Frequently Asked Questions
In 2017 you can contribute up to $54,000 if you’re under the age of 50 and $60,000 if 50 or older.
Your contribution is made up of your elective deferral and your profit sharing. You’re able to contribute all of your self employment income up to $18,000 (dollar for dollar) or up to $24,000 if over age 50 and then additional income from self employment is eligible to contribute as a percentage of the overall income.
For example if you had $80,000 in self employment income that ended up being on your schedule C and were 45 years old you’d be able to contribute $18,000 as your elective deferral income and approximately $16,000 of the total income as profit sharing.
This would be approximately $34,000 that you’d be able to either defer or you could have all this money be ROTH money so you’d pay taxes now and would not later.
NO. Of course having profit would probably make it easier to actually contribute something however, contribution to a profit sharing plan is discretionary. There is no set amount of profits that you need to make to contribute to profit-sharing plans.
$25,000 which is a combination of elective deferral, $7,500 in profit sharing (25% x $30,000).
NO, you can contribute whenever you want with your elective deferral (your own contribution). You have a maximum that you can contribute, but no minimum requirement.
No, you cannot transfer personal money to contribute into the plan. Qualifying contributions consist of rollovers, elective deferrals, employer match contributions, employer profit sharing contributions, and qualified non-elective contributions. New deductible contributions to your plan need to be from your business account, not your personal account. They must come from wage deductions.
Self directed QRPs are not for everyone. They are not for people who do not want to take responsibility for their financial outcomes, and would rather pay the fees that Wall Street leverages on their accounts.
A self-directed 401(k) is technically no different than any other 401(k). It’s unique because of the available investment options. Most custodians only allow approved stocks, bonds, mutual funds and CDs. A truly self-directed 401(k) allows those types of investments PLUS specific gold and silver, real estate, notes, private placements, tax lien certificates and much more.
Similar rules to all 401Ks & IRAs. At 59.5, you can begin taking distributions. It is meant to be a retirement vehicle. The assets in your eQRP are meant to be used down the road, so you’ve got your two pieces of your business – the money you’re making to live on potentially and then the money you’re making to create more at bay money that keeps growing and that’s what’s this vehicle is for. It’s the most powerful vehicle that exists in the United States.
What is a QRP
Self directed QRPs are not for everyone. They are not for people who do not want to take responsibility for their financial outcomes, and would rather pay the fees that Wall Street leverages on their accounts.
It’s not uncommon for advisors to never have heard of self-directed qualified retirement plans. We have worked with many professional advisors across the country to educate them regarding QRP’s and self-directed QRP rules so they can give good financial advice to their clients.
IRS Publications state what investments are prohibited in Qualified Retirement Plans. These investments include: artwork, stamps, rugs, antiques and gems. All other investments, including stocks, bonds, mutual funds, real estate, promissory notes, foreclosures, and tax liens are acceptable as long as IRS rules governing retirement plans are followed.
Yes. To ensure compliance, you should be familiar with specific rules for 401(k)’s and in particular, self-directed 401(k)s. There are certain types of transactions that you cannot perform through a 401(k). Most importantly, the IRS prohibits “self-dealing” investments in which you or family members of lineal descent have prior ownership.
Yes, as long as you follow relevant rules. IRS Publication 560 and 590 clearly state the rules and regulations governing IRAs and qualified retirement plans.
The QRP does require more administration than something like an IRA. Since you, the business owner, will typically be the trustee in a QRP, you have a fiduciary responsibility to protect assets. This responsibility is not normally required in an IRA that has a third party custodian.
In addition to the tremendous 401(k) benefits already discussed (tax-free profits, tax deductions, asset protection and estate planning), you can invest tax-free in investments that you know and understand, which through the power of compounding interest, can create additional wealth for you and your family. - See more at: http://totalcontrolfinancial.com/faq/#sthash.rzI4Bgar.dpuf
Unlimited Options & Tax Deferral
- A QRP offers a business owner the ability to use his retirement funds to make virtually any type of investment tax-free, including real estate, on his own without requiring the consent of a custodian. The IRS only describes the disqualified investments, and very few at that! All the income and gains goes back to your QRP tax-free!
- High Contribution Limits
An IRA allows you to contribute $5,500 a year, or $6,500 if you’re over age 50, to “catch up.” The problem with this is that you can only get $100,000 into the plan over 20 years. That’s just not enough to get close to what you’ll need for retirement.
