Solo 401k vs. IRA: Avoid HUGE Taxes & Maximize Retirement Wealth!

[00:00:00] The information contained herein is intended to help the viewer successfully navigate common IRS and Department of Labor requirements to help achieve successful results from their IRA. The information is not intended to replace information from your legal counsel or income tax professional. IRA Club does not offer or sell any investment. All investments have risk.

[00:00:17] This is the Investor's Row Podcast powered by the IRA Club. Alternative investing reimagined. Whether you're a seasoned investor or just getting started, we're here to empower you to take control of your financial future and unlock the power of your self-directed retirement accounts. Let's get started. Welcome back to another Investors Row Podcast with your host, Kasia Baldus. Very much excited to have you. If there's anywhere in the world we'd want you to be, it's here with us to teach you how to invest in your financial future.

[00:00:45] We'll be able to help you and educate you on all things related towards retirement accounts. And the goal usually when we're doing these podcasts is sometimes we talk a little bit about what's relevant, what's new, how it could affect what's going on currently economically, your retirement account. Not to mention we talk a lot about alternative assets.

[00:01:03] But sometimes we talk a lot about alternative assets. But sometimes we don't dive deep into taxes and why utilizing a retirement account is so beneficial towards, as I like to call the icing on the cake to your ROI or the potential growth that it could bring.

[00:01:21] Obviously, obviously, that depends on the amount you're investing, longevity of the investment and so forth, how you're utilizing the dividend rental income and how we get it to compound to maximize that retirement account. So when it comes to tax requirements, and especially within retirement accounts, there are certain rules and regulations that we do have to follow that are different than the standard. You know, when you invest your personal money, let's say, into a real estate deal.

[00:01:52] Our last podcast, and I do want to welcome back this amazing, amazing CPA, Adam Barr, who is a partner with Miller Grosspart Advisors. And if I said that wrong, Adam, you could shoot me later. You got it right. And I'm not going to steal. I always say this on my podcast. I'm not going to steal any of your thunder because, you know, my podcast producer, Matt, who's probably listening in right now, he's always telling me, he gives me this great bio.

[00:02:18] And I hate giving these bios out, by the way, and reading them out loud. It just sounds like a robot's giving it. I would rather you tell us a little bit about you, yourself, your company, what you do, and I'll jump into what we're going to actually learn today. Awesome. Yeah, great. So as you said, Adam Barr, I'm a partner at Miller Grosspart Advisors here in Houston, Texas. We're a local Houston area accounting firm, been around for 35 years.

[00:02:45] I've been with the firm for my whole career, which has been 13 years. So we really focus on working with businesses and business owners. We call it small to medium-sized business, generally revenue 5 million to 100 million and up. We do a lot of tax planning and sort of like forward thinking business consulting.

[00:03:07] And as sort of over the years, just kind of also accidentally became an expert in all things related to retirement plans and UBTI and all that sort of stuff. Accidentally, that was great. Accidentally. So, you know, it's one of those areas where there's not a lot of folks that are highly knowledgeable about the subject matter. So we like to be part of the community and participate and help out people where we can.

[00:03:32] Well, speaking of which, and you're 100% right, you have no idea how many CPAs, lawyers, financial advisors, RIAs that call us up and like, Hey, can you, what the, excuse, what the hell is this UBIT or UDFI tax? Yeah. And we hear it, right, Adam, more often than not. All the time. All the time. I would say like 90, would you say to say like 98, 99% of them really don't understand it or have never even heard of it? I'll be a little more generous, but it's definitely more than 90%. Yeah. Okay.

[00:04:02] So you're being a little bit more generous. I kind of seem to deem the other way, but that's okay. But during our last podcast, because I'm going to treat this as like podcast version 2.0, right? We talked a lot about what we just said, UBIT and UDFI. If you want to learn more about that, it'll be a good segue for you to like listen to that one first, which is I think episode 17.

[00:04:27] So if you go to iraclub.com, go to our resource center, go to our podcast and go to episode 17, Adam does a great job explaining the differences and we can elaborate with case studies and why you want to be careful of it. But just Adam, real high level, can you just explain UBIT and UDFI, which, and we're going to lean into, I promise you it's relevant, but we're going to lean into the reasons why. Yeah.

