plans (7)

The most prominent question that comes into your mind while choosing a retirement plan is “how much is enough.” George Foreman said, “The question isn’t at what age I want to retire, it’s at what income.” There isn’t any definitive figure that can help you survive through retirement and the best strategy is to build a fund that never ends.

For self-employed professionals and small business owners, investing in real estate with a Solo 401k retirement plan could be the answer. Real estate has always been a safe investment option with minimal management requirements. Solo 401k has gained popularity because of its freedom to invest in real estate and similar investment opportunities. For real estate professionals, investing in real estate is the safest investment choice and Solo 401k retirement plan facilitates it.

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The investment landscape of Solo 401k investment plan is not only limited to real estate. One can invest in precious metals, private businesses, tax liens, tax deeds and hard money lending. It is important that every investment made with Solo 401k funds should be withdrawn from the Solo 401k account only. At the same time, the capital gains or interest from any such investments should return to the account only.

How to invest in real estate with Solo 401k?

  • Understand the eligible property clause: Before you plan to purchase a commercial or residential property, make sure that the property satisfies the legal regulations. First, neither the investor nor any other disqualified person should be the owner of the property. At the same time, the Solo 401k account owner should not use the property for primary residence or office space, or for any other personal use.
  • Open Solo 401k account: Choose a Solo 401k retirement service provider and transfer funds from your existing retirement account into the Solo 401k plan. Keep in mind that any purchase made would be under the name of the Solo 401k account.
  • Use non-recourse loan for funding: Real estate transactions require large investments and if you do not have sufficient funds; you can use a nonrecourse loan for funding. A nonrecourse loan does not require personal guarantee and it considers the property as collateral.

Once you have the loan, make sure to consult qualified attorneys for the transaction and follow all the rules. The key to achieve success with real estate investments is to comply with regulations and avoid any tax penalties in the process. 

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“Real estate investing, even on a very small scale, remains a tried and true means of building an individual's cash flow and wealth.”

Robert Kiyosaki

Real estate is one of the oldest and most trusted investment options. It offers decent returns and gives the owner a sense of satisfaction. Are you a small business owner? Investing for retirement is a wise decision and Solo 401k is one of the best available retirement plans for self-employed and small business owners.

Solo 401k is a qualified retirement plan that allows investment in real estate, precious metals, private businesses, and also traditional stock and bond investments. One of the upsides of this investment plan is the freedom to choose your investment. It offers higher contribution limits of up to $53,000 in 2015 along with catch up contributions of $6,000 for professionals above 50 years of age.

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Why investing in real estate is an excellent choice for small business owners?

You can fund a real estate purchase through your Solo 401k retirement plan and if you do not have sufficient funds in your account, you can always use a nonrecourse loan. In regular transactions, the borrower has to pay a certain down payment and the rest is available through finance.

Real estate investments allow you to diversify your portfolio and look out for other investment opportunities in between. You can generate a continuous income stream by investing in rental properties or similar commercial properties.

Real estate does involve maintenance cost but you can write off wear and tear costs of a commercial property and apply for tax deductions in your income tax returns. In addition to it, you can sell the property through a 1031 exchange and save taxes against any capital gain. It is mentioned in IRS Section 1031 (a) (1):

"No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment, if such property is exchanged solely for property of like-kind which is to be held either for productive use in a trade or business or for investment."

If you are planning to purchase a property through 1031 Exchange, make sure to consult qualified professionals and make a transaction with their consent.

When investing with a Solo 401k, you may be able to skip this step and still enjoy the tax benefits. All Solo 401k accounts are tax-deferred, so you will not have to pay taxes on the capital gain until years later. Better yet, if the property is purchased with fund from a Roth Solo 401k, all gains are automatically tax-free.

Another reason why you should prefer real estate investments in your Solo 401k portfolio is their limited lookout requirements. You do not have to check the value of real estate investments regularly, especially if you are investing for a prolonged period. 

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Small business owners and self-employed individuals face multiple problems every day and the biggest one is the lack of time. It is quite common among these individual to outsource their business and personal finance responsibilities.

If you are a small business owner with a Solo 401k retirement plan, it is equally important to monitor your retirement plan, as it is to contribute. It could be lack of time or limited understanding of the investment landscape out of which, self-employed individuals let their Solo 401k provider handle everything.

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Here are five signs that indicate that it is time to reevaluate your investments and hire a new Solo 401k plan provider.

Your Solo 401k Provider doesn’t offer fee disclosures

According to the Department of Labor (DOL), every single retirement plan provider charging more than $1,000 for retirement plan is bound to provide complete fee disclosures. If you never received these disclosures from your retirement plan provider, ask for them. In case the provider denies your request for fee disclosures, you can contact the DOL and fire that provider immediately.

Your retirement plan provider is overcharging for services

It is important that you pay only for the services you receive and that too within a reasonable limit. Service charges may vary depending upon the quality of service. The best way to identify the right fees is to benchmark your current services against the ones provided by the other Solo 401k providers.