With a QRP you can contribute $53,000 per person, up to $106,000 with a spouse and even more if you’re over 50. ($59,000 each in 2016, if over 50 years old)
There are two basic kinds of qualified plans: defined contribution plans and defined benefit plans. Different rules apply to each. You can have more than one qualified plan, but your contributions to all the plans must not total more than the overall limit.
The technical definition for a qualified plan is one that satisfies the requirements of IRC Section 401(a). A Qualified Plan is known for the numerous tax advantages the plan allows. Contributions made into the plan are not taxed until you withdraw the money, which allows an investor to save more money than in other types of retirement plans.
A qualified plan is established by a business and is subject to the provisions of the Employee Retirement Income Security Act (ERISA). Some of the most common types of qualified retirement plans consist of Profit Sharing Plans, 401(k) plans, and Defined Benefit Plans.
Setting up an eQRP
Sole Proprietorship, C Corporation, S Corporation, Partnership, Limited Liability Corporation (LLC), Limited Liability Partnership (LLP), and Not for Profit 501(c)(3).
YES. There are no laws that prevent you from having a retirement plan in both countries.
Yes, the Federal EIN is provided to you when the QRP is set up.
Yes. The small business start up credit is 50% of eligible start up and administrative costs, for a maximum credit of $500 per year or $1500 over 3 years, plus you can write off the balance of the the cost of the plan as a business deduction. For example:
Plan cost $2000
Year 1 tax credit: $500
Year 1 tax deduction: $1995 @ 40% tax bracket <$800> savings
Out of pocket first year: $2495 – $500 – $800 = $1195
Savers Tax Credit: You are entitled to a tax credit of up to 50% of your contribution to a retirement plan. This provision was made a permanent part of this tax code as part of the Pension Protection Act of 2006. AGI must be less than 33,000 in 2009 for MFJ to get the full 50% Remember: a tax credit is a dollar for dollar reduction in your tax bill as opposed to a tax deduction. Married couples: get a $2,000 credit for each spouse or $4,000 total credit each year against any income taxes they owe. Saver’s credit is available for IRA, QRP, 401(k), 403b, and 457 plans.
No, this is not a good idea because you cannot take a tax deduction if you pay for the start up costs with your IRA. If you pay using your business account, you will get a tax deduction for the cost of the plan and may even qualify for the Small Business Tax Credit.
You or any other person you appoint to be a trustee.
Yes, at a minimum you’ll need 2 accounts one for tax referred & one for ROTH.
Either click on the “Buy” button on the upper right-hand corner of this page or give us a call at: 800-270-1649. The information required will take about 5 minutes to gather and then you’ll receive documents from us in about 2 business days, and once those docs are e-signed, you’ll be ready to invest 7 days after signing up!
If you own the majority control of all your businesses, you can establish one plan and have the other businesses adopt the plan. However, if you do not have majority ownership in all the businesses, you will want to set up separate plans for each.
Separate QRP plans for each business are also beneficial if you want to be more aggressive with investments or contributions for a certain business.
There are no minimum income limits for a QRP. You can only use your income from the business that the QRP account is associated with or a rollover from another 401k or IRA, but you don’t have to make a certain amount.
No, just an intent to create income. Your business is called the plan sponsor. You have a lot of flexibility to choose the type of business you’d like to have including a sole proprietorship, LLC, Partnership, or Corporation.
It depends on the way that they write their plan. There’s something that’s called an in-service rollover and so you could potentially do it if their plan allowed. Most companies don’t so normally you have to wait until you end up leaving the job.
There are no income limitations with an eQRP.
It’s the form to report Unrelated Business Income Tax. If your QRP had active income that was taxed you would likely use this form.
For the 2017 year if my company is a Sole Proprietorship, LLC or Corporation how much time do I have to make contributions to my plan and take a tax deduction?
YES, after your QRP is set up you will need to file Form 5500 once a year if your plan assets are over $250,000, otherwise you are exempt from mandatory filing.
The requirement is that records must be retained for 6 years. Records used to compile information that is required to be reported under the reporting and disclosure rules must be preserved by plan administrators (and by actuaries, accountants and others who may be involved) for 6 years after the due date for filing the documents to which they relate (ERISA Sec. 107). These records must have sufficient detail to permit the necessary basic information and data to be verified, explained or clarified for accuracy and are to include vouchers, worksheets, receipts, and applicable resolutions.
