EP 470 – Self-Directed Employer Plans with Rebecca Miller

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This is the no Closer show where you get the latest developments in distressed note investing and learn the secrets of how you can control millions of dollars worth of property for pennies on the dollar. Get educated and entertained by someone who has closed thousands of deals and lives to support you in achieving the same. Now here's your host CEO of We Close notes, Scott Carson. Good morning, good afternoon, good evening everybody. Welcome to this episode of the Nook Closure show. As always, Scott Carson. Excited to be here actually back from traveling for the last couple of weeks on a little bit of a vacation. A little battery recharge, a little rejuvenation. Just absolutely excited to be back here and what? Couldn't think of a better way than to kick things off with our good friend Rebecca Miller from Quest Trust Company coming on board to talk about self directed IRA plans, specifically employer plans out there. Well, good morning and safe. Good morning Rebecca from Debt. You guys got some little crazy weather this weekend up there, huh?

Oh yeah, the weather yesterday was absolutely insane. There's still so many people out here without power at this time. They can't even give you an update on when will be back up. But luckily our office is fully intact.

That's a good thing.

I'm really excited to be here to talk about employer plans with you today. Yeah.

Glad to have you on. It is not technically the first Monday of the month. It's the first Monday that I'm back. But I figured it'd be easier to do this versus like seven hours delayed, me being in London or Barcelona. One or two. But you have been at Quest for quite a while now. How many years you worked there, Rebecca?

I actually have my 10 year anniversary this September.

Oh, wow. Congratulations. Wow. 10 years flies by, huh?

Really exciting. Yeah, it's like a decade crazy now.

Before you got working at Quest. Let's talk a little background before we dive into the plans. Give everybody a little bit of your background. 10 years at Quest and prior to that.

Got it. So I started with Quest Trust Company as a intern. Before that I had done a lot of work in the customer service industry. A little bit of management at a grocery store, actually customer service manager. And that was about it until I came to Quest and I started with their internship and literally trained me from the ground up. Continued going through college during that time too. So imagine like working with Quest nights and weekends and also going to school part time. It's been quite a trip, right?

That's definitely. Man, look at how much growth has happened in the last 10 years, right?

We have Grown this company, honestly, it's probably doubled in size like every year. It feels like quite truly. I can't believe how much it's grown. There was about 10 employees here when I started and now we're well over 100. So it's just incredible.

That is awesome. And then you are, I don't want to say guru. You're the most, what's the word I hear, most knowledgeable CISP over there at Quest handles a lot of the employer plans. Right. Your phone is. You're constantly ringing, you're constantly answering questions, is that correct?

Yeah, I am our 401k expert, so. As well as employer plan expert. But I think some of the other account types, the simple and step IRAs that we're going to talk about first today, a lot more of our employees are like more comfortable talking about those simply because they're IRAs. And the 401k is just such a different animal that I've been working on training folks on these 401ks. And I tell you what, either use it or you lose it. And so now I'm retraining them all over again.

Getting a crack in the whip on them, getting to do it because you're growing, you're adding so many new IRA account owners coming on board, request records every year on new accounts. And you've got big event coming with the Quest Expo taking place in August. We'll get to that later on a little bit more so. And of course you've got the trillion dollar mixers and Houston and Austin and Dallas that we'll talk about as well too. But one of the great things you and I were talking before we got started here on a couple of things, you're going to go over what basically four accounts, correct?

For the most part, mainly three simple steps and solo 401ks.

Now the big thing here too is a little bit different, is we mentioned that if you're going to use one of these accounts, you can only use one of the three, can't use two or all, correct?

Yeah. So basically as an employer, you're able to set up an employer plan to offer you yourself as well as any other employees that you have a retirement savings benefit. But if, honestly, if the IRS let you use more than one, like for instance, accept and a 401k, they'd be losing out on so much money because you just got such a huge tax deduction. So they literally limit you to having like one employer plan for your company and that normally extends to like other companies that you own. As well. So, yeah, the IRS does limit you on the number of employer plans that you can actively contribute to during a given year for yourself and your employees.

Yeah, God forbid that the IRS lose out on collecting some tax money, right? Everybody is like, I don't feel sorry for them.