[00:04:52] Yeah. Well, it's going to be a little bit of a spoiler here, but I'll just kind of go ahead and do it at a high level. So basically, the UBIT, unrelated business income tax, is a tax regime on tax-exempt entities, including retirement accounts. And the purpose is to sort of level the playing field between for-profit businesses and tax-exempt investors. So it's basically a tax on the activity of maybe in this example, an IRA or a 401k that is conducting a business activity.

[00:05:22] So for an IRA, that would come from one of two places. Either the IRA owns an operating business or the IRA owns a debt-leveraged asset. Income from an operating business or a debt-leveraged asset in an IRA is taxable under these UBTI rules. Unrelated business taxable income is UBTI versus UBIT, which is the tax. So got both terms. But sort of the difference we're going to get to in a minute is that only one of those categories applies to a solo 401k or any kind of 401k. All right.

[00:05:52] So if you don't mind me asking, what can those – because I do get a lot of IRA Club clients that freak out. They're like, oh, my God, I just totaled this 37% and I think I've never seen it hit 37%. But if you don't mind me asking, let's elaborate on that a little bit. Do you ever see anybody hit 37% on a UBIT or UDFI? Well, it's pretty rare, but it does happen.

[00:06:13] And in that case, we actually do recommend an alternative structure where we insert a blocker corporation into the structure to reduce the effective tax rate to 21%. But in the general case, most of the time, the tax rate, the actual effective tax rate is significantly lower because it's on a debt leveraged asset, which is our most common example, probably for you guys too, which is a rental property that has debt leverage.

[00:06:38] You're only paying tax on the income to the extent that the property is debt leveraged. So if you have a 60% debt to equity or debt to asset ratio, then you're only going to pay tax on 60% of that. A lot of times we have deductions during the life of the ownership of the property that limit the income. And really, we only have income when we sell it, which would be a capital gain, which is taxed at a lower rate.

[00:07:02] So, I mean, in reality, most of the time that effective rate is probably in the teens or low 20s, not at 37%. And if it is at 37%, then we have an alternative structure to mitigate that as well. And that's why we like you, Adam, because you've got a solution upon another solution to avoid this UBIT tax. And during our last conversation, we try to educate people on ways to avoid it.

[00:07:27] We're always trying to tell Uncle Sam to go kick rocks right at the end of the day because we all know that he comprises about 35% to 40% of what somebody makes. Now, your job is to litigate that and drop that down lower. That also includes this UBIT or UDFI tax. So, I do want to talk a little bit about another avenue you just talked about, which we didn't have enough time to during our first podcast, which is the solo 401k. So, just very high level.

[00:07:54] What is the difference between an IRA and a solo 401k, Adam? Yeah, awesome. So, conceptually, an IRA is just a retirement account that an individual can set up and they can contribute to it based on certain limits that are relatively low. So, you could maybe put in $7,500 a year. You can roll funds out of a previous employer's 401k into an IRA as well. A 401k is an employer retirement plan, meaning that a business sets it up for its employees.

[00:08:22] Now, we'll primarily, I think, be talking about a solo 401k, which is where really you have a business owner and they're the only employee. Or maybe they're self-employed. They're not technically an employee, but it's their business. And so, it's a 401k, but scaled down to a single person. But there are some important differences. The contribution limits on a 401k are much higher than an IRA. So, the amount that you can put in every year is more tens of thousands and not $7,500.

[00:08:52] The other important distinction that doesn't get talked about a lot is, and I'm not an expert on this, but it's that 401ks have better bankruptcy protection provisions built into them. So, a lot of times, if you have a substantial balance, you might want to have it inside a 401k instead of an IRA because there's better bankruptcy and creditor protection in some situations. But those are the primary differences.

[00:09:15] And then, obviously, the elephant in the room that we're going to talk about is the difference on UBTI where if it's income from a debt-leveraged asset, that's taxable within an IRA but not taxable within a 401k. All right. So, let's elaborate on that. So, that was the perfect segue. So, let's do it. Yeah.

[00:09:34] So, a lot of times when I'm talking with folks about setting up how they want to do alternative investments, they ask me, hey, I'm going to buy this rental property or I'm going to invest in this apartment complex or something like that. And what they're really buying is not an operating business. It's not like a restaurant. It's not like a hotel, right? It's really a rental property. And they say, how can I do this in a tax-advantaged way in a retirement account?

