Today’s REI Classroom Lesson

Clint Coons highlights the benefits of utilizing a qualified retirement plan for your real estate investment deals.

REI Classroom Summary

Clint goes over how much you can contribute per year to a qualified retirement plan and other advantages that help you, as a real estate investor.

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.

Clint: Hi guys, it’s Clint Coons with Anderson Business Advisers, host of the REI Classroom Show. And in this segment we’re going to talk about qualified retirement plans for your investing.

Mike: This show is sponsored by

Clint: There’s a lot of individuals out there that want to invest with their retirement funds, and many of you use self-directed IRAs. In one of my other segments I talked about the problems associated with self-directed IRAs.
Now, I’d like to explore with you a different type of investment vehicle, one where you can take all of your IRAs, roll them into one pooled account. You’ll have complete control over your funds. That means it’s none of this where you have to work through a third party administrator in order to gain control, you have to set up a complicated structure with a limited liability company, and then a manager, and roll the money in and open up a separate bank account for it to have control of those funds. A plan where you can actually borrow from the account and do some amazing things from a partnering standpoint.
The plan that I’m going to be talking about right now is a qualified retirement plan which is either a solo 401(k) or a profit-sharing plan.
Now, for many of our clients we set up solo 401(k) plans just because there’s so many different things you can do with it. Just think about this. Right now if you have a self-directed IRA, as you know, the IRS is looking at you. And if you do anything wrong with it, you invalidate your IRA as of that date. Well, the qualified retirement plan, you don’t have those problems. You can actually make mistakes inside of your plan and you don’t risk disqualification of the plan itself. You will have to pay tax on that minor error that you made, but you can still keep your money there, you can still invest and you won’t have to pay any taxes on that money until you pull it back out of your plan.
So why do investors want to use these plans? Well, it’s simple control. If you want to be able to take control over your IRAs, you want to be able to have a checkbook that you can sign on,that you don’t have to clear your deals through a third party administrator or through a custodian, then the self-directed IRA is not for you. You want a qualified retirement plan like a solo 401(k) because when you set one of these plans up, you are the trustee, you’re in complete control over your account.
Just the other day I was working with an individual, husband and wife, both of them have two self-directed IRAs and they wanted to partner on a deal. The self-directed IRA custodian told them that they’d have to create an LLC and put each interests of their money into this LLC, and the LLC would be owned by their separate IRAs. Well I said, you could do that, but how about if you had a different choice? How about if you took both of those IRAs, rolled them into your solo 401(k), now you have the money in one account, now you could go out and purchase that property? They were astounded. They didn’t know that they could do that.
Well, you can. With the solo 401(k), you have your company sponsor that plan and you’re able to roll your money in.
Now, another advantage of having that type of plan is you can start making contributions to it on an annual basis. You know the amount you can contribute to a solo 401(k)? $53,000. That’s how much you can put in to a tax-deferred account on an annual basis.
Now, it gets even better. If you set these plans up the right way, and I can tell you, I’ve been studying this for 17 years, I’ve looked really deep into the code to find all the different strategies that come from using a qualified retirement plan. If you set it up the right way and you have the proper provisions in there, you can actually take that $53,000-a-year contribution and make it a Roth contribution.
Think about this, the most you can contribute to an IRA, $5,500. The most you can contribute to a solo 401(k) Roth account, $18,000. But if your plan is set up the right way with the proper provisions, it’s $53,000.
When I looked into this and I figured out a way to do it, I couldn’t believe it. So I went out there and I Googled this information to see if anybody else in the industry was talking about it. And my first hit that I came across, was the Internal Revenue’s own website, where they blessed the strategy, where you can take a solo 401(k) and make a $53,000-a-year contribution and make it to a Roth.
Now, there’s a certain way you put that. To put this together, you’ve got to have the right plan in place. But it’s possible.
So with qualified retirement plans, you really open up the possibility to do more with your investing. You can partner with your own plan.
I’m working with a client right now where they’re partnering with their own plan to take a deal down. That’s very difficult to do with self-directed IRAs, especially with all of the IRS scrutiny now on that particular tool. With qualified retirement plans, people often ask me, “Aren’t they scrutinized by the IRS?” The answer to that is no because it’s the Department of Labor that looks over qualified retirement plans.
Heck, you don’t even have to file a tax return for your qualified retirement plan until you have over $250,000 in assets inside of the plan. So the IRS doesn’t even know that you have it. This is a tremendous tool when it comes to investing.
Another thing is that let’s assume that you started a new business, you want to get out there and start investing in real estate but you don’t have the cash on the outside and you’d like to find ways to take money and create seed money for your corporation. Well, just the other day the IRS gave you the layout on how you set it up using your IRA money. You know you couldn’t invest through your IRA into your personal corporation, but if you take your IRA, you roll it into a qualified retirement plan, a solo 401(k), set up your C corporation and then have your solo 401(k) buy the stock in your C corporation using the rollover IRA money, that is a blessed transaction and it will qualify under the Internal Revenue Code, and will not be considered a prohibited transaction.
I mean, these are just some of the things you can do when you set up a solo 401(k)/qualified retirement plan. It’s just a phenomenal tool. If you’re not up on it, then many times you’ll find that people are down on it. Especially the people on the self-directed IRA community, they don’t like these plans because it takes the money away from them.
If you want control of your retirement plans, you want to get access to your monies and you don’t want to have any strings attached, then you should seriously consider a solo 401(k).
My name is Clint Coons. Catch you next time.

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Mr. Coons is a founding partner of Anderson Law Group and current manager of Anderson’s Tacoma office. After graduating from the University of Washington with a business degree, Mr. Coons began his career in construction. Giving up the hammer for a gavel, he graduated from Seattle University School of Law in 1997.

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