Accidental destruction of records will not discharge the persons required to retain records from their statutory duty with regard to the purposes for which such records are required to be retained. Where persons required to retain records know or should know that such reconstruction is impossible, or possible only at an excessive or unreasonable cost, such persons would not be under a duty to reconstruct or attempt to reconstruct the lost or destroyed records.
You can be the administrator or hire a 3rd party to be the administrator.
Make contributions in accordance to the plan.
Keep the plan up to date and in compliance with all retirement plan laws.
Invest plan assets in accordance to the plan.
Provide information and required disclosures to plan participants.
Distribute benefits in accordance with the plan.
Inform eligible employees about the plan.
Once you’re set up you’ll generally have little or no ongoing expenses. You are required to file a form 5500 with the IRS if you plan has $250,000 in assets or more. If you have less than $250,000 and less than 100 employees you’re exempt from filing this form.
You can file the form yourself online or you can have an advisor file the form. Any asset like real estate or precious metals requires a statement of value or appraisal at least once a year to be used for compliance with plan asset value reporting.
If you have over $250,000 in assets, there’s a form (5500) that has to be filled out. And if you don’t, you might still want to fill it out. It’s not complicated. You’re basically saying, “Here are the assets, here’s the value,” and there you go. It’s really not that big of a deal, and an accountant can take care of it for you quite easily.
You do not have to sell….you simply call the current custodian of the assets and inquire into their procedure for doing a rollover into your new plan, your eQRP.
You do not need to sell the stocks. You can simply roll them into the QRP. This is called an In-Kind rollover.
Yes. This is a perfect example of where the rollover allowances are so helpful. You can roll over any retirement account into an equal account.
You can roll most IRA, SEP IRA, SIMPLE IRA (after 2 years), ROTH IRA (only into a Roth QRP, 457(b), 403(b), Profit Sharing and other QRP’s into your QRP.
There are two reasons to keep money in your IRA. One, you really want to do something with maybe mutual funds. The other one is you want to be a charity for the custodian and help them make more money. Those are the two reasons that I would think that you keep an IRA.
Yes, you can roll most IRA, SEP IRA, SIMPLE IRA (after 2 years), ROTH IRA (only into a Roth QRP, 457(b), 403(b), Profit Sharing and other QRP’s into your QRP.
An IRA can be rolled into a QRP if the funds in it were rolled over from a previous 401k, 403b or 457. If this is the case your IRA is considered a conduit IRA and can be rolled over into a QRP. If funds in your IRA came from you directly you are not permitted to roll the IRA into a QRP.
In some instances, you may be able to roll funds from a 401k at a current employer through what’s called an “In-Service Distribution,” although most large employers are highly restrictive and make this nearly impossible.
Using the eQRP
You’ll pay taxes at your current income tax rate, which is determined by all income, including distribution income in the year that it’s taken. Any portion of elective contributions identified to be ROTH (after tax contributions) will normally not have any tax owed if distributions are done after age 59 1/2.
YES, that’s an option. There is a 2 page adoption agreement that can be prepared for you. Your new LLC or corp can start making tax deductible contributions to the old plan just like you did before. This is complimentary at Total Control Financial for our customers.
The Plan Administrator is responsible for the bookkeeping. This can be done using Quickbooks or other accounting programs for most small plans. Hiring a TPA, Third Party Administrator to serve this purpose is useful as the complexity of the plan increases. Employers often hire outside professionals (sometimes called third-party service providers) or, if applicable, use an internal administrative committee or human resources department to manage some or all of a plan’s day-to-day operations. Indeed, there may be one or a number of officials with discretion over the plan. These are the plan’s fiduciaries.
You will need to file Form 1099R which reports income to the IRS. Your accountant will need Form 5500 annually to report assets, contributions, and number of employees. A one person plan is exempt from filing Form 5500 is the plan assets are less than $250,000.
The distributions are treated as income and are claimed on the tax return for that year. If the distributions are received 2016, they are claimed to the IRS along with all other income for 2016 (e.g. April 15th, 2017), and all applicable taxes will be paid at that time.
A 20% withholding is required for distributions unless the plan is a ROTH plan. A ROTH plan is not subject to withholding when a distribution is made because the distribution is 100% tax free assuming the account holder is at least 59 1/2. A rollover is not subject to taxation.