I love that. Where did that noise come from?

The sound machine. I'll have to get you one. Hang on. One more time.

I usually make those myself when I'm playing with customers. You know how we have a really fun time talking to our customers over there and like, just engaging with them. And so, like, every now and again I'll throw in a joke. And I definitely had one on Friday where I went, wa, wa, wa. And they got a good chuckle out of it. I tell you what, that's good stuff.

Well, you got to keep it light no matter what, because that's one of the things I love so much about working with you guys. Over at Quest Trust Company, everybody there actually has a pulse. So there are some trustees, some IRA companies out there where they get to speaking. People are falling asleep. They're literally snoozing. People want to run from the room because they're afraid they're going to fall asleep.

You know what I mean?

So let's, let's dive into the first one and we've got people that I think are watching online. If you guys have questions from what Rebecca's discussing, feel free to mention online live. We'll try to get to those questions. Well, also, I gave the link out when we were promoting this. We may have a few people jump in and join us here on the webinar too, and as asking questions. So let's start with that first one, Rebecca.

Awesome. So one of the first employer plans I really wanted to touch on was simple IRAs. And we actually don't have that many simple IRAs here at Quest. In fact, we have even less simple IRAs than we have solo 401ks or simple. So the smallest number of actual accounts set up here at Quest, I'd say that not that many people use them as much and self direct them. So basically, a simple IRA account is often used by a small business owner who has less than 100 employees. And it works really, really great for them because the employee gets to put in a majority of the contributions. So for instance, for like the 2019 tax year, if somebody had set one up for their business, the employees can choose to contribute up to $13,000 from their paycheck and they're over the age of 50, they get another $3,000. So 16,000 would be the maximum for somebody over the age of 50. Tax deductible to the employees. And the best part for the employer is that they only have to do like a 3% matching contribution contributing up to 3% of the employee if the employee's putting in that much of their salary anyway. Or they have the option to sometimes do 2%. But the rules can get changed back and forth a little bit. If you're going with that 2% versus 3% option, most folks do the 3% match.

So basically, if we've got an employee, let's say they're making 50 grand a year and they can put away total of 13,000 out of there. Is that correct? Is what you said right?

13,000? Yes, sir.

If we wanted to do that, I would then only be responsible for matching up to 3%. Is that correct?

Anything over 3% is just of the employee's salary. Mm. And so it can be nice because if the employee wasn't that interested in contributing, maybe they didn't see the benefit in locking away that money for their retirement. Well, now you don't have to match them, so it kind of works well for you. You also don't have to put in as much money for them, but it really gives the employee the ability to share in the responsibility of building up their retirement savings.

That's nice. That's really nice. And you know, like you said, less than 100 employees. That really just kind of surprised me a little bit because you said it's the easiest to set up of the three plans. They don't partake into it. That's pretty cool.

And what we often see a lot too is that usually when somebody chooses to self direct it, they're not moving all of their employees accounts to us. They're usually just moving their own. And your employees are able to set up their simple IRAs normally with like just about any bank of their choosing using the government paperwork, the simple 5304 form that's provided.

So the account's not then set up through Quest Trust, it's set up through their own bank account or bank.

Not all of them. Not all of them. So basically, for instance, let's just say that you, as a note investment expert, wanted to self direct your simple ira. Great, you can set your account up with Quest. You can have your contributions come here. But maybe your employees aren't as interested in note investing or don't feel confident in note investing. Well, they may choose to have their simple IRAs with a more traditional brokerage firm like E. Trade or Charles Schwab. Someplace where they feel a little bit more comfortable investing and growing their retirement savings if they're not ready to take control of their investing.

Nice. That's a nice for those that are just want to put something away, not really be active in it is like a note invest. Like if you got an admin staff that's oh, I don't want to do real estate. I just want to do the paperwork day in, day out. Right.

I mean there's those out there. Yeah.

Wow, that's awesome. Let's talk about where some of the cons of the simple IRAs.

