Ever wondered if you might be able to benefit from a self administered 401k plan?
Transcript: Hi, I’m John Park, with PGI Self-Directed, and contributor to BawldGuy Talking. Today we’re going to do a short video post on self-administered 401(k) plans – what are they? You may have heard of them, you may not have heard of them, but all of you have heard of 401(k) plans. So similar to a 401(k) plan that you may have participated with an employer, where you’re actually taking money from your income, contributing it into your 401(k) plan for your retirement benefit, the self-administered 401(k) plan is specifically intended for an individual who is self-employed, or who has a side business, so they can have a 401(k) plan over and above what they may participate in at their W2 position. But right now, we’re just going to focus on that 401(k) plan that is for the self-employed person, and has no other employees other than potentially a spouse, because that’s very key to remember. So what does a self-administered 401(k) plan do for you? Let’s go back to what the IRS says you basically have to qualify for in order to be, in their minds, considered self-employed. One is you have to be either a sole proprietorship that conducts a trade or a business, a member of a partnership, an independent contractor, or otherwise in business for yourself. Those are pretty straightforward, very simple examples of what it’s like to be self-employed. But you at the end of the day, if you’re self-employed, you can set up a self-administered 401(k) plan where you are the trustee of that plan. Now, the power of that means is you’re used to plans before where your funds are tied up with some financial services company, and your investment options are limited to stocks, bonds, and mutual funds. With a self-administered 401(k), it’s like unlocking the door to the investment house. You can now invest in any asset class that’s permitted under IRS rules. Of course, there’s IRS rules that need to be followed with regard to your plan, but now you’re going to be able to invest in a plethora of assets, including things such as discounted notes. So bottom line is with the self-administered 401(k), you’re going to have the freedom and the flexibility to make contributions, to do rollovers into the plan, and otherwise to serve as that trustee and make what you feel are the best investment choices for the plan, as long as you’re following IRS rules. So again, this is John Park, PGI Self-Directed. Look forward to visiting with you on the next post.
And, what I am talking about is not having another Labatt’s brew. I recently read a post about many Canadian pension plans becoming more involved with investing with “non-traditional or alternative assets”….basically, any investment outside of stocks bonds and mutual funds. While I usually write my own posts, I am riding a bit of their wave as I have been waiting for more pension plans to actually acknowledge what they see as potential benefits associated with investing in such assets.
Why do these Canadian pension plans believe that investing in non-traditional assets is of value to them? For the same reasons that you do:
Their (and yours) inability to make any meaningful and needed returns based on the low international interest rates. Gosh, and you thought it was just you that couldn’t get any decent returns, right Continue reading
Well, I wasn’t going to write about this topic, but after two, almost exact, scenarios in the past week where someone called about termination fees….I just gotta.
When it comes to self-directed IRA and 401K plans, you typically have the option of paying custodian/administration fees on an annual basis, or a one-time fee (with possible annual fees) utilizing a facilitator model. The basic premise is that IF you select a custodian/administrator that charges annual fees, you will be paying fees to that custodian/administrator each and every year you have your plan. And, when you decide to close your account, you will be charged termination fees. Where, typically, with a self-directed IRA or 401K facilitator, you will pay a one-time fee, and have smaller, annual fees associated with your plan. In fact, some plans can be established with NO annual fees of any kind. Continue reading
As promised for this week’s post, we are going to review how to report a rollover of an IRA or other Qualified Plan into your self-directed 401K. While similar to the rollover with the IRA, it is a bit different.
REMEMBER, the most important aspect to remember with any self-directed 401K plan is that when the funds are rolled over into the account, the company which is hosting your master account is NOT your custodian or administrator. As a host account, the company (e.g., Schwab) is only allowing the account to be housed at the company; they do not serve and are not the custodian of your plan. Why? Because you are established as the Trustee of your new plan. As a result of your plan being self-directed, this company will not do any tax reporting to the IRS as they are not responsible for your plan. If you remember this very important aspect, you will be miles ahead in the reporting game. Continue reading
Self-directed or not, any Rollover of a Traditional IRA into another Traditional IRA must be reported to the IRS through your annual Form 1040 tax form.
BUT, for those of you who have read any of my past blogs or if your IRA IQ is up to par, the question you may have is “why wouldn’t someone just do a TRANSFER of a Traditional IRA into another Traditional IRA”….and, you would be correct. Logically speaking, unless one wants to or needs to, I am not sure why anyone would choose a Rollover over a Transfer. Remember, Transfers (e.g., “like to like”) can be done as often as one wishes, where a Rollover can only occur once 12 months. Further, since the Transfer is “like to like” between custodians, there is no reporting of the Transfer to the IRS by the IRA account holder. This is done by the custodians with a Form 1099 and Form 5498. It is simple.
BUT, in the case where someone does a Rollover from one Traditional IRA to another Traditional IRA, how is the Rollover reported to the IRS on Form 1040? Continue reading