\ STRATEGIES: SOLO 401(K)S Oc October 21, 21, 2019 2019 - - PowerPoint PPT Presentation

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YEAR-END TAX-SAVINGS STRATEGIES: SOLO 401(K)S

Oc October 21, 21, 2019 2019

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YOUR MODERATOR

Larissa Greene, CISP

Director of Education Contact me at: Tel 1.800.425.0653 Lgreene@AdvantaIRA.com www.AdvantaIRA.com

Welcome

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• products. All information and materials are for educational purposes only. All parties are

encouraged to consult with their attorneys, accountants, and financial advisors before entering into any type of investment.

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Disclaimer

KEY POINTS TO TAKE AWAY

Checkbook Control IRAs

401(k)s are the only type of plan that allow you to co- mingle traditional funds and Roth funds 401(k)s can be self- directed and can easily have a checking account Sole proprietors and independent business

• wners qualify even if they

are not incorporated

Did you know that 401k and IRA accounts were established in 1974 with the passing of ERISA (Employee Retirement Income Security Act)

What is an Employer Sponsored Plan?

A plan typically established by a company at little or no cost to employees for their benefit. These plans allow for larger contributions than traditional and Roth IRAs and contributions can be made both as the employer and as the employee.

What Is a Self-Directed 401k, SEP, SIMPLE?

KEY COMPONENTS OF A EMPLOYER PLAN

Checkbook Control IRAs

PARTICIPANTS / EMPLOYEES

The Individuals that are covered by the plan and what considerations must be given to whom is covered and not covered.

CONTRIBUTIONS

Where the contributions are coming from and how / where they are deducted from.

BUSINESS

The overlying entity that the plan is established to benefit.

PLAN CONTRIBUTION LIMITS

Types of Assets and Accounts

FOR YEAR 2019

Traditional / Roth IRA $6,000 ($7,000 if over 50) SEP IRA Up to $56,000 (up to 25% of compensation) SIMPLE IRA $13,000 (additional $3,000 if over 50) + up to 3% of employer match) 401(k) $19,000 (+ $6,000 if over 50) of salary deferral + up to 25% employer match up to $56,000 ($62,000) ESA (education) $2,000 per year, per child HSA (health) $3,500 individual (+ $1,000 catch-up) / $7,000 family

PLANS AT-A-GLANCE

Types of Assets and Accounts

EMPLOYER-BASED ACCOUNTS: SEP IRA, SIMPLE IRA, 401(K) WHO THEY ARE FOR

Sole proprietors, independent contractor, self-employed, partner, corporation, or S corporation

BENEFITS

SEP and SIMPLE IRAs offer tax-deferred growth like traditional IRAs, but have larger contributions limits; they also offer lower administrative costs than a 401(k) plan + You must include certain employees in SEP and SIMPLE + Individual(k) offers largest potential contribution for a business without employees (no discrimination testing necessary) + Roth individual(k) option available

Check with your CPA or accountant to help determine which option would be the best fit for you and your business.

PLANS AT-A-GLANCE

Employer Based Accounts

BENEFITS FOR EMPLOYER BASED ACCOUNTS

CONTRIBUTIONS BASED ON COMPENSATION UNINCORPORATED BUSINESS OWNER

Schedule C or F Adjusted Net Business Income

PARTNERSHIPS (ALL PARTNERS MUST PARTICIPATE)

K-1 Earned Income

CORPORATIONS

W-2 Note: See IRS Publication 560 for further guidance on the calculation of compensation and contributions

3

Check with your CPA or accountant to help determine which option would be the best fit for you and your business.

PLANS AT-A-GLANCE

Types of Assets and Accounts

INDIVIDUAL (K)

WHAT MAKES INDIVIDUAL (K) PLANS SO APPEALING?

ALL THE BENEFITS OF TRADTIONAL BUSINESS RETIREMENT PLANS, PLUS:

• Higher funding limits
• Defer a larger amount of your earned income
• Complete funding flexibility
• Rollover opportunities
• Access to tax-free loans
• Flexible distribution options
• Cost-effective administration
• ROTH 401(k)!

Check with your CPA or accountant to help determine which option would be the best fit for you and your business.

CONTRIBUTIONS EXPLAINED

Types of Assets and Accounts

Employer (Pretax) 20-25% Employee (Roth?) $19,000+

401(k)

*Other investments include: Oil and gas rights  Tax certificates  Structured settlements  Commercial paper  Convertible notes  Commodities  Livestock  Timberland  Rights or warrants  Accounts receivable factoring  Equipment leasing  and more

PLAN CONTRIBUTION LIMITS

Types of Assets and Accounts

FOR YEAR 2019

Traditional / Roth IRA $6,000 ($7,000 if over 50) SEP IRA Up to $56,000 (up to 25% of compensation) SIMPLE IRA $13,000 (additional $3,000 if over 50) + up to 3% of employer match) 401(k) $19,000 (+ $6,000 if over 50) of salary deferral + up to 25% employer match up to $56,000 ($62,000) ESA (education) $2,000 per year, per child HSA (health) $3,500 individual (+ $1,000 catch-up) / $7,000 family

CONTRIBUTIONS CONTINUED

Contributions are limited to the amount specified by annual limits, defined but the amount you take from your earned funds (from your pocket) and put in your IRA. Earnings (the amount the your IRA can grow from an investment) are unlimited!

