The 401k versus IRA debate is almost always interesting. John Park separates fact from fiction in this video. Some pretty good info.
Transcript: Hi this is John Park with PGI Self-Directed, and contributor to BawldGuy Talking. Today’s post is, we’re going to talk about the differences in establishing a 401K versus an IRA, and in this case we’re talking about self-directed 401Ks. We establish both types of plans, but I have a definite bias towards the 401K. The reason being is that there’s so many negatives that can happen with your IRA, that to me it’s just not worth having if you can qualify for the 401K. But how would you like to have a plan where the tax code permits you in certain circumstances to receive a tax credit dollar for dollar off your tax returns for establishing your plan? How would you like to have a plan that doesn’t tax you on the gains within the plan? How about a plan where you’re able to take distributions, potentially with no taxes? How would you like to have a plan that is not subject to the claims of creditors, including the IRS, and including in bankruptcies. You can. At the end of the day, if you qualify for a 401K, I’m not so sure why you would ever want an IRA. There’s just too many pitfalls with the IRA. You might want to go back to some of our other previous videos on this, but the IRAs are just fraught with potential negatives that can result in full distribution of your plan. Guys, in IRS lingo, full distribution means full taxes, penalties. You don’t want that. If you qualify for the 401K, you can have all those things we just talked about within your 401K. Again, this is John Park, PGI Self-Directed, contributor to BawldGuy Talking. If you have any comments or questions, please feel free to leave them, and we’ll talk to you next time.
What the heck is ERISA? Why should we care? And does it apply to everyone?
Transcript: Hi this is John Park with PGI Self-Directed, and contributor to BawldGuy Talking. Today we’re going to be talking about a term you may have never heard of, ERISA. What is it? And why doesn’t it apply to an individual 401K plan? You see, oftentimes I get calls from even attorneys and CPAs, believing that their clients, if they’re establishing a 401K plan, has to have ERISA protection. However, ERISA is intended to protect retirement assets and to eliminate fiduciary misuse. In a nutshell, ERISA requires plans to provide information to participants; to set minimum standards for participation, vesting, etc.; requires accountability of fiduciaries, so they’re not misusing the funds of the plan. It gives the right to an employee to sue if they feel their ERISA rights have been violated, and it protects the plan from mismanagement of the fiduciaries. Now you may be saying, “That sounds great. Why wouldn’t I want that protection within my individual 401K plan?” Because it doesn’t apply to you. In order for it to apply to you, you have to have employees. Self-directed or not, it doesn’t matter. If you have an individual 401K plan, here’s how you want to think about it. You can’t discriminate against yourself, or commit fraud against yourself and your plan. It’s your plan. So typically, who does ERISA not apply to? If you are the 100% owner of a business with no common law employees, ERISA will not apply to you. Even if you and your spouse are 100% owners of a business, you and your spouse do not fall under ERISA. If you’re part of a partnership with partners and/or the spouses of partners, a 401K plan can be established without having to fall under ERISA. Folks, if you don’t have to follow under ERISA, you don’t want to. You’re still going to have strong asset protection of your 401K funds being within the plan. But ERISA, if you only remember one other thing that I talked about, it’s intended to protect participants. If you don’t have any participants other than yourself, and those other situations I mentioned, spouses, partners, etc., ERISA just doesn’t apply to you. So again this is John Park, PGI Self-Directed. I hope this information was useful for you. I think it’s a very important thing for people to understand how ERISA works and why it doesn’t apply to an individual plan, and hopefully it was of benefit to you. So, John Park, PGI Self-Directed, contributor to BawldGuy Talking. Have a great day.
Americans are, in ever increasing numbers, beginning to understand many of the expectations they’ve been led to believe about their employer retirement plan are nothin’ but 401k fantasies.
Transcript: Hi this is Jeff Brown the “BawldGuy”. Today we’re going to talk about your 401K at work, and what a fantasy it is. It’s not your retirement income. It’s designed to increase. You know whose it is. Look, here’s the evidence. There’s a corporation that’s called DALBAR. Every year, they do a 20-year review of the average yield gotten by tax payers with their employers 401K. You know what it was the last 20 years? Around 3.5% a year. Yeah, you’re going to brag about that, right? An EIUL, on the other hand, all that is is an insurance policy, it stands for equity index universal life. The income it produces in retirement is tax-free by definition. Your 401K income isn’t. An EIUL can be taken at any age. A 401K, you’ve got to wait until you’re 59-1/2. Now look, you can borrow from an EIUL. It has cash value after a certain number of years, like any policy. Borrow from it. Don’t borrow from it. When you borrow, pay it back, don’t pay it back. It’s up to you. Your 401K? You can only borrow 50% of the value, up to $50,000 no matter how much you have, and you’ve got to pay it back in five years with interest, or they’ll be knocking on your door. EIULs can be employed seamlessly and synergistically with your real estate investment plan when it comes to retirement income. You don’t have to do things the way everybody tells you to do. Take what you’re putting into your 401K. Redirect it to an EIUL. Tax-free always beats after-tax when you have to pay the tax yourself. Why don’t you reverse what the plan’s really about, and make the plan about your income, and make that income tax-free whenever it’s on your menu to do so. This is Jeff Brown, the BawldGuy. I’ll catch you next time.
