Investing Through Your Solo 401 K

(The number one reason people are purchasing real estate these days is for investment purposes in one way or another.)

While most of these purchases are also for the primary family and become their home, just about every time someone purchases a house, its resale value is brought into consideration.

But after a household purchases one property, the mortgage is often too high to borrow more money towards additional, investment properties. The article, “The Solo 401(k) Can be Your Best Method for Real Estate Investing,” written by Phoebe Chongchua and published November 20, 2006 in Realty Times, provides a viable way to invest in real estate that many people have neglected to think about.

The Solo 401(k) is receiving credit as being the best kept secret in the industry of real estate investing.

“‘It is a powerful tool that most people don't know about but should. There are at least four distinct advantages over an IRA (Individual Retirement Account),’ says Jeff Moormeier co-founder of IRA Association of America, an alternative investment educational institution.”

Moormeier teaches a class to real estate agents, CPAs and amateur or professional investors of how investing through a Solo 401(k) is superior than using an IRA.

He lists a few key elements that are highlighted in his teachings:

“You can get money into a Solo 401(k) plan faster than IRA or SEP/IRA.”

“You can use mortgage financing as leverage without triggering Unrelated Business Taxable Income.”

“You can defer income into a Tax Free Roth account, inside the Solo 401(k).”

Getting money into the Solo 401 (k) faster is probably the most significant benefit. Moormeier illustrates this in his example if you had $100,000 of earned income and your business is operated as a corporation with zero employees.

“‘The maximum profit-sharing plan is 25% of earned income, which amounts to $25,000. Plus the maximum salary deferral is $15,000 and if you are over the age of 50 you may defer an extra $5,000. This is called a catch-up provision. In this example the total new money deposited into the Solo 401(k) is $45,000,’ explains Moormeier.”

However, this similar situation compared with the more popular and common SEP account allows for the same maximum contribution of $25,000, except there is no employee deferral program with the SEP, which means that the Solo 401 (k) allows for an additional contribution of $20,000 per year.

People all over the country contribute to an IRA or 401 (k) regularly. It has been sort of a regulatory process. Not having one of these accounts has come to represent that you are not planning for the future and building wealth. But what almost all of these IRA and 401 (k) holders fail to realize is that they can use their retirement planning for current investments which will lead to more future wealth.

“‘Now, what I am about to tell you, in my opinion, is far and away the greatest tax benefit the government has ever given us -- as of January or February of this year the $15,000 salary deferral and the $5,000 catch-up provision can now go into a Roth account inside of this 401(k) plan and grow tax free. Tax free verses tax deferred growth is a monumental benefit to the Solo 401(k)’ explains Moormeier. ‘In other words if you make too much money you are unable to contribute to a Roth IRA. As of now regardless of your income, you are able to contribute to a Roth inside a Solo 401(k),’ says Moormeier.”

Use your financial plan for the future, today by investing in real estate; the one sure investment that always increases in value over time.

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