Checkbook Solo 401k Plans For Real Estate Professionals

Why Is A Checkbook Solo 401k The Best Retirement Plan For Real Estate Professionals?

Checkbook Solo 401k retirement plans, a type of Checkbook QRP for businesses owners that don’t have full-time employees, are the ideal tax advantaged account for real estate professionals: real estate agents, mortgage brokers, real estate wholesalers, and real estate flippers. Real estate professionals have self-employment income and KNOW REAL ESTATE, making the Checkbook 401k the perfect plan for them. In the post, we’ll present some of the benefits of a Checkbook Control 401k and some Checkbook 401K advanced tax & investing strategies. 

What Are The Benefits of a Checkbook 401k Plan?

For those that qualify, the Checkbook 401(k) provides:

The Checkbook(K) can be used for every form of real estate equity and debt investment, including private lending, hard money lending, tax liens & deeds, deeds of trust, mortgage notes….you get the idea. Of course, it’s not limited to real estate – it can be invested in nearly any asset you can imagine.

With the Checkbook Solo 401k you get total “checkbook control” because you’ll be the trustee, administrator, and beneficiary of your plan. This means that you get direct access to your tax-sheltered money and no custodian, no transaction fees, and no asset-based fees. Unlike Self-Directed IRAs that require an IRA-LLC for checkbook control, there’s no requirement that a Solo 401k have a qualified custodian.

Who Qualifies For a Checkbook 401k Plan?

Checkbook 401(k)s are incredible financial vehicles that are available only to those that meet 2 criteria: (a) they have some self-employment income and (b) they do not have full-time employees.

Self-employment income includes all earned income from a trade or business, regardless of whether the income comes from an LLC, corporation, sole proprietorship, or unincorporated entity. Real estate rental income does not count for this purpose. Real estate commissions, loan broker commissions, property management fees, and real estate wholesaling profits do count.

Full-time employees that disqualify a business-owner from having a Checkbook 401k are those that (a) work more than 1,000 hours per year and (b) are over 21 years of age.

 

Checkbook Solo 401k Next Level Strategies

Solo 401(k) Plans can be customized for maximum tax benefits. They can include provisions that allow for annual Roth contributions of up to $108,000 – $120,000 for couples aged 50 and above, using the Mega Backdoor Roth strategy. That translates to tax-free earnings on the entire amount.

In addition, you can magnify the power of the Checkbook K by rolling other retirement funds into the plan. An important heads-up: if rolling over from IRAs, only pre-tax IRA funds can be moved into a 401(k).

Leveraged real estate investing within certain tax-free accounts can generate UDFI (Unrealted Debt Financed Income), a form of income that is taxable even within retirement accounts. A Solo 401k DOES NOT PAY this tax when investing in real estate.

Checkbook SEP-IRA vs Checkbook Solo 401k

A common question that arises is, “my CPA suggested a SEP-IRA, why is a Solo 401k better than a SEP?” That’s a fair question with some powerful responses. Following are some of the benefits of a Checkbook 401k over a Checkbook SEP-IRA:

  1. Invest in real estate and any other assets without a custodian
  2. Directly control your retirement money without a custodian
  3. No UBIT/UDFI tax on leveraged real estate investments within a Checkbook 401k
  4. Make Roth, traditional, and after-tax contributions
  5. Higher tax deductible contributions
  6. Incudes tax-deductible salary-deferral contributions
  7. Solo 401k loan feature: Borrow money from your Solo 401k to use for any purpose
  8. Cost savings: Over time, investing with a Solo 401k costs much less
  9. Solo 401k allows for additional “catch-up” contributions for those aged 50 and higher
  10. Assets not permitted to SEP-IRAs are permissible to Solo Ks

Checkbook 401k For Real Estate Pros: The Bottom Line

There’s no vehicle that is even remotely comparable to a Solo Checkbook 401k. Solo 401k vs SEP-IRA is a non-starter. The Solo 401k is more flexible, more cost-effective, more tax-efficient, easier to manage, and provides for far greater tax advantages. It the the Self-Directed Retirement Plan that every real estate professional should have.