You are not satisfied with administration services of your provider

For small business owners with several employees, it is important to devise an optimal retirement strategy for the company and its employees. If your retirement service provider does not help you with the strategy or provides only vague answers, it is time to look for a new provider. A well-qualified retirement plan provider dedicated towards the job would help you avoid critical planning errors and build sufficient retirement savings.

You only hear from your retirement plan provider during quarterly fee collection period

Does it sound surprising? Well, many third party administrators (TPAs) only visit their clients while collecting their quarterly fees. The problem with these TPAs is that they do not keep track of the changes in regulations governing retirement plans and things might go south for the clients. They inform only when something has already gone wrong. It is best to replace such service providers and choose a company that works proactively.

You came to know about multiple errors through an IRS audit

Solo 401k providers that lack the competence to do their job end up with several plan mistakes and unless you conduct an independent plan review, you will hear about them from the IRS only. Such mistakes can cost you thousands of dollars in penalties and taxes. It is all right to make a few mistakes but the provider must take the responsibility for the same. If your provider always has an excuse for his/her mistakes, it is time to hire a new retirement plan provider. 

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“Be slow in choosing a friend,

Slower in changing.”

Benjamin Franklin

How does this quote relate to your retirement plan? Well, a retirement plan is the only thing that will get you through your golden years and you don’t want to put your these years in the hands of someone who wouldn’t care for your best interest.

Choosing a retirement plan is an important decision for self-employed and regular employees alike. For entrepreneurs or small business owners, it takes a lot of convincing to prioritize retirement planning over the current business needs. If you are ready to start a Solo 401k plan for your retirement, it is equally important to choose a Solo 401k provider carefully. One of the key features of Solo 401k is the freedom to invest and you want all the expertise that you can get to make the right decision.

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5 Factors to Consider When Choosing a Solo 401k Provider

You are going to invest and stay invested in your retirement plan for several years to come. Here are 5 important factors that you should review periodically to ensure the competency of your retirement plan provider.

  1. Investment Options: Solo 401k allows investment in real estate, private businesses, precious metals, tax liens, and several other options. However, these options differ from one provider to another and you need to inquire about these investment options upfront. At the same time, it is best to have someone who can offer appropriate investment advice and has the qualification to do so.
  2. Service Level: Just like there are two types of customers, one seeking the lowest fee and the other seeking the best service, service providers follow the same rule. If you are a business owner or self-employed individual, managing all the paperwork could get difficult. It will help to choose a provider who can take care of these matters and keep you posted accordingly.
  3. Plan Administration: There could be very few things worse than being chased by the IRS for breaking any regulations. Always look for a service provider that could perform due regulatory diligence and help you understand your responsibilities as the plan owners.
  4. Recordkeeping service: You are going to invest in different areas generating multiple transactions every time. If you are choosing a Solo 401k plan, always have a recordkeeping service to keep record of your transactions and choose one that offers on-demand reporting.
  5. Fees Disclosure: Unlike regular one-time business transactions, your retirement plan will accumulate substantial wealth and a single decimal change in provider fees will have a huge impact. Make sure that you choose a Solo 401k provider that discloses every relevant fee upfront with no hidden clauses. 
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Every small business owner requires a retirement strategy. Do you own a small business? Probably the idea of retirement planning isn’t as enticing as opening another store for your business. According to a survey conducted in 2014, nearly one-third of the small business owners didn’t want to retire whereas a quarter had no plans for retirement. More than one-third said that they would divide their retirement equally between work and leisure. Does that sound like your plans?

Here are two factors that you must consider:

  • You don’t have an employer to set up a retirement plan for you.
  • You are not likely to receive any kind of pension during retirement.

Investing in a retirement plan allows you to choose whatever path you want with more confidence.

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Solo 401k: A Perfect Match for Small Business Owners

Solo 401k is a retirement plan that allows self-employed individuals and small business owners, without full-time employees, to save money for their retirement. It is important to understand that you qualify for Solo 401k plan even if you are working with your spouse.

What makes solo 401k Special?

  • High Contribution Limits: Solo 401k has higher contribution limits than IRA accounts allowing you to contribute up to $53,000 in 2015 (additional $6,000 catch up contributions for individuals above 50 years of age).
  • Flexible Investment Options: The flexibility to diversify your investments is the primary advantage of Solo 401k plan. You can invest in real estate, private business, precious metals, and other traditional investment options. In case you have a Roth option, all your investments will grow tax-free.
  • Roth Contributions: Traditional Roth IRAs do not allow contributions for individuals that make more money than a certain limit. The Solo 401k retirement plan offers freedom to pay your taxes upfront, regardless of your income. You can contribute up to $18,000 in Roth contributions for 2015 and an additional $6,000 in catch up contributions for professionals above 50 years of age.
  • Solo 401k Loan Access: The last US recession (Dec 2007 to June 2009) had a huge impact over small business owners and all the major banks scrutinized their loan access. Solo 401k is here to the rescue. It offers borrowing from retirement plan and you can borrow up to 50% of your retirement fund (maximum limit of $50,000) during financial distress. Solo 401k loan is available at prime rate plus one percent interest rate, which makes it extremely affordable.