Well, it's not really that flexible. In fact, one of the things I always found the strangest about simple IRAs is they actually have this really funny two year restriction. From the first time that you make a contribution to your simple ira, it starts like a two year aging period. And during that two year aging period, let's just say some massive, maybe you quit your job or got fired, broke leg, got in a car accident, you name it, and you needed to withdraw some of that money. Well, the penalties increased during that two year period from a 10% penalty, which is what most IRAs have. If you try to withdraw money before retirement age, the penalty is increased to 25% during that two year period. And you also can't move your simple IRA funds into any other type of account. The reason I mentioned that is because a lot of self directed investors want to use a Roth ira. The Roth IRA is so sought after because it's a after tax account that grows tax free instead. And you can usually pay taxes on any tax deferred money that goes into any other type of retirement vehicle like a sep. A traditional and actually simples too. But you can't during that two year period do a Roth conversion to change into a Roth ira. And so I think that's just a really funny restriction. On top of that there's really no flexibility on changing the way that you make contributions. It's just really not very flexible.

That makes sense. I understand that. Now, can a employee also have a traditional IRA or a Roth IRA outside of the simple IRA on their own?

Oh, absolutely. So with Most employer plans, SEPs, SIMPLES and 401ks, you as an employee or employer can be contributing to one of those in addition to your own individual retirement savings like a traditional or Roth ira. What we consider more personal accounts since they're not related to an employer at all, they're just related to you as an individual.

Okay, so simple IRAs maximum if people were set one up for usually less than 100 employees, people that sign up for it. And that's gotta be offered to everybody in the business?

Yes, pretty much everybody is eligible to join the simple ira. There's really no discrimination clauses in it for you to exclude employees. And we'll talk about some of the other plans that we're going to go over how you can exclude some folks on those.

Okay, cool. That's awesome. And then they can all contribute up to 13,000. We're only responsible if we were the boss, basically to match up to 2 or 3% depending on what you selected at the time it was created, correct?

That's correct.

Any maximum or minimum number of employees you'd have to have?

No, there's no minimum. Well obviously, I mean if you wanted to make contributions for yourself, you'd have to pay yourself but your own employees. So I guess one would be the minimum. The other thing that makes a simple kind of great though is that if you have a lower income year, like just a low income year, maybe you only made 30 grand, maybe you only made 20 grand, self employment income would be in addition to some other job that you had, maybe you were just a W2 employee. Well, in that instance, the simple IRA actually gives you the ability to do a higher contribution if you only have a little bit of earnings that year. So that's kind of a plus. If you had a lower income year for your self employment income too in comparison to the or 401k, that will kind of come over next.

Nice. Now this is the money is drawn pre tax or post tax that you're contributed to.

So it is pre tax. So it's a tax deductible contribution that 13,000 that the employee can put in as well as the employer's for instance matching contribution of 3%.

Awesome. So that basically after two years if you were to leave the company they wanted to convert it to a Roth, you'd be paying the tax that the conversion cost converted from a traditional to a Roth at that point.

Cool. Awesome.

Good stuff. Let's move on to the next one, the SEP, the Simplified Employee Pension Plan.

The SEPs are actually one of my favorites. Quite truly. I just see a lot more folks work with them. I think it's also because so many of our clients are related to the real estate industry, they may have income as a realtor, they may be just doing some self employment income and have no other employees, in which case the SEP can usually work the best for them. The SEP is just a little bit more flexible. One of the things that's great about it is you actually can exclude some employees. You can discriminate against them based off of their age. So you can say that they have to be at least 21 years of age or some number below that in order to qualify for the plan. Or you could exclude them. So if you had some young interns at the office you wanted to exclude, well, you could do that and say that they have to be at least this age up to 21 years of age. And you can also discriminate against them based off the years of service. So you can say that you have to work one year, two years, three years as an employee in order to qualify to join the plan too. So if somebody just hired a new employee for the first time, but wasn't ready to start contributing to them as well yet, they'd be able to say that they had to have X number of years of service up to three years in order to qualify for the contributions. And part of that is really because the employer is the one making all of the contributions to a sep, not the employee. And I think that's the other part of the reason for why they have that discrimination against or ability to discriminate on years of service. For instance.

Yeah, you don't want to be making contributions. Somebody's running for a year and takes off. You want somebody who's going to be obviously vetted a little bit. But that's interesting.