[00:10:01] And I say, well, if you have access to one, a solo 401k is the best way to do it. Because, basically, as we talked about a few minutes ago, if you have a debt-leveraged asset in an IRA and it has income during the time you own it or if you have a gain when you sell it, you're paying tax on that in the IRA. So, the IRA actually pays the tax rate. But if you do that same investment in a 401k, there is no tax to pay and there's no tax return to file.

[00:10:30] So, Form 990-T is the tax return that applies to unrelated business income tax. So, if they have a solo 401k or they can have one, that's generally preferred for that type of investment. Which is another reason why the 401k is more powerful than the IRA. But to Adam's point, you've got to understand, Adam, I get people that call me up all the time that may have listened to this podcast right now or at an event. And they're like, I don't want an IRA.

[00:10:59] I want a solo 401k. Well, I'm like, hey, slow down. I said, slow down. Let's slow down. Well, are you the sole proprietor of your own company, right? Like an LLC, C Corp or S Corp? And he'll be like, well, I don't have any of that. So, you cannot open up a solo 401k first. And if you have employees, it would be a different type of structure. And we can get into that in a split second. Yeah, great. Great point. Yeah, so let's be clear about that.

[00:11:28] So, you have to be the sole proprietor of your own company. Can anybody else join that solo 401k out of curiosity, Adam? The only other eligible person for a solo 401k would be the business owner's spouse. Spouse. So, solo 401k is either only the business owner or business owner and spouse. Which can be a very, very powerful tool, right? Because if you are making significant money, maybe you could elaborate a little bit on that also. Yeah, sure could. The spouse does have to be compensated from the business in order for that to work.

[00:11:58] So, you would need to pay your spouse a salary. Which obviously, from a tax perspective, doesn't accomplish anything, you know, because you're presumably filing a joint tax return. But then that entitles them to make contributions to the 401k. And the company can contribute to the 401k on behalf of the spouse. So, it's kind of like doubling the room that you have to put money away into the 401k every year. Which is great both because if you do that on a traditional basis, you're reducing your tax bill today.

[00:12:28] And, you know, if you're then investing those funds in a tax-deferred manner, then you're doubling the amount you have available to invest in a tax-deferred manner. Drastically. Yeah. And most people don't realize that at the end of the day. But there's also other components and layers that you could also add. So, if you have the ability, like you said, and what's the max to contribute both, you know, husband and wife or spouse? So, it depends on their ages.

[00:12:58] So, if we assume that everybody's under age 50, then the maximum contribution is $72,000, I believe is the number for this year. Now, that's not you as the employee putting in $72,000. That's you as the employee defer from your salary just like you would in any other company that you work for, which you can do up to $24,500.

[00:13:22] And then the employer can make the remaining contributions, and those are structured either as, you know, profit sharing or safe harbor or something like that. So, you know, talk to your plan administrator, but you can get up to $72,000. And then if you're over age 50, there's a couple of different windows of different catch-up contributions that you can basically get more money in there. I think if you're over 50, generally, you can get up to $80,000 in there. $80,500, yeah.

[00:13:48] Remember, husband and wife or spouse are getting another each. So, that's each. Now, you have to have enough profitability in the business to support that, right? Because you would have to be able to pay the payroll and all that as well. But, yeah. And if you do have the flexibility and you are typically making more, and I think that magical number, I believe, and I could be mistaken, Adam, is a little over $500,000.

[00:14:13] Or it could be a little bit – actually, it's a little over – I forgot the actual number, but I think it's a little over $500,000. But here's the point is if you have the flexibility to do that, that is a powerful, powerful tool versus what the IRA can offer you because you're deferring those taxes to Adam's point. You're reducing that tax liability drastically. And then there was other components and layers that could be added to the solo 401k. Not to get into that because it's a whole other podcast or show.

[00:14:41] You could add something like a cash balance plan on top of all that. And that's a whole other topic of discussion again. Now, if you do have W2 employees, IRA Club as the plan administrator, TPA, we do offer true self-directed, right, plan-sponsored 401k plans.

[00:15:04] So that means you as the business owner and all of the participants, which are your employees, can have a self-directed where the money has to be obviously invested directly to the market, right? And that's part of the 40-act funds. We also have these AI smart folios. Again, we're not going to choose your risk tolerance, but you would sit down and talk to one of our RIAs, financial advisors, to set up these accounts the right way.

