Landlording your IRA LLC's properties – Is it allowed? May 30, 2008
Posted by Jeff Nabers in : Self Directed IRA Solo 401k, real estate , 14commentsA question I get all the time is “Can I personally mow the lawn, maintain, and/or repair properties owned by my IRA LLC?” My answer is “No” which usually creates the response “But another company said I could.”
First, let’s summarize that the accountholder/participant of a retirement plan generally can’t have a transaction between themselves and their retirement plan. This includes the furnishing of services, sale of property, lending of money, and extension of credit between a plan and disqualified person (such as the accountholder). Next, let’s establish that active landlording means mowing the lawn, repairing, and fixing up properties, while passive landlording means collecting rent, paying mortgages/taxes/insurance, and contracting out the more active tasks to non-disqualified-persons. So is active landlording allowed? No, and I’ll provide two answers – the technical and the layman’s.
The Technical Answer
The argument for why active landlording for your IRA LLC’s property is not a prohibited transaction goes something like this…
As a general rule, the Internal Revenue Code provides (more…)
Investing in Electric Cars May 27, 2008
Posted by Jeff Nabers in : Money, Self Directed IRA Solo 401k , add a commentIf there is one conversation central to society right now… it’s energy. More specifically oil. With gasoline passing the $4 per gallon mark in many parts of the country, it’s hard not to wonder what are our alternatives to the internal combustion engine automobile.
In the mid 90s, GM came out with quite a successful electric vehicle (EV), but mysteriously repossessed and destroyed all of them. While there are many theories as to their GM’s motives, perhaps it is more useful to focus on the car companies who are producing efficient, working, zero-emmissions vehicles that require no gasoline, oil, or internal explosions to operate:
Telsa Motors
Elon Musk, cofounder of leading online payment processor Paypal, has spearheaded the development and productions of the Tesla Roadster…
Driving Range: 221 miles
0 – 60 mpg in under 4 seconds
To Speed: 125 mph
Energy cost: $0.02 per mile (about 10 times cheaper than a gasoline car)
Retail Price: $110,000
Full charge: about 3 hours
This isn’t a “we hope to offer it in the future” car. It’s already been produced. Over 600 have been sold or reserved, and there are an additional 400 on the waiting list. The roadster is a car that will hang with Ferraris and other exotic, high performance sports cars.
More importantly, Tesla plans to introduce a $60,000 luxury sedan in 2009, and a $30,000 model soon thereafter.
EV’s Longer car life
If you think $110k or $60k for an electric vehicle is expensive, think again. While the (more…)
Penalty Free Early Distributions May 23, 2008
Posted by Jeff Nabers in : Money, Personal Enjoyment, Self Directed IRA Solo 401k , add a commentProbably one of the must unknown facets of retirement planning is that you can distribute before age 59 ½ for any reason without paying the extra 10% early distribution tax. How?
Substantially Equal Periodic Payments
- Set a distribution schedule calculated using IRS tables
- The schedule must have regular payments of a certain consistent amount.
- You must make receive these distributions from your retirement account either until you reach age 59 ½ or for a 5 year period… whichever is longer.
Internal Revenue Code Section 72(t) is where the extra 10% tax for “early distributions” (before age 59 ½) is imposed. However, if you read on to IRC 72(t)(2)(A)(iv) it is explained that the 10% tax is not applicable to any distribution that is part of a series of Substantially Equal Periodic Payments – or SEPP for short.
To give you an idea of how this works using calculations from IRS life expectancy tables, let’s examine a fictional case study with round numbers for simplicity:
Jared is considering early retirement at age 45, and over the years he has grown his IRA to an asset value of $2,000,000. He isn’t sure whether he wants to completely retire, work part time, pursue a career change, or start a new business. Let’s take a look at his options… (more…)
Borrowing money from your Solo 401(k) May 22, 2008
Posted by Jeff Nabers in : Self Directed IRA Solo 401k, real estate , add a commentSolo 401(k)’s most touted feature is its uniquely large annual contribution limits ($46k – $102k). A lesser known feature may be just as useful for some: participant loans.
What is a participant loan?
A Solo 401(k) participant can borrow up to either $50,000 or 50% of their account value with the following terms:
- To be repaid over an amortization schedule of 5 years or less
- Regular payments no less frequently than quarterly
- At a reasonable rate of interest… generally interpreted as prime rate + 1%
Such a loan may only be made in accordance with the Solo 401(k) plan documents. While most plan documents disallow this type of loan, the Unlimited® 401k offered by my company does allow it.
Under what conditions is this allowed?
Any. As long as the plan documents allow for it & the proper loan documents are prepared and executed, a participant loan can be made for any reason.
When is this useful?
This can be useful when (more…)
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