Yeah, into them.

That's the definitely the big truth there. Now what are the amounts that somebody.

Contribute to that the contributions are get quite a bit higher. So basically the employer is able to contribute up to 25% of W2 wages or 20% of their net earnings from self employment. And the total amount of their contributions for the 2019 tax year could not exceed $56,000.

Hang on a second. 56,000?

Mm. And it's all tax deductible.

Wow. So somebody could use. Is there a solopreneur Basically too correct. They set up their own pension plan.

Mm. It's extremely powerful. And what gets even better is that this account can really save you a lot of money on taxes come the tax filing deadline. Because it's really the only employer plan out there that you can start after the year is over. So for instance, right now, maybe there's somebody who's self employed out there who already filed an extension on their taxes for 2018. They still have the ability to open a SEP and make a SEP contribution for the 2018 tax year, that could be tax deducted. The only employer plan. You can still do that too.

Wow. So if they filed an extension, doesn't matter the April 15th deadline for most. Right.

They get that plus extension for this account.

Wow, that is really powerful.

So this is really great if you're maybe like a realtor, you had a really large commission this last year in 2018, hadn't planned for it fully, started your taxes and said, good golly. Oh, Molly, what am I going to do? That's a lot to pay. Well, the SEP IRA could allow you to make a very high tax deductible contribution. It's really important with any of these employer plans to also consult with your CPAs or your tax advisors, have them help you calculate your maximum contributions. But I mean, in this instance, it could really. A SEP IRA saved so many people because it is really the only account that you can start so late in the year, like after January 1st of the prior year, and even make contributions all the way up until the tax filing deadline plus extension.

Wow, that's huge. Now, pretty easy, inexpensive to set up?

Oh yeah, absolutely. With pretty much all IRAs like the Simple IRA and the SEP IRA, they're really, really easy to set up. The government has already created the plan, the plan paperwork for you. It's literally like fill in the blank here. It is easy to set up. There's no real reporting requirements either. So that's kind of nice. Where 401ks, they have a lot of reporting requirements and then other than that, inexpensive. Well, if you've seen our IRA fees, at most a couple hundred dollars a year, if that. So basically when you compare that to like employer plans like 401ks, those can get much more costly. Especially if you have a lot of W2 employees. Solo, 401ks can be a little bit cheaper. It just depends.

Wow. Now let's talk about the cons you mentioned. You've got to contribute equally to all qualified employees.

Oh yeah. So basically SEP iras don't work really well if you have common law or W2 employees. Unless you really, really like them, like.

Your spouse works for you basically. Right.

Well, basically you have to treat all employees equally. Right. So if you wanted to contribute the maximum maybe 25% of your W2 wages for yourself, you know how to do 25% of all your employees W2 wages. So that's why I was joking. A you may want to use those discrimination options to ex nay folks that are too young or ex nay folks that haven't worked for you long enough because you're really making that investment into them, putting all the contributions in for them. Although you get a great tax deduction for your business. That's kind of the trade off.

Yeah. Especially if you've got to do it for everybody. If you got three employees, you're paying 50 grand a year each. You've got to put 12,5 in. It's up to 25%. Correct. Up to 25 or $56,000 max. Correct.

You got it. Well, you can Only reach the 56,000 if you were paying them a lot more because you really cannot exceed that 25% of their W2 ages, right?

Yeah. So 56,000 would be 25%, basically. They'd be making like 200 grand a year.

2, 250 right around there.

Wow. Okay, that's good to know. But it's really good to know. Every April 15, we always see people, oh, I wrote a big check to the government. I'm like, well, maybe you didn't talking about this. Hey, hopefully you've got a sep. You could have ext day, gone back and readjusted things, dropped in a chunk of money into it, done a write off and paid the government a little bit less than nice.

And it's just so nice that you can start them so late in the year. One of the things that I run into a lot with folks who are exploring setting up the 401k is that they wish they had done it sooner or started their research sooner. And so a lot of them will end up working with a step IRA maybe for like the prior tax year or the year that they're just wrapping up and then moving into a 401k the following year. Because in order to contribute to a 401k for a given tax year, you actually have to have that plan already set up during that tax year so before December 31st in order to make a contribution. And that's again why the SEP IRA saves so many people if they didn't plan ahead on making an employer plan contribution.

