INVESTMENT FLEXIBILITY

 

A unique feature of the The Solo-k Retirement Group's Solo 401k Plan is the flexibility of  investment options.

 

You can choose almost any type of investment. With this unique plan you can choose either self-directed or professional management by the financial institution of your choice or any combination of both investment styles.

 

Investment  Opportunities

 

Stocks, bonds, mutual funds, 

Limited Liability Companies

Limited Partnerships

Currencies

Hedge Funds

Precious Metals

Life Settlements

Promissory Notes

Mortgages

Trust Deeds

Offshore Investments

Annuities

Foreign CDs

Brokerage Accounts

Real Estate

 

In considering your investment options, there are two guiding principles that you should consider in making any investment decision.

 

A successful investor, Warren Buffet, put it directly.

 

Rule#1 "Don't lose money.

Rule#2 "Don't forget rule # 1

 

             Compound Interest

This section involves a little math but don't let that scare you. Take it slow. Understanding this concept may help you retire with $1,380,726.54 one day.

 

Say you invest a certain amount of money. At the end of each year you not only reinvest the original sum but the interest it earns as well so that the interest (as well as your initial investment) continues to earn additional interest. And you do this every year after year one.

 

Here's an example

 

If Bill, an 18-year-old saves $100 per month with a 6% growth rate until the age of 65, Bill has $313,187, even though he only invested $56,400.

However, if Bill delays the decision until age twenty-five, he will have only $199,149, while investing $48,000. 

The seven years wait cost the Bill $114,038, which is a large sum of money.

 

Now lets say Bill happens to earn the higher return of 9%, which is possible but requires more risk. Starting at 18 Bill would accumulate $888,549, while waiting until 25 would earn Bill $468,132.

 

The actual dollar difference in what Bill would earn at the two ages would be $8,400. Whether they earned 6% or 9%,  Bill earned an additional $114,038 or $420,417 by saving early. By saving now rather than later, like Bill, youll give your money more time to grow.

 

Compounding allows your investment to gather interest. As this interest is added to your initial investment, you can earn interest on that amount, instead of just the principle investment.

 

The most important factor that affects compounding is time. The longer your money is allowed to grow, the more money youll make. The sooner you start, the less youll actually have to save to reach your financial goals.

 

 

                Asset Allocation

 

Asset Allocation is a tool to manage investment risk.

 

Advisors of asset allocation believe that proper asset allocation is more important to long-term returns than specific investment choices. That understanding asset allocation can be one of the keys to investment success.

Asset allocation means dedicating certain percentages of your holdings to broad asset categories like stocks, bonds, real estate and cash as a way to achieve your financial goals while managing risk. In other words, if you have two dollars, put them in different pockets.

 

The basis for this strategy is that different investment categories function differently. Stocks, for instance, offer both growth and income, while bonds offer stability and income.

 

The benefits of different categories can be combined into a portfolio with the level of risk you find acceptable. One study has found that your decision as to how you divide up your portfolio into several classes is more important than the process of choosing the actual stocks, bonds, and funds that you own.

 

 

One rule of thumb that many experts use is to subtract your age from 100 to determine the percentage of investments to invest in stocks. If you're 45, then you might put together a portfolio that's 55 percent stocks and 45 percent bonds and cash.

 

As you plan for your retirement, you generally have two important things in mind: a picture of the lifestyle you would like to enjoy in retirement and your current assets.

Working backward, the desired lifestyle determines the contributions required for your retirement. Depending on the expected returns of each of the investment options, one can figure out the target wealth you need to reach in your retirement.

 

In turn, your current assets and your expected rate of return will determine how much you must contribute each year so you can meet your retirement objectives.

Building a successful portfolio is dependent on a number of factors. For that reason, your portfolio may not be the same as another investors.

One of the most important steps to building a successful portfolio is properly dividing assets among different types of investments.

 

Because investments perform differently depending on economic conditions, a good balance can keep a portfolio strong in a wide range of economic situations. In this sense, asset allocation may be the most important form of diversification. Also, asset classes carry varying amounts of risk, meaning that the best allocation will depend on a range of factors related to an individual's investing profile.