[00:15:33] Because obviously we need to, as we like to call them, a census report, break all that down, see how many employees you have, especially if it's a current 401k plan. Okay? We have to figure out and audit that 401k plan before we decide to move it over and come up with a strategy and structure that is set up where you can, again, offer this for you and your employees. Another topic of discussion is going to be there are a lot of new provisions, Adam, wouldn't you say,

[00:16:00] within the Secured Act 2.0 that is around the 401k plans? What are some of those, just out of curiosity? Yeah, definitely. So a lot of these apply to traditional employers that have multiple employees. I'll just kind of briefly skim it. Well, maybe you can tell me which ones you want to focus on a little more. But basically the idea of Secure 2.0 is to expand access to retirement plans, give people more options with respect to their retirement plans,

[00:16:24] encourage people to save more, stuff like that, included stuff that's really applicable to employers, which is like you have to automatically enroll employees in the 401k. Yep. You know, they basically give different emergency access to the fund levers that we didn't have before. A thousand, yeah. There's tax credits for small employers who are opening plans, stuff like that. And then you probably have the stuff that's a little more meaty in terms of what we're actually talking about today,

[00:16:52] which is things that are strictly taxpayer beneficial, like later required minimum distribution age that got pushed to 75. Employers can match. Oh, was it 75 is that number? I thought it was 74, so it got pushed out to 75. It depends on what year you're born. Got it. For most people today who are, let's say, under 60, the age is 75. I don't remember the exact line on that, but we can find that and maybe put it in the show notes or something.

[00:17:22] But yeah, so there's that. There's higher catch-up contributions for folks who are between ages 60 and 63. What's that number? That's a good question. I think that instead of getting an extra 8,000, they get an extra 11,250. So it's like an extra 3,000. And one of the really big ones that I'm really excited about is the opportunity to have the employer do the matching and the employer-side contributions on a Roth basis,

[00:17:52] which is a little complicated. But basically, you can get some pretty significant Roth dollars into a plan under that sort of structure. Now, you do have to pick up the taxable income in the year, just like any other Roth contribution, right? So you're going to pay tax today, but then you can have potentially a really big bucket of tax-free dollars growing. Stuff like that.

[00:18:14] And there's also – it's sort of not really related to 401ks, but they allowed excess 529 plan, like educational expense plans. If you have excess dollars in there, that can potentially be rolled over into a Roth IRA subject to a number of different restrictions. But that's there as a potential pathway. So just a lot of really cool taxpayer-favorable, retirement plan-favorable adjustments to the law. Adam, I'm actually happy that you brought that up.

[00:18:43] There are – I don't know if anybody had the opportunity. I'm sure you did because that's probably in your wheelhouse. Read the Secure Deck 2.0. It was atrocious for my compliance team. They thought it was like an eighth grader put it together. But there are about 400 pages strictly geared towards retirement accounts. And I think from my understanding, it's about 90-plus new provisions within IRAs and 401ks.

[00:19:09] And some of it, what you talked about, Adam, is it heavily favors the Roth, right? Roth contributions. And I personally – and Dennis, our president and founder, wrote an article about this, right, or a blog about this, saying it's because we are in DEFCON 5 crisis mode for retirement accounts, right? We know that pensions are no longer being offered. We know that every single government program is in complete and utter shambles. It's like broken in every which way possible.

[00:19:39] We know that Social Security – there's a real problem with Social Security. And, Adam, I'm pretty sure you might have heard this too – by 2030, they're saying that you're not going to even get the full 100% of what you're supposed to be getting. There's enough dollars in the trust fund to get us to 2034. And beyond that, either payroll taxes will have to increase or benefits will have to decrease. Decrease. Or they were talking about changing the age, the age limit. Yeah, that's another lever that could potentially be pulled.

[00:20:09] And this is not going to happen, ladies and gentlemen. They're not getting rid of Social Security. That's not going to happen. No, there's too many Social Security age voters for that. So I'm not going to place any bets on what's going to happen. But some policy will have to change in the next eight years. There would be a significant uproar, a revolution if that happened.

[00:20:27] So the point that I was trying to make and me and Adam were trying to make is if all these government programs are basically in shambles – and I think from my understanding, I think we dished out in the last two years $2.1 trillion. These numbers are not sustainable.

[00:20:45] So with all that being said, these are the reasons why the Secure Deck 2.0 and these new provisions, right, and the increased amounts of, I think, three years consecutive, Adam, I could be mistaken, where there has been an increase within IRAs and 401ks. Is they're really trying to get people to contribute to these types of retirement accounts, especially within the 401k plans, solo and plan-sponsored 401k plans. Is you're automatically enrolled.