On top of everything else, you are free to direct your investments without any intermediary. There is no need to file a return until your account balance crosses $250,000 in value. Solo 401k is a complete retirement solution for small business owners. 

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“Destiny is no matter of chance. It is a matter of choice. It is not a thing to be waited for, it is a thing to be achieved.”

William Jennings Bryan

Being a self-employed, every professional holds his destiny in his hands. Taking control of your life is the first step towards achieving success and retirement is an extremely important part of life. How do you achieve maximum benefits with your retirement plan?

Step I: Asking the right questions

Step II: Look out for best options

Step III: Analyze them and start investing your money

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Top 5 Questions You Should Ask Your Financial Planner

  • What are the plans that offer maximum contributions? Solo 401k and SEP IRA are the two self-employed retirement plans with maximum contribution limits of $52,000 for 2014 and $53,000 for 2015. Solo 401k allows catch up contributions for individuals above 50 years of age whereas SEP IRA doesn’t. In short, professionals above 50 years of age can add additional $5,500 for 2014 and $6,000 for 2015 in a solo 401k plan.
  • Does it offer traditional investment options? Solo 401k retirement plans offer multiple investment options including real estate, tax liens, private business, precious metals, and regular stock and mutual fund investments.
  • What is the deadline for Solo 401k contributions?  One can make both employer and salary deferral contributions up to April 15, 2015 for the financial year of 2014 and April 16, 2016 for the financial year of 2015. One can even file an extension for contributions up to October 15 of subsequent year depending on the type of business that sponsors the plan.
  • Can a retirement plan offer financial support during off-season? For every business owner, surviving through an off-season is the toughest challenge and it takes every single dollar to push the company further. Solo 401k retirement plans are designed to accommodate any such financial urgency. One can borrow up to 50% of fund value up to a maximum limit of $50,000. This loan is available at Prime Rate plus 1 percent, which makes it an affordable source of funding.
  • Are there any downsides of Solo 401k retirement plan? The only downside of solo 401k retirement plan is that one has to file returns if the fund value exceeds $250,000. However, even then, plan holder only needs to file a quick and simple form. At the same time, Solo 401k is only suitable for small businesses with no full-time employees (employees who do not qualify for retirement plans).

It is important to understand that investment options differ from one institution to another and it is extremely important to choose a flexible plan provider for Solo 401k retirement plans. 

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“Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world.”

Franklin D. Roosevelt

Franklin D. Roosevelt was able to sum together the entire thought process of real estate investors and agents in a single sentence. Real estate business is back on its track after the last recession and property prices are faring well throughout the United States.

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As a real estate agent, it is quite common to ignore retirement planning and most of the agents do not have a solid retirement plan in place. In some cases, it could be lack of awareness and in others, overestimation of one’s ability to work. However, if you are to find a retirement plan that can help you in capital funding during a period of financial drought, isn’t that wonderful?

Solo 401k is a retirement plan for self-employed individuals and real estate agents can benefit a lot from it. It has comparatively higher contribution limits and one can contribute up to $53,000 in 2015 (excluding catch up contributions).

“The best time to plant a tree was 20 years ago. The second best time is now.”

Chinese Proverb

Top 3 Benefits of Solo 401k

  • Higher contribution limits: $53,000 for 2015 (excluding catch up contributions)
  • Flexible investment options: Real estate, private business, precious metals, tax liens, traditional stock and mutual funds
  • Loan Option: Borrow up to $50,000 or 50% of fund savings

For real estate agents Loan option is one of the biggest benefits.

Solo 401k Loan Option

  • Who can borrow: Every Solo 401k plan participant can borrow up to 50% of fund savings to a maximum limit of $50,000. If you have $100,000 in your solo 401k, you can borrow $50,000. However, if you have $30,000 in your solo 401k, you would be able to borrow up to $15,000 only.
  • Interest rate for loan: In most of the cases, it is prime rate (3.25%) or primate rate plus 1% interest.
  • Frequency of repayments: A solo 401k loan is repaid on a monthly or quarterly basis with at least one payment per quarter.
  • No credit qualifications: You do not have to fulfill any credit qualifications unlike regular bank loans. For realtors, it can be difficult to get a credit during a financial drought and solo 401k loans can help them get necessary funding.
  • No tax penalties: Unlike regular retirement plan, you do not have to deal with a tax penalty on borrowing from your Solo 401k until all repayments are made on time.
  • Interest paid back to the account: The best part of solo 401k loan option is its low interest rate. Plus, instead of paying interest to another lender, your interest payment will be paid directly into your Solo 401k. Essentially, you are borrowing from yourself, and paying interest to yourself.

Real estate transactions involve different types of fees and Solo 401k loan option can help you handle those. For an instance, you might need money to cover legal costs or research work in the transaction. At the same time, it can help you grab crucial real estate opportunities and offer financial support.  

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