Yes, under ERISA (Employee Retirement Income Security Act) laws of 1974, the plan is protected from bankruptcy, creditors, and the IRS.
You can loan money to anyone except a disqualified person (see list of disqualified parties), but the loan has to have adequate security. You, as the trustee, must make sure the security is adequate in case of loan default.
NO, never co-mingle personal assets & QRP funds. This will get you into deep water with the IRS and could have your plan disqualified. If you have an investment you’d like to invest with personal funds and QRP funds you can probably do that as long as each piece is separate.
Yes, qualified debt is permitted. Qualified debt is any debt that is non-recourse used to purchase assets for the plan.
Yes, qualified debt is permitted. Qualified debt is any debt that is non recourse used to purchase assets for the plan.
There are no restrictions. You can invest in any type of property you would like, as long as you don’t already own it or derive any current benefit from it.
The same way you’d invest in any real estate. Once you have the QRP set up you’ll have total control of your funds so anything you want to invest in you simply write a check. If you want to invest in something requiring debt you can do that as long as you’re not guaranteeing it and it’s non-recourse. IRA’s can’t do this.
No, you must purchase real estate initially with the plan. You can purchase new real estate with your retirement plan, but if you already own the property, there is nothing to purchase, you own it.
Yes, since you are able to serve as the administrator you select who will sign the checks for the accounts the plan holds. You would normally be the check signer. This is probably the most significant benefit of the QRP, it doesn’t require you to hire a bank or trust company to be your trustee. You, the participant can actually serve as trustee. This means that all the assets of the QRP trust are under the sole authority of the participant if you’re the only participant. (If you have employees you’ll still have control over your assets and the profit sharing assets with checkbook control!)
A QRP allows you to eliminate the expense and delays associated with an IRA custodian, enabling you to act quickly when you find an investment you’d like to move on.
Anyone except disqualified persons. These include: -Spouses -Parents and Grandparents -Your Children -Spouses of your Children -Corporations in which you own at least half of the stock -Someone who provides services to the plan (eg. your stock broker) -Someone who makes investment decisions on your behalf
Anything considered a collectible, such as: Art, Rugs, Stamps or Collectible Coins, Metals or Gems, Antiques, Autos etc..
Yes, you can buy life insurance with a QRP. This can dramatically cut life insurance costs by allowing premiums to be paid with mostly tax deductible rather than after-tax dollars. The Tax Code also allows you to deduct the plan contributions that are used to pay for life insurance premiums. Life Insurance is not allowed in an IRA.
-Gold Bullion coins and bars must be .9999 fine
-Silver Bullion coins and bars must be .999 fine
-U.S. Treasury Gold and Silver Coins
-Small business start ups
-Tax Lien Certificates
-Single Family and Multi Unit Homes
-Improved or Unimproved Land
-Contracts of Sale
-Like and Unlike Exchanges
Yes, you can both be listed as Trustees of the plan. As long as you both perform services for the company, you can make elective deferral and profit sharing contributions. In 2016, you can contribute up to $53,000 each ($106,000 if married). If you are age 50 or older, you can contribute $59,000 each.
Yes, as long as you purchase the allowable bullion items you’re allowed to purchase any of these you’d like. In the case of precious metals, you (as Trustee) are able to hold them yourself. The IRS requires you to be a good fiduciary of the assets, meaning you must safeguard them and protect them so it would make sense to have a secure vault or safe (which could be at your home) or a safety deposit box used to store the metals.
You must also receive regular statements of value from the broker you purchase the items from. This establishes value for reporting form 5500, the annual reporting form required by the IRS.
That’s the cool thing, it’s automatically ALL deferred because it’s inside the plan. You never buy anything that you are getting a benefit from, that’s considered a disqualified investment.
You write yourself a check, and create a payment schedule to pay yourself back. You have 5 years to pay yourself. Similar to 401ks, you can lend yourself ½ of the value of the plan, up to $50,000.
If you make an investment and you lose it, it’s the same thing as if you lose it anywhere else – it’s a loss.
It happens and that’s it – you move on.
Let’s say you only have $1000 to contribute. That $1,000, you can find a way to do a deal, or you can find the deal and get somebody partner with you. And that $1,000 can turn into anything, but that’s not your contribution. The $1,000 is your contribution. Everything beyond that is your growth and if it’s ROTH everything is tax-free, all your withdrawals are tax-free – there’s no tax.