[00:21:13] In fact, there are 17 states that have now mandated that you have to offer some sort of retirement account if you have five or more employees. California, one. So what does that mean? We're talking about the solo 401k. If you're listening to this and you're in the state of California, you have to establish at least a solo 401k account or at least bare minimum an IRA account. But why would you not take advantage of the solo 401k account to everything Adam just talked about, why it's more powerful than the IRA? Right.

[00:21:43] But again, everything's got to make sense before, right? You would have a conversation with somebody like Adam, right? It was a tax advisor and a CPA that would kind of break down those numbers for you. But, you know, at the end of the day, the 401k, the new provisions within the 401k heavily, heavily favor the Roth. And here at the IRA Club, maybe, Adam, you're going to be a little bit biased with me on this part. Your job is to save people taxes, right?

[00:22:12] The money that they're potentially going to pay if they're high net worth individuals. Right. If it's me, right, on a lot of our clients, again, there's a lot of reasons why you may not want to do a Roth IRA right now but potentially later in life. Or if you're young enough that you could contribute to a Roth IRA and your tax, you're probably going to be in the lowest tax bracket, right? Especially after the age of 18 and you just, you know, or just leaving college. Right. But it heavily favors the Roth.

[00:22:42] So when he talked about the contributions, if you are listening in as of 2026, and Adam, feel free to jump in anytime. If someone is getting an employer match, from my understanding, you could ask for that employer match to be done within a Roth basis. And from also my understanding, if somebody is making over $150,000 a year as a W-2 employee, your catch-up contributions automatically are put in that Roth bucket. They have to be Roth. Yeah, that's true.

[00:23:10] So I'll start at the end and work back to the beginning. You're correct that if you're over $150,000 in comp, then your catch-up contributions, which is basically the over 50 extra money you can put in, have to be Roth. Whether or not the employer match, profit sharing, et cetera, is Roth depends on, first of all, whether the plan is established or constructed in such a way as to make that possible.

[00:23:38] So the Secure 2.0 wasn't saying every employer has to allow this or offer this. It's saying now we can offer this. So if you have a 401k, you need to talk to your HR people, or if it's your own plan, talk to your plan administrator to see if your plan documents allow you to do the match or whatever employer-side contributions as Roth. And by the way, on your comments on Roth, I'm a big fan of Roth. Good.

[00:24:09] Good. And, you know, it's always good to save a dollar of tax. We always love that. But the most important thing, in my opinion, is paying the lowest average tax rate over time. And that means, really, if you're in a lower income year or in a lower tax bracket or you're just starting out, you probably do want to max out Roth and pay some tax at 10%, 12%, 22% tax rates and get those dollars growing tax-free.

[00:24:37] Because then when you're, you know, at retirement age, presumably you're in a higher tax bracket. And you get those tax dollars out tax-free and you pay tax on the principal when you put it in at, you know, 12%, you feel like that's a pretty big victory, right? So it just depends. Like, if you're in the top tax bracket, Roth is a little harder to justify unless you think tax rates are going up between now and when you retire. And, you know, you might look at the current operating deficit numbers in the federal budget and decide that's a good bet.

[00:25:06] And I wouldn't judge you for it. But it's a little more nuanced. But I would definitely say if you're in the 24% tax bracket or below, strongly consider Roth, for sure. And we kind of sometimes refer to that here at the IRA Club as chunking. You know, I think you hit the nail on the head. You want to play with those numbers sometimes. Yeah.

[00:25:28] And but I'm very much happy to see that the SecureDeck 2.0 heavily favors Americans to, you know, incentivize them to contribute more to their futures. Now, how you utilize those retirement dollars? Some of you are suspect, and that's why we talk a lot on this podcast about why you want to be in control.

[00:25:54] And sometimes I always tell people, you know, no one's going to care more about your money than you. But I understand that many of us are busy and you may have a financial advisor. We have no issues or problems with financial advisors. We always tell people before you make that investment opportunity, we always, again, encourage you that you reach out to your CPAs like Adam, your lawyers, your financial advisors if you are using them. Before you jump into any type of investment opportunity. The one thing I don't like is sometimes they will steer you in the wrong way.

[00:26:22] And that is kind of what is, as I like to call them, Adam, artificial restrictions in our industry where it could be something that's very beneficial for your future. So just to keep all that in mind, if you were, is there any other new, we did talk about UBIT and UDFI. You mentioned that it affects one of the two within the solo 401k, which is the other one that it does not, sorry, it does affect.