Can a taxpayer have multiple 401k plans? You bet. But wait, there’s more.
Transcript: Hi, this is John Park with PGI Self-Directed, and contributor to BawldGuy Talking. Today we’re going to talk about a topic that maybe doesn’t affect very many of you, but it’s a fun one. And that is, can you take out multiple 401K plans from two different plans. So like I say, we’re going to have fun with this, and we’re going to use an example. Let’s say you are a W2 employee at a company, and you are participating in their 401K plan. But you also have a self-directed 401K plan for a side business that you have. You have money in both plans. You possibly want to take out a loan from each plan. Can you? The answer is, absolutely yes, provided two things. They are separate business entities, not related to each other, and the ownership of each business or plan is not attributed to the other. So in most cases, that’s not going to be a concern, and you’re going to be able to, if you want, exercise the loan as a participant from your W2 401K, and your self-directed 401K. This is great, folks. It doesn’t get any better than this. The IRA, you can’t even take out loans, let alone two loans from two different plans. So if this helps you, that’s awesome. If it doesn’t, it’s just great education and good information for you. So again, this is John Park with PGI Self-Directed, contributor to BawldGuy Talking, and I hope this information was of benefit to you.
Here’s an example of how multiple strategies for flippers can work to create an improved retirement.
Transcript: Hi this is Jeff Brown the “BawldGuy”. Today let’s talk about how flippers can employ multiple strategies synergistically to increase both the size of their ultimate retirement income and the speed at which they make it happen. I know that both of those factors are germane to everybody’s plan. Now let’s go back and review from the first video on this topic. Our flipper began to acquire long-term investment real estate. He bought several small income properties. We then assigned a comfortable portion of his after-tax profits to long-term debt reduction. He defined comfortable. I suggested discounted notes might be a solid addition to his plan. Now, he agreed. We looked at what if we begin directing the after-tax note payments to his debt elimination, along with his real estate cash flow and his flipper profits? Our flipper acquires properties till it makes sense to stop. Now, he assigns the largest comfortable portion possible of after-tax flipping profits to pay off these loans. He uses profits to acquire discounted notes. Now the after-tax note payments are then also used to pay down those loans ASAP. Because that’s the idea. Keep your eye on the ball. That’s the ball. Think about it. He now has flip profits, income property cash flow, and note income paying off all his long-term real estate debt. But wait. There’s more. We also had him set up his own solo 401K. Now both he and his wife can contribute after taxes $17,500 a year until their 50, $23,000 a year after 50. The plan, and I always say do it on the Roth side, we’ll then begin buying discounted notes in earnest. They’re going to be serious, note-buying campers. The payments accrue tax free. Ditto with the note profits. Remember it’s on the Roth side. He then can access these tax-free income from his specialized 401K at 59-1/2 if he chooses. He doesn’t have to. Now if he began at 50, that’s about 10 years of note investing. The contributions alone will kick butt. But let’s be specific. I don’t know what number kick butt represents. Okay? The minimum tax-free income generated by just their contributions, and I got out my 12C to figure this out, is going to be at least $6,000 a month. Add to that the random payoffs of the notes, resulting in more notes, generating higher payments. He keeps getting raises. So where are we? He arrives at retirement with real estate cash flow, and two sources of note income. He never would have had that. What’s even better is that the note income keeps growing every time one of his notes pays off. He gets random raises after he’s retired. Now how cool is that? If our flipper bought five small properties, generating $16,000 a year apiece, that’s $80,000 a year income, about half of which is going to be tax sheltered for how ever many years are left on the depreciation schedule. Now in his case, that’s probably about 17 years. His notes on the personal side will have grown organically during the same decade. Once his real estate is paid off, he now has those payments as more retirement income to use as he sees fit. He’s retired. The notes are paid off. Now those things are taxable, but income nevertheless. Furthermore, just as in his 401K, they randomly pay off. He’ll owe capital gains taxes lower than personal income taxes. He’ll then buy bigger notes with higher payments, and there we go with raises in retirement again. Here’s the take-away. He’ll have created a retirement income with three separate income streams. One is tax free by definition. One is significantly tax sheltered. And one is completely taxable, but wouldn’t have even existed but for his decision a decade earlier to buy the notes personally. Again, I got out my trusty 12C, and his income will easily be at least $200,000 a year in retirement, some tax free, some tax shelter. You can’t beat that. He wouldn’t have had anything close to that. He can retire with a smile on his face. This is Jeff Brown, the BawldGuy. I know this has helped some people. If you have any questions, just go to the comments section and fire away. See you next time.