Today’s REI Classroom Lesson

Dmitriy elaborates on how Roth Solo 401K’s work for a real estate investor. Learn more about what it is, how it benefits you, and when investments are taxed.

REI Classroom Summary

A Roth Solo 401K allows you to take advantage of tax-free growth in your investments.

Listen to this REI Classroom Lesson

Real Estate Investing Classroom Show Transcripts:

Mike: Welcome back to the REI Classroom, where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.
Dmitriy: Hello, my name is Dmitriy Fomichenko with Sense Financial Services. We are in the Real Estate Investing Classroom and today we’re going to be talking about how to create a tax-free income for life using a Roth Solo 401(k).
Mike: This show was sponsored by
Dmitriy: So the topic of today’s lesson is “How to create tax-free income for life using Roth Solo 401(k).” Well, first of all, let me explain to you what the Solo 401(k) is. Solo 401(k) is a qualified retirement plan designed for those people who are self-employed or own a small business. And it has some very, very powerful features that are available for those who qualify.
And one of those features is the ability to make post-tax contributions into Roth sub-accounts. So, as you know, the difference between Roth IRA and traditional IRA tax, post-tax we have some spare tax. Solo 401(k) has the same feature, allowing you to contribute funds post tax and the contribution limits on the Roth Solo 401(k) are much more generous compared to an IRA, particularly $18,000. And for those over 50, that’s $24,000, which includes additional $6,000 in catch-up provisions.
And this contribution limit is not dependent on your income, unlike with the Roth IRA where if you make over a certain limit, you’re not allowed to make contributions. With Roth Solo 401(k), that’s not the case. Regardless of your income, if you make $1 million you can still contribute $18,000 or $24,000 into your Roth 401(k) so that’s very, very flexible.
And once you’ve made the contribution, then all of the investments are deferred from taxes. And then when you retire and start taking distributions from your Roth 401(k), all of it comes out tax-free. So you pay . . . initially, when you contribute, you pay taxes on the seed, but the harvest is tax-free. Very, very powerful, I think every real estate investor should have this as part of their portfolio because there is nothing else that provides tax-free income. Yes, there are some other features that are available, but I think this is very, very powerful, allowing you to create legally tax-free income.
And I’m not sure how long it’s going to last. There is talk that they might prevent future contributions, but while it is available, you definitely should take advantage of making post-tax contributions into and Roth Solo 401(k), investing it into assets that you understand and you can control and take advantage of the tax-free growth on those investments.
That would be the lesson for today. Thank you for joining me in the Real Estate Investing Classroom and I’ll see you on the next show.
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