 

You already have an idea for your investments, give it a try and see what you can do..

 

or you may decide to use...

Real Estate as an Investment in Your Self-Directed Solo 401k Plan

Many investors are not aware that real estate can be purchased within a self-directed Solo 401k. However, your small business Solo 401k self-directed plan gives you the flexibility to invest in real estate whether you are interested in buying raw land, commercial buildings, condos, residential property, rental property, or vacant lots.

In considering whether to invest in real estate, the following questions and answers will help you understand the specifics

How does my Solo 401k plan acquire real estate?

Real estate can be purchased directly by your account, transferred from an existing IRA or rolled over from a qualified plan,

Can my Solo 401k retirement plan use a Limited Partnership or Limited Liability Company to invest in real estate?

Yes. If real estate is being acquired through a corporate entity such as an LP or LLC

Does my Solo 401k plan hold Title to the Real Estate?

Since your  Solo 401 k Plan is buying the property rather than you as an individual, the title must be held in the name of a Trust for the benefit of the plan. Therefore, the contract/purchase agreement, title commitment/insurance, deed, liability insurance, and any other document must be titled in the name of the trust.

Can my Solo 401k  buy property I already own?

No and Yes. Property that you or a party-in-interest person has ever owned is not eligible to be purchased by your plan since this would be a prohibited transaction. In essence, the prohibited transaction rules prohibit a Qualified Plan from acquiring a piece of property which will be purchased from or used personally by the accountholder or other disqualified persons. However, the IRS and Dept of Labor frequently allow exemptions to the prohibited transaction rules. With application, you can purchase your own business, or other property from yourself under certain arrangements .

How do I take possession of the property in a distributon?

You may withdraw the property from your account as an in-kind distribution (at the current market value) and pay any taxes and/or possible penalties if you are under age 59 . You will need to provide the Solo 401k Plan with a completed and signed Distribution Form and a deed prepared for Solo 401k Plan's signature that conveys the title of the property from your account to you individually. An updated appraisal or broker's price opinion must also be provided if the current appraisal is more than three years old or if improvements have been made to the property.

How is earnest money handled?

The earnest money deposit must be funded by your Solo 401k account. You cannot use personal money for the deposit and then be reimbursed later. You will need to send a copy of the contract or purchase agreement to Solo 401k along with written authorization for Solo 401k to send the specified amount of earnest money from your account to the title company or closing attorney. The contract or purchase agreement must list the Trust Company as Custodian for the Solo 401k. 

Can my Solo 401k account borrow funds to finance a real estate purchase?

Yes  Solo 401k can hold debt financed  property in an trust  but only with the use of a non-recourse promissory note issued by a lending institution or by the seller of the property. The non-recourse promissory note cannot be personally guaranteed, and the lending institution can only look to the property securing the note as collateral.

Can my Solo 401k account purchase a portion of a property along with other investors?

Yes, as long as the other owners are not disqualified persons. The deed must be registered to  XYZ Trust Company, as Custodian,  as to an undivided __% interest.

What types of property can I purchase with my Solo 401k account?

Vacant lots, raw land, and income producing property such as rental houses, condominiums, commercial real estate or even mortgages.

Are there any types of property that Solo 401k will not hold?

Solo 401k will not directly invest in mobile homes, time shares, or property purchased through an auction or tax sale. Permanently attached manufactured homes may be purchased. 

How are expenses and/or improvements handled in my Solo 401k account?

All earnest money deposits, insurance premiums, taxes, debt payments, or other expenses of the property must be paid by the Solo 401k to an unrelated third party . Since the Solo 401k Plan requires your written authorization to pay invoices,  A copy of the invoice or tax notice must then be faxed to Solo 401k Plan along with your written authorization to pay the expense from the solo 401k account.

Is rental income deposited in my Solo 401k account?