Brings up a question. So if they did a sep, they go have that just for one year and then change the next year to add a solo 401s. We go into on that next one.

Yeah, and you can even roll the SEP into the 401k and consolidate the accounts. As soon as the 401k set up, you can roll in other traditional IRAs as well. And another great thing about the SEP is you can also instantly convert it to a Roth ira. Oh, so this is a Huge way to shovel money into a Roth account, actually.

Wow.

That you can make that tax deductible contribution to the SEP from your business. Then as soon as that checker wireclair is converted into your Roth ira, it cancels out your tax deduction if you do it in the same year. But yeah, incredibly powerful.

You could do it one year, file your taxes and then convert it later on after you file taxes to get the tax deduction. So then roll it over to a Roth. Wow.

You got it. And when you think about the power of the SEP, along with the traditional IRA, you can make your traditional contribution of 6 or 7,000 depending on your age. Also max out your SEP contribution of 20 or 25% of your wages or earnings. Put those into the SEP account. Did you know that both traditional and SEP contributions can both go into a sep? And there's a funniest secret out there. The SEP and traditional IRA accounts are actually pretty much the same account, only you can make employer contributions to the sep. Kind of a fun secret out there. And that's why you can transfer money back and forth between the two of them as well.

Wow. That is really cool. That's really awesome. Awesome, awesome. Let's dive into the Solo 401Ks next.

Oh yeah, Solo 401s are like my forte simply because there's so much education that goes into them. We spend quite a bit of time with any client that wants to set up the 401k plan just to make sure that they understand it and provide them the best education that we can really, because it makes them a better 401k client too. So one of the things I always like to point out to folks about solo 401ks vs sep or simple IRAs is really how the account works overall too, because it works entirely different. If somebody self directing a SEP IRA or self directing a simple ira, they're working with a custodian like us where we hold the account funds in the account. They give us permission to make investments for them. We deploy those funds profits like your rents or your note payments that come into the account completely tax deferred. And that's just how it works. But you're always running everything through quest the custodian with those types of accounts. With our 401k plan, it's very, very different because the account holder gets to actually take on those duties as their custodian, trustee and administrator with us. So it's much more hands on. But there's some incredible benefits out there for folks who qualify to work with it. The qualifications are definitely a little bit steeper than the simple or SEP IRA accounts that we talked about before. Because not only do you have to be self employed, but you have to have self employment earnings. I'm talking you have to have your schedule C1099 or W2 and actually have profits to make contrib to the account because you actually have to legitimize it. If you set up a SEP and didn't make a contribution, the IRS is not going to worry about it. They're not. But if you set up a 401k, enrolled your IRA into it, never made a contribution, it can actually create issues for the account holder because they Never legitimized the 401k and it's one of the kind of a requirement to legitimize the account. And if somebody never made a contribution to their 401k but just rolled an old IRA into it, the IRS can actually consider it basically illegitimate. As if you didn't really have a 401k. Simply treat the account as if it was distributed. It's really a nightmare if somebody doesn't contribute.

Wow.

That's usually where we like to start by kind of talking with folks about the importance of making contributions and their qualifications as a self employed person. Because well, if you just have investment income that's not the same thing as self employment income. You have self employment taxes like Social Security and Medicare when you have to 99 or Schedule C earnings for instance. Or if you have a corporation where you're paying yourself a W2. So self employment taxes make a big difference and actually qualify you to make these contributions to the employer plans. But other than that you also can't have any other employees under any other company to specifically work with a solo 401k. So this also messes with folks if they have more than one company that they own. I see this a lot with real estate investors that have the real estate investment business over here on the side it's just them. But over here they have their consulting firm or law firm or dental practice, you name it, where they do have employees. And that entirely discludes them from being able to work with a Solo 401k in particular, which is really huge when you're self directing. 401ks get incredibly costly if you have employees and want to self direct them. Fun fact there. I remember a quote from Quincy or Nathan way back in the day when we only had 10 employees, so that cost us about 10 grand a year to self direct our 401k plan, that's not rageous expense for most small business owners. But when it's just you, just you the employee and you have no other employees under any other companies, a solo 401k is so much cheaper to self direct anyways.