With the loan, you can borrow up to $50,000 or 50% of what you have in assets, whichever is lower. And you have to pay it back in within five years, unless it’s for the house you’re living in, in which case you can do a 30 year payback. You pay yourself back with a reasonable rate on interest, as defined by the IRS.
The eQRP is not an IRA. The ROTH piece just means you’ve already paid taxes on something and it’s deferred. Within this, you get both. You get the deferred piece and you get the ROTH piece. When you have your eQRP, if you chose, you can defer up to $53,000 a year. If you’re with a spouse, $106,000. In the end, with a ROTH IRA, you have the option of having $6,000 a year put into it. With a ROTH piece of this, which comes as part of it, it can be $24,000 a year.
To take out a loan from your Solo 401k you need to do 3 things.
1. Calculate the maximum eligible amount you can borrow.
2. Fill out a promissory note.
3. Write yourself a check.
1. The maximum you can borrow is the less of $50,000 or 50% of your account value minus the highest balance you've had out as a loan over the previous 12 months.
2. On the promissory note you must indicate your repayment schedule with a minimum frequency of every 3 months or more often. The loan can be for up to 5 years or (30 years if being used for your primary residence) and payments must be scheduled in equal amounts fully amortized. That means you can't pay interest only with a balloon payment. The interest rate your plan charges is up to you to decide and is commonly tied to prime. Be considerate of usury rules in your state. Some states have a maximum allowable interest rate that can be charged on consumer loans.
Yes. There are no taxes to pay or penalties if it is an in-kind rollover.
If you’re over 59.5, you might have flexibility, and have money that you’re taking out.
If you’re younger than that, you’re going to need some current revenue of some sort.
You’re going to have some money that’s making money outside of it, because you only borrow 50,000 and end up stuck.
One would need another source of income, outside of the eQRP.
It does control benefit and you cannot have credit benefit. If you wanted to do something that is for you, then we’d suggest to borrow money out of your plan to use it for that investment. Within the eQRP there has to be an investment. The IRS does not want you using your eQRP money for “yourself”.
Once you’re set up you’ll generally have little or no ongoing expenses.
You are required to file a form 5500 with the IRS if you plan has over $250,000 in assets. If you have less then $250,000 and less then 100 employees you’re exempt from filing this form. You can file the form yourself online or you can have an advisor file the form. We recommend having an advisor file the form which costs less then $1000 a year and puts the professional in between you and the IRS, generally a smart idea.
Any asset like real estate or precious metals requires a statement of value or appraisal at least once a year to be used for compliance with plan asset value reporting. Precious metals firms generally do not do this. Opul Metals provides its clients complimentary and offers this service to anyone holding precious metals for a minimal fee.
A plan must have at least one fiduciary (a person or entity) named in the written plan, or through a process described in the plan, as having control over the plan’s operation. The named fiduciary can be identified by office or by name. For some plans, it may be an administrative committee or a company’s board of directors.
The duty to act prudently is one of a fiduciary’s central responsibilities under ERISA. It requires expertise in a variety of areas, such as investments. Lacking that expertise, a fiduciary will want to hire someone with that professional knowledge to carry out the investment and other functions. Prudence focuses on the process for making fiduciary decisions. Therefore, it is wise to document decisions and the basis for those decisions. For instance, in hiring any plan service provider, a fiduciary may want to survey a number of potential providers, asking for the same information and providing the same requirements. By doing so, a fiduciary can document the process and make a meaningful comparison and selection.
You can contribute up to $17,000 per year to your 401(k) for 2012. The profit sharing plan will allow you to contribute a maximum of $50,000 per year for 2012 which includes the elective deferral amount ($17,000).
The profit sharing portion, which is another way of describing the employer contribution can be up to $33,000 in 2012. This amount is a maximum of 20% of the wages received by the employee if the business is a sole proprietorship, partnership or LLC.
If the business is a corporation the maximum employer contribution is 25% of the wages. So if an employee had $90,000 in wages and the company is an LLC he would be able to receive a maximum of $18,000 in profit sharing. If the company is a corporation, he would be able to receive up to $22,500 in profit sharing. This is in addition to the $17,000 maximum he can contribute from his wages.
See the Squirrel, Rabbit and Honey Badger chapters for additional examples and information.