[00:26:49] Yeah. So if you have a solo 401k, if you have income from a debt leveraged asset, like, for example, a rental property or you invest in a syndicated apartment deal or something like that, you don't have any taxable income to report. There's no tax to pay. There's no tax return to file. Obviously, you still need to file your 5500 series form if you met the thresholds for that, which maybe we can come back to in a minute.

[00:27:14] But if you have an operating business interest in a solo 401k, that is still unrelated business taxable income and is subject to the tax. So in that case, the 401k is treated just the same way as an IRA. And some examples I've seen of this over the years have been, like I said earlier, restaurants, hotels. Maybe it's a working interest in oil and gas even. We've seen odd things like that as well.

[00:27:42] So there can be those kind of situations where a solo 401k would end up paying taxes. You kind of need to be aware of those. And again, if you're doing these types of activities and you're getting into that 37% tax bracket within the 401k, you want to consider doing a corporation blocker structure between the 401k and the investment. And yeah, they get to that 37% tax rate pretty quick.

[00:28:06] I think that it's when you're above maybe $14,000 or $15,000 of taxable income in the 401k right now, I think is where that bracket is. Yeah, and if you don't mind me, elaborate on this a little bit. And as of recent, right, maybe year, two, three years, you have to also create a separate EIN number for the solo 401k. I think you talked a little bit about that at the last podcast. So that's kind of always been the rule.

[00:28:34] The thing that changed is that the IRS is looking at it a lot more carefully. So let's say that you invest in an apartment complex that's a syndicated deal. So you're buying shares of an LLC that's buying an apartment building. And let's say that you're an IRA. Okay, so that's a debt leveraged asset. So you're going to be subject to unrelated business income tax on that income.

[00:28:56] The IRS now tells the partnership, the LLC that owns the apartment, they have to get your IRA's unique EIN that only applies to your IRA. And they have to put it in a certain box on your K-1 that they're going to send you so that the IRS knows this IRA should be filing a tax return and paying tax. And so same applies to 401ks. But again, they would only have a UBTI from an operating business. So it's a smaller subset of cases.

[00:29:25] But what this tells us, and this is just two or three years ago, it tells us that the IRS is looking at this a lot more carefully. And they're coming up with a plan to come after these folks who are not filing the Form 990-T tax return to report their unrelated business taxable income and paying the tax. That's huge.

[00:30:13] Here's the reason why I ask you this. Because we have a lot of individuals that have checkbook control, right? A checkbook solo 401k. And they're under the impression that they could do it on their own. Can you talk a little bit about that? I would say that Form 990-T is not difficult to fill out if you're a practicing tax practitioner and know how to do tax returns. If you have filed your own personal return and it's only ever had a W-2 on it, you're going to have a real hard time with a 990-T.

[00:30:41] It's just more complicated than that. You have to report, basically, depending on the situation, but like the information about the debt on the property every month and the basis of the property. And you have to calculate depreciation. And you have to make sure you accounted for all the deductions. And it does get relatively complicated. I don't know that I've ever seen someone successfully file a Form 990-T on their own.

[00:31:05] I have seen people file a Form 990-T on their own and then send it to me and say the IRS sent me a scary letter and I don't understand it and the tax return is completely wrong. And then we had to go back and redo it. So I'm not trying to scare anybody. I'm just trying to say if you're going to commit to doing that, understand that it's a pretty big commitment in terms of understanding and education and trying to figure it out. So it's not that simple. Adam, no, no, no. I'm going to say it for you. Don't do it, right? Yeah, don't do it.

[00:31:33] If you don't understand it, don't do it. It's hard enough that most Americans that – because I'm going to tell you this, Adam, up front to your face. At events, I sit down and we talk to so many individuals that want to self-direct, that are the sole proprietors of their own company. And they heard all about this QRP, checkbook QRP. And just for those that are listening, is it qualified?

[00:32:02] Am I saying this right? Yeah, it's a 401K basically. It's a solid 401K or something like that that has an LLC under it so that you have checkbook control because you can write checks from the LLC's bank account. And to your point, Adam, how many people do you think screw those up? Probably the majority, and that's maybe being generous. And that's you being generous. I'll tell you what that number is here at the IRA Club, 88%. 88% of the time, you screw it up within the first five years.

