Demise of the Checkbook IRA, QRP, Solo 401k?

Attention Self-Directed Investors!

Must Know Tax Court Ruling: SDIRA, QRP, Solo 401k, Checkbook IRA, IRA-LLC, IRA-Trust, HSA, & ESA

Tax Court Opinion: ANDREW MCNULTY AND DONNA MCNULTY, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent

TL;DR

  • Watch out for “promoters!”
  • Lots of Tax Turkey & Red Herring out there!
  • Neither the IRS, nor the Tax Court, appear to be attacking the Checkbook IRA structure.
  • The ruling – in its essence – has nothing to do with Checkbook IRAs, but:
    • Checkbook IRAs clearly provide greater opportunity for running afoul of the Tax Court rules
    • There is some concern that the Checkbook IRA structure can be deemed to inherently run afoul of the Tax Court ruling
  • Creates questions for all self-directed retirement accounts, including QRP, holding personal assets
  • Creates questions for all arrangements in which person touching assets “wears more than one hat.” This includes QRP & Solo 401k!
  • Implications for many SDIRA structures – that don’t involve an IRA-LLC or IRA-Trust – that flunk custody! (For example, certain crypto arrangements)
  • QRP (incl. Solo 401k) may have a leg-up on SDIRA (Very nuanced discussion)
  • Using a QRP-LLC may undermine whatever “leg-up” a QRP may have over an SDIRA!
  • Always create and maintain a clear trail of transactions!
  • At all times, the role in which you’re acting – you’re “capacity” – must be unequivocal & unambiguous.
  • Never, ever take physical possession!
  • Don’t ever touch cash!
  • Be extra cautious with fungible assets that have no clear evidence of “title” (e.g., gold, silver, bullion, precious metals)
  • Creates uncertainty for crypto assets, especially crypto assets moved to “cold storage.”
  • Created questions regarding all personal assets
  • The Tax Court left many of the IRS arguments unresolved, so steer clear of any of those!

Continue reading “Demise of the Checkbook IRA, QRP, Solo 401k?”

Solo 401K Roth Contribution Q&A

What is a Roth Solo 401k Plan? What is a Solo 401k Plan?

Understanding Roth Solo 401(k)s requires that we first understand the basics of traditional Solo 401k plans.

401K Plans, creatively named after Section 401(K) of the Tax Code, are Defined Contribution qualified retirement plans that allow employees to choose (“elective deferral”) to contribute all or part of their compensation to a tax-advantaged account and exclude the amounts contributed from current taxable income. The tax code calls this a “cash or deferred arrangement,” or CODA. A 401k Plan can be combined with other types of plans, such as Defined Benefit and Cash Balance Plans, to maximize tax deductions and allow for multiple forms of plan contributions. The typical 401(k) Plan provides for  employer profit sharing contributions, in addition to employee contributions. Self-Directed Solo 401(k) Plans are 401(k) plans for businesses that don’t have full-time employees other than business owners and their spouses, which can be designed to include very attractive features such as Roth 401k Contributions and After-Tax Employee Contributions.

What is a Roth Solo 401k Plan?

Continue reading “Solo 401K Roth Contribution Q&A”