Earnings are unlimited!

By choosing your investment, you determine the rate at which your account will grow. With some investments, you are even naming an interest rate that you are satisfied with (more on private lending later)

INVESTMENT OPTIONS

Types of Assets and Accounts

Real estate Single- member LLC Notes & mortgages Private placements/ private stock Other investments* Futures trading Foreign currency (FOREX)

INVESTMENT

OPTIONS

*Other investments include: Oil and gas rights  Tax certificates  Structured settlements  Commercial paper  Convertible notes  Commodities  Livestock  Timberland  Rights or warrants  Accounts receivable factoring  Equipment leasing  and more

CONSIDERATION OF LEVERAGE

Non-Recourse Financing

Different Plans can use leverage with different considerations All Employer plans can finance Their purchases Understand what UBIT and UDFIT are and how they are calculated. No personal guarantee can be given and penalties for doing so can vary widely between plans All Financing must be non recourse.

DYO v. Third Party Admin.

• Cash and assets can be administered by

Advanta or directly by trustee.

− In either scenario assets are held in name of the plan (john smith as trustee of ABC 401k)

• Trustee signs all documents in both models.

− DYO plans have trust account at local bank.

• All of the income from any investment is

directed to the plan and is non-taxable! How much control do you want?

CASE STUDY #1

Purchasing Real Estate Using A TPA

www.AdvantaIRA.com

Real Estate in Your IRA

CASE STUDY #1

LARRY ESTABLISHES A SOLO K WITH ADVANTA AS THE ADMINISTRATOR TO PURCHASE REAL ESTATE

• Larry established a solo 401(k) account with Advanta IRA.
• Larry will act as trustee for his 401(k) and Advanta IRA will do the

recordkeeping.

• Advanta IRA will go over the options for funding this account with Larry.

Since he is moving funds from an old employer plan, he will initiate the rollover.

• During the application process with Advanta IRA, Larry establishes a

name for the 401(k): LS 401(k).

• Larry is ready to buy real estate with his 401(k).

Real Estate in Your IRA

CASE STUDY #1

LARRY ESTABLISHES A SOLO K WITH ADVANTA AS THE ADMINISTRATOR TO PURCHASE REAL ESTATE

• Larry finds the property to purchase and writes the contract in the name of

his 401(k). The contract will show Larry as the trustee, as well: Larry Smith as trustee of LS 401(k) FBO Larry Smith

• Larry will send the contract to Advanta IRA so we can confirm the contract

is correctly vested for the 401(k). Advanta will also assist with the vesting for the closing documents.

• Larry will complete two forms with Advanta, giving us permission to fund

the purchase the day of closing.

• Larry will sign all documents for the purchase and close of the property as

trustee.

Real Estate in Your IRA

CASE STUDY #1

LARRY ESTABLISHES A SOLO K WITH ADVANTA AS THE ADMINISTRATOR TO PURCHASE REAL ESTATE

• After closing, rent checks will be written directly to Advanta IRA FBO

Larry Smith

• Expenses are paid out of the 401(k) account with Advanta IRA handling

the check writing on behalf of Larry

• Future contributions to the account will be made directly to Advanta IRA.
• Larry will file any necessary forms with his tax professional at the end of

each year.

CASE STUDY #2

Checkbook Control of a 401(k)

www.AdvantaIRA.com

Real Estate in Your IRA

CASE STUDY #3

LARRY ACTS AS THE TRUSTEE AND ADMINISTRATOR OF HIS SOLO 401(K)

• Larry completes an adoption agreement with Advanta IRA in order to
• btain IRS approved plan documents when he establishes his 401(k)

plan.

• Larry will obtain an EIN for the plan itself (unrelated to the EIN for his

business).

• During the application process, Larry names his 401(k): LS 401(k).
• With the adoption agreement and plan documents, Larry is ready to

establish a bank account for the 401(k).

• The bank account will be in the name of the 401(k). It can be established

as a normal checking account, but must be in the name of the 401(k) with Larry as trustee: Larry Smith as trustee of LS 401(k).

Real Estate in Your IRA

CASE STUDY #3

LARRY ACTS AS THE TRUSTEE AND ADMINISTRATOR OF HIS SOLO 401(K)

• Larry will initiate the funding of the account and deposit any checks

received by him to the bank account for the 401(k).

• Larry will keep track of any contributions made to the account.
• Larry will make investments on behalf of the 401(k) as trustee and fund

these investments directly from the bank account.

• Larry will handle any recordkeeping for the account and file any required

tax forms at the end of the year with his tax professional.

• Advanta IRA will keep the plan documents compliant and alert Larry if any

changes are made for IRS purposes.

QUESTIONS ANSWERS