Longboat Retirement Solutions LLC

Part Three: Self Directed Retirement Questions May 19, 2015

This is the third installment in the Self Directed Retirement Questions, Answered.

These are questions I’ve been asked, my answers to those questions, and some commentary.

Question:  What is the difference between a Self Directed IRA and a Solo 401k?

Answer:  A Self Directed IRA requires a Custodian.  Custodians are generally banks and investment houses.  These Custodians charge fees to baby sit your money and tell you where you can and cannot invest your savings.  An SDIRA is far better than a standard IRA, but it can still have high management fees, hoops to jump through, and limitations in what you can invest in.

A Solo 401k, which is designed for the self employed, enables you to invest in anything that the IRS allows.  You become the Custodian; therefore you don’t have any filters on your investments (within the framework of the IRS’s allowed investments).  You basically don’t have to ask permission to use your own savings as you see fit.  Since it is a 401k, you can also borrow up to 50% of the value, up to $50,000.  And again, you don’t have to ask permission or fill out piles of paperwork to take out a loan.  You draw up the terms, put the terms in your safe, write a check from your 401k to you, and then just make the monthly payments to your 401k.  Because you are making payments to your 401k, the interest is essentially free – you are paying yourself!  A Solo 401k also enables you to contribute as the employee and the employer; in other words you can contribute over $50,000 a year to your retirement account – or over $100,000 if your spouse is a partner in the business.  This is a BIG deal.

My thoughts on the two different approaches boils down to this:

If you can, go with the Solo 401k.

 

More Solo 401k Questions May 17, 2015

Part two of the series where I answer questions that people have asked me about Self Directed Retirement Accounts.

Question:  “Can I buy a vacation house in another country with my self directed IRA or Solo 401k?”

Answer:  “Yes, you can, but legally, you cannot use the house for your own benefit.  In other words, the whole point of investment inside of a retirement account is for the benefit of the retirement account….therefore, you could not take a vacation at this house.  Of course the point of your retirement account is for the benefit of you – when you retire.  So, until you retire, you cannot use the vacation house.  I don’t know how anyone would know that you used the house, but regardless, it would not be legal, as far as the IRS is concerned.  I suppose if you went through a nasty divorce and your spouse wanted to stick it to you, they could tell the IRS that you took vacations in the house, and the IRS could look into it.  Another thing to consider is that you cannot do any handyman work on a house that is owned by your retirement account; you need to farm that work out to a contractor.  Again, I don’t know how anyone would know that you fixed a leaking toilet, or patched the roof on your beach house in Nicaragua, but technically, it is not allowed.”

Remember that when I say illegal, it is not a jail time thing, but you could lose more than the value of your account; that’s nothing to sneeze at.

You could buy a condo in Mexico, and rent it through a rental program with a management company, and the money would go into your Solo 401k – tax free.  This money would grow, tax free until you start taking distributions, then the distributions would be taxed at whatever income tax rate you are in at the time.

Alternatively, you could set aside a portion of your account as a Roth, and use those funds to make payments on your condo.  When you retire, you take the condo as a distribution, and since you already paid taxes, you pay none.

I think making an investment in foreign real estate is a great choice for inside a self directed account, but you need to stay within the guidelines.  Investing in emerging markets is exciting, fun, and creates true diversification.  Hell, you might even make some money!

Little Red Viking copy

 

Questions about the Solo 401k May 16, 2015

This is the first in a series of posts, giving responses to questions that I have been asked….and a little commentary.

One of my favorites:

“Could I set up a Solo 401k with Longboat, transfer the money I have in my current IRA to the new Solo 401k, write a check for the full amount, cash it out and flee the country?”

My answer “I wouldn’t be able to stop you, nor would I or anyone else know that you cashed out.  It would be illegal.  The bank may fill out a suspicious transaction form when you cash a large check.  You would be taking a contribution, and it would be a taxable event.  I don’t recommend this.”

I’m sure people have done this and gotten away with it, but I don’t recommend it.  Any time you take money out of your traditional IRA or 401k it is a taxable event – the IRS wants their piece of the pie.

I am not sure what this guy wanted to do with the cash, but if he was thinking of investing it in another country, he could do that legally with a Solo 401k.  It would be harder, but possible with a Self Directed IRA (you would have to ok it with your custodian).

I am not in the business of giving tax or investment advise.  There is no shortage of “gurus” out there who will sell you snake oil and “fail safe” investments.  caveat emptor

 

Sitting on The Fence May 9, 2015

Do you consider yourself a market timer?

Are you a market maker?

Do you know when the next market crash will happen?

Can you call the peak?

Do you have insider information regarding when Goldman Sachs will pull the carpet from under the U.S. stock market?

Is Janet Yellen your cousin?  Does she give you tips?

If your answer is no to all of these questions, then why aren’t you taking this opportunity to divorce yourself from this bubble while it’s still inflated?

It is amazing to me that more people are not taking this amazing opportunity to take profits, and instead are electing to roll the dice on market timing or give the keys to their future to some guy who has no stake in their success.

I know that I should not be surprised, as history seems to repeat itself every 7 to 10 years these days.  People have exceedingly short memories and attention spans that can only be measured in milliseconds.

I really don’t want to be that guy who said “I told you so”…or “I tried to tell you”.  I get no joy in hearing sob stories about how people waited too long and got wiped out by the debt tsunami.

The current market value has no basis in reality.  When it goes pop, it is going to destroy the retirement of millions of Americans who blindly followed the pundits on CNBC.

Please, Americans, spend more time thinking about your future and less time getting re-educated by mass media.

Lars Forsberg
Longboat Retirement Solutions LLC
406-551-4775
www.myselfdirectedretirement.com

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