So you bring up some good points. I'm thinking here some things so that basically if you have investor that they self employed is a real estate investor, they can't have any other type of entity with employees. None whatsoever. Right. They can't be making 1099 income if they're teaching dancing, if they're a consultant for something else in a different entity or they can't have the sila 401k. Correct.

So you can have more than one form of self employment earnings. You just can't have any common law W2 employees under any other company. So if company B has common law employees, that dance studio for instance, that won't work. 1099 employees are just fine because you don't have to provide an employee benefit. But more common law W2 employees is what creates the issue for an employer.

Okay, that makes sense. Okay. So basically yes, okay, like you said, I couldn't have we closed notes and just be myself and then have inverse ventures that has 20 employees. It would disqualify me, correct?

That's exactly correct. And that's actually pretty much because the IRS doesn't want you to discriminate against those employees of the other company and not provide them the same benefit that you're providing to you, the employee of this other company.

Now, highest possible contribution limit. What's that amount again?

So basically it's very similar to the sep, but it gets higher. So for instance, you get the same employer contribution, so your business can still contribute that same 25% of a W2 wage or 20% of your net earnings. But in addition to that, you get to put money in as the employee too. Up to $19,000 if you're under the age of 50. And then if you're over the age of 50, it jumps up another six grand to 25,000. And so you're able to tack on another 19 or 25 grand to make it easier to max out the maximum contribution limit. If you're under the age of 50, that maximum limit is still 56,000. But you can see how it's a little bit easier to hit that now that you can contribute money as the employee too. If you're over the age of 50, it increases by that six grand. So puts you up a little bit higher. 62,000, sure.

Now 62,000, that's a lot of money. But the biggest risk is the reporting aspect of this thing. Correct. Making sure you're not doing something.

Yeah. That custodial work that I was mentioning a little bit earlier. Because Basically, I mean, 401ks also have reporting requirements like an annual reporting requirement. If you hit 250,000 or a million, you have to do some annual reporting requirements telling the IRS the value of your account and things like that. And if you have any loans out until you hit that $250,000 point, the reporting is a little bit less. But you still have a lot of bookkeeping and record keeping requirements. If the IRS ever wanted to audit your account, guess what? You get to hand over all the books, all the records. And you have to also track the types of money that you've been putting in, money that you've rolled in, money that you've contributed as the employee, money that you've contributed as the employer, as well as the 401k in particular, our 401k does have a Roth component built into it. So your employee contributions, you can actually choose if you want it to be traditional or Rothschild. And you can do Roth conversions inside the plan of any tax deferred contributions or any tax deferred IRAs that you rolled into the 401k. But you have to track all of that. That's a lot of bookkeeping, a lot of bookkeeping. Not just tracking traditional from Roth. You also want to track the types of money that you have in the account. All those different types I just mentioned. And that's a lot. It's a lot to do. I don't know if you handle the bookkeeping yourself for we close notes, but man, it would be an additional headache on top of like regular bookkeeping for your business. Now here's some incredible employer plan bookkeeping for you.

Yeah, that's why I have a professional that does that for me. But that's the thing.

I highly encourage folks to consult with a professional before even trying to do their own.

Yeah, that's the thing is people have to realize there's a lot of paperwork that goes involved with these things. That's why it's a great plan to have. But you mentioned a couple things. One, you've got to contribute to it on the front end to legitimize their correct. And you've got to keep track of the paperwork. Yes. You've got maximum contribution amounts. You've got some great flexibility having a raw feature inside of it. You can put an extra 19 grand away or 25 grand away for over 55. Like you mentioned, you've got checkbook access to it, but you still need to have a really quality third party for the most part. You should not be doing the paperwork yourselves. I'm willing to imagine that you probably get the most amount of questions on this plan from people, huh, Rebecca? Or is it on the other?