[00:32:29] And to be honest with you, it's not that you are doing it deliberately. It's just you don't know what you don't know. So I just mentioned the 90 new provisions within the Secured Act 2.0. So that is our job and Adam's job to make sure that you are IRS compliant, right? That you're doing everything the right way and filling out the forms. So to Adam's point, please don't. Like he's saying, I'm saying no, don't. Please let him do his job for you.

[00:32:56] It's well worth it because the taxes that you could possibly pay or the penalties better yet, it'll be so much worth it. Like your time, effort, and everything. You don't want to be the bookkeeper. You don't want to be on the wrong side of the IRS and you don't want to unintentionally engage in a prohibited transaction because that can, in the case of an IRA, can blow up the whole balance of the account and make it taxable and subject to penalties. 401k, I think, is slightly less onerous than that, but it's still significant potential tax hit to you if you mess it up.

[00:33:25] So just don't mess it up. I 100% agree with you. And just so you guys, everybody that's listening in, understand, the IRA is a lot easier to administer than the 401k. Just so everybody knows, the IRA probably has about 20 to 25 pages worth of rules and regulations versus the solo 401k. It's hundreds of pages of rules and regulations. I kind of call it, Adam, the black sheep of the family, right? It's underneath the same umbrella, same family, right? It's a retirement account. The IRA is just easier to deal with.

[00:33:55] And then you have the devil, which is the solo 401k. You need an expert on your side. And I don't necessarily mean me. I mean, like, a third-party administrator who really knows their stuff and is going to be able to help you with all the record-keeping requirements and things like that. Especially when dealing with alternatives, to your point. Yes, of course. So if you're just doing stocks, you don't need to deal with us as much.

[00:34:20] Now, the other thing about the Secure Act 2.0, which is a new provision within the 401k accounts, right, is I was told that you can explain the whole rules behind if you do have a student loan. How does that imply? How does that work? Yeah. So there's a provision. It's been a while since I read this.

[00:34:42] But I believe that the provision reads that if you have an employee within the retirement plan who is making student loan payments, employers can go back and basically match those student loan payments with contributions to the employee's retirement plan. Which is a big deal for employees who are younger and out of school. And, you know, depending on what's going on in your business, you might have, you know, children in that situation potentially, right? So it's something to think about.

[00:35:12] I've never actually seen that in practice, but it's one of those things that sounds really good theoretically. And I'm sure somebody out there is really maximizing the use of it. Yeah. Well, again, it's a brand new provision. It's not even five years old. And the truth is we didn't even get a clear-cut answer with the IRS about how this is supposed to all work out up until recently. So, yes, you definitely want to work with a professional on that specific type of rule or regulation.

[00:35:38] And then just to hit because you just talked about, you know, children, you know, and minors. You hit a little bit on the 529 plan. And I'll tell you that this is the first time ever, right, this year that a – was it this year or last year? Please forgive me, Adam. That 529 where the estate plan and a federal plan now can coincide with each other. And what that basically means, right, is if the 529 plan was established for at least 15 years, right,

[00:36:07] you can now open up a Roth IRA account and you will be able to move over 7,500 into the Roth IRA account up to 35,000. I think that is the cap. You got the numbers right. Look at this guy. But, yeah, so that's – I think that started in 2024. So we're in the third year of that. But, yeah, it's – there's some juggling you have to do. But if you have 529 plans for your kids and they finish college and there's extra money in there,

[00:36:37] this is something to think about because the kids have to have earned income. So maybe they go to their first job. Maybe they're making $60,000, $70,000 a year. And they're living on that money and it's hard for them to put away money for their future. You could say, hey, I got these old $529. Let me roll over 7,500 bucks a year into your Roth IRA and that can start as a seed for your future retirement savings. And I've got these dollars going to good use. And like you said, it's a maximum of $35,000.

[00:37:06] So you can do that for four and a half years and then you run out of room. But why not? It's a great benefit. $35,000 to somebody when they're 25 and that grows tax-free over their whole life turns out to be a huge amount of money. It turns out to be like multiple six figures. So it's a real special thing to be able to do. And like I said, another positive thing from the Secured Act 2.0 that launched. So let me ask you.

[00:37:33] So one of the things, Adam, as the administrator at the IRA Club is the Solo 401k, because of the Secured Act 2.0, not just for terminology purposes, they call it the Cycle 4, right? This is like another version of the Solo 401k where we have to reach out to all of our previous Solo 401k IRA Club members prior 2025 and before, right? Outside of 2026.