Yes. All rental income must be deposited into your Solo 401k. The Solo 401k requires you to appoint a property manager for income producing property. The property management agreement will be provided by the property manager and will be signed by you and the property manager. Your third-party property manager may also pay expenses from rents received as long as the Solo 401k is provided with a  report of income received and expenses paid.

How does my Solo 401k get property management services?

You must appoint a Property Management Agent to handle all property servicing functions including the property manager. A servicing agent is required for all types of property.

Do I need a property appraisal with a Solo 401k? 

Yes. The Solo 401k requires you to provide a property appraisal prior to a Solo 401k  a real estate purchase.

In addition, an updated appraisal must be provided to Solo 401k every 3 years in order to update the value of the account.

Do I need to carry liability insurance on property held in the Solo 401k account?

Liability insurance is required on property with improvements and is optional for vacant land. The insured on the policy must be the Trust as Custodian, You can not add the property to a policy held in your name.

What should I know about selling property within my Solo 401k account?

Once you have the property under contract and are ready to close, you will sign the closing documents as "Read and Approved" and forward them to Solo 401k Custodial Trust for signature. Solo 401k Custodial Trust will then execute the closing documents and return them to the title company to complete the transaction. The title company will then remit the proceeds of the sale directly to your Solo 401k account.

Can the Solo 401k account finance the transaction when the property is sold?

Yes. Once the property is sold, the Solo 401k may carry the note and mortgage within your account. The principal and interest payments will be deposited into your Solo 401k account, and you can reinvest the cash anyway you choose.

Mutual Fund + Real Estate = high return - low risk advantage

If you had owned a classic "stock and bond" mutual fund, your average returns over the past five years would have been 4.5% with a risk level of 7.82 (Standard Deviation)

Instead, if you had invested 10% of the mutual fund assets into a REIT index fund, your total overall return would have increased to 5.9% and your risk level would have stayed the same at 7.82.

Calculating what you should pay for REITs.

The way to determine the price to pay for a REIT is to calculate the net asset values by dividing the net operating income generated by a REIT's properties by the value of its income stream -- derived from recent sales of similar properties.

More and more people are starting to discover the risk-return advantages of real estate investments in small business Solo 401k plans.

A small busines Solo 401k opens more options for investing your retirement dollars with a self directed account. The best investment may be the investment you make in yourself.

Investing in Your Own Business with Your 401k Assets

Under certain circumstances the IRS will auhorize an exception to the rules prohibiting self dealing in the plan's investment assets and allow you to purchase your own company stock or property.

In general, ERISA Section 407(a)(2) provides that no employee benefit plan may invest more than 10% of its assets, valued at market at the time of the transaction, in employer securities and real property. In determining the 10% maximum, both employer securities and employer real property are added together. Since certain types of employee benefit plans are designed to invest exclusively in employer securities (ESOPs, etc.), certain exceptions to the general limitations were included in the law.

 

Individual Account Plans
The statutory limit of 10 percent does not apply to "eligible Individual account plans." Eligible Individual account plans are profit-sharing, 401k and employee stock ownership plans (ESOPs), as well as stock bonus, thrift and savings plans, that explicitly provide for the acquisition and holding of qualifying employer stock or qualifying employer real property. [See ERISA Section 407(d)(3)(A)] Generally, these plans are intended to invest wholly or largely in employer securities. Section 407(d)(3)(B) requires that such plans must explicitly authorize the holding of employer securities and/or real property in excess of the Section 407(d)(3)(A) 10% general limitation.

Realize that the stock or real property must first be valued by an independent appraiser and if the property or stock has little value, the best interest of the plan would be not to buy the company property or company stock.

Investing in your business with your Solo 401k assets requires a special plan document along with applications to the IRS for a Letter of Determination and an Exemption from the Prohibited Transaction regulations. Simple? No. Cheap? No. But done by small businesses looking for financing without the need of a credit score.

               GET STARTED Today

  Call Toll Free       1-866-915-4015

Home    Solo-401k    What You Get  Contact Us 

                    How It All Works