited transaction.
With a Solo 401(k) Plan, investors can make a real estate investment using non-recourse funds without triggering the Unrelated Debt Financed Income Rules and the Unrelated Business Taxable Income (UBTI or UBIT) tax (IRC 514). However, the non-recourse leverage exception found in IRC 514 is only applicable to 401(k) qualified retirement plans and does not apply to IRAs. In other words, using a Self-Directed SEP IRA to make a real estate investment (Self-Directed Real Estate IRA) involving non-recourse financing would trigger the UBTI tax.
“IRA Financial Group’s Solo 401(k) plan is unique and so popular because it is designed explicitly for small, owner only businesses” stated Adam Bergman, a tax attorney with the IRA Financial Group. “The Solo 401(k) Plan can be opened at any local bank and requires very little administration. In addition to these advantages, a Solo 401(k) offers better creditor protection than a traditional IRA.”
IRA Financial Group is the market’s leading Solo 401(k) Plan Facilitator. IRA Financial Group has helped thousands of clients take back control over their retirement funds while gaining the ability to invest in almost any type of investment, including real estate without custodian consent.