Business Owner Making Out 401-K - what About IUL,Whole Life or Roth 401-K

Jan 3, 2016

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  1. DHK
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    DHK "YOU CAN'T HANDLE THE TRUTH!"

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    It's a ROBS loan - Roll over for Business Start-ups, as long as you're starting a corp. Then you use the IRA to buy shares in your corporation to then use the proceeds for your business - such as rental real estate, etc. You don't have to invest in publicly traded/listed stocks in your IRA, so stock in a personal corporation is permissible.

    Rollover For Business Startups (ROBS): The Ultimate Guide
     
    DHK, Apr 14, 2018
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  2. REI_Velocity
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    REI_Velocity Expert

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    I had a SoloK set up, but then I found whole life insurance, and it's much more powerful of a tool. However, from what I understand, if you have a SD 401K you can still invest in RE. There are many rules, prohibited transactions, etc, but you can do it, similar to the SD IRA. People can also be their own Trustee, and that's where they get jammed up... and mixing or meddling of the funds can open the door to disaster. Just check the IRS rules on the types of transaction you can/can't do.
     
  3. scagnt83
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    scagnt83 Worldwide Expert of Everything

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    That is not correct generally speaking. There are certain exceptions that exist. But generally speaking, you cant in a 401k. There are outfits that will say you can. But if you talk to a competent ERISA attorney they will tell you differently. One exception, if I remember right, is the businesses main office building. At least that was an exception at one time years ago.

    Remember that in the tax world (all financial products are built around tax code) you can do anything until you get audited... LOL.

    Life Insurance is a more flexible tool. Calling it more powerful depends on priorities and goals.

    A QP gives you a drastic reduction in current taxes, which most business owners are looking for. If you have a Defined Benefits Plan layered with the 401k, you can save even more on taxes.

    Also, per dollar of Net (before tax) Profit, you are able to contribute more to the 401k vs. the WL. And a 401k does not have to be directly invested in the market.

    A SoloK is a very powerful tool if utilized correctly. Many business owners see the value in having both and diversifying their taxation/investments. But it is all situation specific. It sounds like you do well with the RE.

    BTW It can even hold a WL or IUL policy within it :)
     
    Last edited: Apr 14, 2018
  4. REI_Velocity
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    REI_Velocity Expert

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    You have to be careful with this (substance vs form), as a recent Tax Court case shows. Here is some commentary about new case law... This is grey area stuff that the IRS is clamping down on. Not sure how ROBS fits, but the account holder should definitely pursue competent legal/tax advice.

    See a recent case here
     
  5. DHK
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    DHK "YOU CAN'T HANDLE THE TRUTH!"

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    You can't just invest in ANY business doing this. You could own real estate in an IRA or Roth IRA - not a prohibited transaction. Owning that Real Estate through a corporation is a normal business process to protect the owner's personal assets. Using a Roth IRA to invest in the corporation that ultimately invests in an approved investment asset should be fine (I would think).

    I believe that using this strategy to invest in another kind of business - would not work.

    (Obviously not legal advice, but common sense would seem to prevail. Check with attorneys in your state for legal advice.)
     
    DHK, Apr 14, 2018
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  6. REI_Velocity
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    It gets hairy if the business is also owned by the owner of the IRA. Then it could be construed as personally "benefiting from the IRA money", and that is prohibited. That said, SD IRAs can invest in businesses all day long. In fact, there's only a small list of asset classes a SD IRA cannot invest in (like antiques, collectibles, etc). The other big no-no is if the IRA account holder benefits from the IRA outside of the IRA, and the same is true for certain relatives. In other words, my parents couldn't loan me money from their IRA for my real estate deals, since I'm in line to inherit their IRA money. That would be a prohibited transaction, and these are clearly stated by the IRS. The good thing is that most IRA custodians should keep the client out of trouble when they review the investment.
     
  7. REI_Velocity
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    REI_Velocity Expert

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    Interesting, I didn't know a 401K can hold a WL policy... I'm assuming it can't be a WL policy on the 401K owner, right?

    Here is some more info on a Self Directed 401K... I've always thought it's very similar to the Self Directed IRA provisions (in what you can invest in)... let me know if you know of other restrictions, or if you think this article is wrong. Check this article out.

    The reason WL is what I call "more powerful" is simply because I can leverage the cash today and still benefit "today" as opposed to being 59 1/2 or older, and it has built-in appreciation and equity, grows tax free, and $1 can work in two places at the same time (that's pretty cool). Each tool is powerful within a larger strategy. Also, there is no contribution limit on WL, it just has to abide by the MEC limitations, but whether you have 5K a year or 100K+ a year to spend, either can work in WL or other permanent life insurance policies.
     
  8. eersfan
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    eersfan Super Genius

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    I was recently referred to a business owner. At the first, and last, meeting, he indicated he wanted to set up a solo-k for the purchasing real estate with the bulk of it being rental property. I told him he needed to find someone else and explained just a few of the "rules of the road" with respect to doing this. His answer was "It's only illegal if you get caught". Folks...neither I or any other adviser who values his/her licenses is going to take on a client with this mindset.
     
    eersfan, Apr 15, 2018
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