[00:38:03] And the reason why I'm bringing this up is as we're having these conversations with these individuals, right? Some of them neglect to reach out to us and tell us, hey, I have two new employees. What ends up happening once you add, let's say, a W-2 employee or a 1099 employee, what happens to the Solo 401k?

[00:38:32] Is that even considered a Solo 401k anymore? So that's a great question, and it does require you then to change to a traditional 401k plan. So generally speaking, you can either transition that plan from a Solo 401k into a full formal 401k plan that includes the employees, or you can say, hey, we're done with 401k. Yep.

[00:38:57] You can terminate the plan before those employees become eligible to participate, and you can roll your funds out into an IRA, and you can go on down the road. But those are really your two options. You can't just ignore that you have employees now. Yeah. Well, perfectly said. And like I said, remember, there are 17 states that have now mandated it that you have to offer something.

[00:39:19] And if you fall within those 17 states, not to mention I believe 38 states have put something in the pipeline where it is going to be coming, right, very soon. Just want you all to be aware of it. And just remember, each state has a different type of retirement account that they're going to offer. And whether you like it or not, you're going to have to try to figure out ways, again, for the employer to provide some sort of retirement account to the plan participants. Right.

[00:39:49] And that's, again, because of everything we just talked about a little bit earlier. Like, you know, every government program is in complete and utter chaos, and they need to figure out ways, and this is one of those ways. So just be aware of that. And the IRA Club, which we will pass you off to one of our – we like to call them sister companies or another branch of our company where it's called IRA Club SBS, which stands for Small Business Solutions. So, like, for example, if you were talking to Adam, you would set up everything, make sure everything's done the right way.

[00:40:19] And if this is something that does intrigue you, Adam could also send them back over to us to set up these 401K plans. And trust me when I tell you there's like 50 different variations of a safe harbor plan. We put a lot of our small business owners. Adam, you know this. A lot of our clients that we deal with typically have 25 or less employees to begin with, right? That's most of America, Americans that own businesses. Well, listen, Adam, I – listen, I don't ever endorse anybody. I can't endorse anybody.

[00:40:48] You know that any company, any individual that listens to the IRA Club podcast because at the end of the day, we are a self-directed IRA company. And our job, just like you, is to make sure it's compliant. This is a great avenue and tool. It's a strategy. The name of the game for us is diversification. Again, cross the T's and dot the I's, right? Once you identify the investment opportunity, remember, whether it's the stock market.

[00:41:17] IRA Club is a broker-dealer. We offer the stock market to every single one of our clients. But it's also about taking a portion of your retirement dollars because no one is going to care more about that than you and diversifying it into whatever you want it to be. Real estate, land, syndications, private equity deals, life settlements.

[00:41:36] There's only three things you cannot invest your retirement accounts with is your own life insurance policy, an S-corp, okay, and a collectible, right? So you could forget about that antique car. You could forget about that expensive bottle of wine or that bottle of scotch. That's the only thing that you cannot use your retirement dollars to invest in. And that's also Adam's job is to make sure that you are compliant. A lot of our IRA Club clients, he is a resource to all IRA Club members.

[00:42:06] So if you are a small business owner, always, always feel free to reach out to Adam. In fact, Adam, if somebody wants to learn a little bit more about you, your company, where can they reach you? Yeah, great. Our website online is MGALLP.com. It's got lots of great info about who we work with and what we do to help them. Folks can also reach out to me directly at my email, which is A-B-A-R-R at MGALLP.com.

[00:42:35] So A-B-A-R at MGALLP.com. And I'll make sure to add those links on the bottom. Adam, any final thoughts? I always like giving final thoughts to my co-host. Is there anything you want to elaborate or touch on before we jump off? I'll just say the best time to start saving for retirement is yesterday. The second best time is today. I love that. I love that. You want to learn more, check out the upcoming episodes.

[00:43:05] Education is first and foremost always in our hearts. It's one of the pillars of IRA Club. Visit IRAClub.com forward slash podcast. Adam, it is always a pleasure. Love your insight. Love your knowledge. I love how you keep everybody compliant. And more so and more important, I love how you tell Uncle Sam to go kick rocks. That's the name of the game, buddy. So thank you. Until next time. Thank you, sir. Take care. I love you. Thank you.