Oh yeah. There's a lot of reasons why folks seek out the 401k. There's so many advantages beyond just those great contributions beyond the Roth component. Basically there's this really cool unrelated business income tax exemption exemption. This is where I get the most calls about related to why somebody wants to set up a solo 401k is they've heard that they can avoid this crazy tax the IRAs get called unrelated Business income tax UBIT or it's also referred to as UDFI Unrelated Debt Financed income because they're usually doing like multifamily investments which have not only debt financing but also run through a business that an LLC that usually passes through taxation. And those are two triggers for UBIT tax, both of them. Well, we do a lot of education about the actual exemption to make sure folks understand it and also because, well, the exemption is a little bit funny. It's not a full exemption. A lot of folks I think get that confused. They think that solo 401ks are entirely exempt from UBIT tax and that's actually not even the case. So we always have to encourage them. Hey, take a step back. Double check that you're even going to get the UBIT exemption by talking to your CPA, your tax attorney, because 401 s actually only get an exemption to UDFI unrelated debt financed income as it relates to having debt financing on real estate. And they don't get an exemption to the business tax or the actual ubit, which is triggered by really running a business inside of the 401k, which also qualifies for when you own a portion of a business that's passing through. Taxation just requires your 401k to pay an equivalent tax to other business owners and there's no exemption on that. And so we'd like to make sure that folks understand that and really do their due diligence because that is my number one reason for folks to want to set up a solo 401k. Other than the great contributions, it's usually the two biggest ones.

Good stuff.

The other biggest sought after aspect is really that checkbook control. Who doesn't want to Have a checkbook for their retirement savings. It makes it a little bit easier to pay your contractors. It gives you a little bit more control to write those checks and execute the documents yourself. But, man, there's also a lot of responsibility that comes with that. Nathan once joked about the 401k plan, that it was like a Superman cape. You wanted to make sure that you knew how to fly with it before you put it on.

You don't get it sucked in any jet planes. That's the truth. But there's a lot of moving parts. But that's the whole point of having me on here. He's talking about these different things. People get a little confused between a simple and a sep because it sounds similar. I know. That was one of these.

I can get tongue tied alone just talking about them.

Yeah, yeah, that was one of the things that always confused me. Isn't the same thing like, oh, no, it's completely different. I'm like, oh, I got a simple. No, you have a sip. No, I don't have a step. I think I'm going to. Simple isn't the same. It's like Laurel and Hardy a little bit there. Now, what are the biggest mistakes that you're seeing from people on any of these plans? What's probably. What's one of the biggest things that you see people really stubbing their toes when it comes to it.

So I honestly haven't really seen anybody have an issue with steps or simples before. Honestly, I've never seen somebody have an issue with them really ever. Really ever. What I do see folks tub their toes on 401ks, but it's also because I get all of our 401k calls. And I don't know why, but for some reason they call me after they already did this. Like, hey, I just wanted to let you know I did this, wanted to get your input on it. You did what? That is no joke. And actually that happened on another podcast. I did a podcast with a hard money lending company recently, and we're talking about the Solo 401Ks as well. And he said, well, Rebecca, I have a question for you. I heard that you don't have fair market valuations with solo 401ks because I guess they didn't have to submit them for their 401k holders, but they had to do it for all their IRA investors. Right, but not their 401k investors. I said, that's actually incorrect. Folks just don't ask you for them, apparently, because, well, Basically, for your 401k, you still have those reporting requirements. You still have the responsibility of documenting the value of your investments and how you came up with the value that you put down on your 5500 reporting form or 5500EZ reporting form for that year. And so because folks aren't asking for them, they just thought they weren't even required. And I'm like, no, folks should still be documenting the value of their investment each year. Even with the 401k plan. The Fair market valuations are actually still a requirement for not only IRAs, but solo 401ks as well.

And are they required across all three, besides the full simple steps too?

Well, with self directed accounts, especially for an IRA company, it's hard for us to determine the value of some private stock that's being used to invest into racehorses, or the value of this property, or the current value of this loan that's not receiving payments, you name it. So we have to ask our clients once a year to submit a fair market valuation. Tell us the value of your investments and show us how you came up with this value. And we require that because for every tax year we have to report to the irs. Here's the value of every single IRA out there and Health Savings Account and Educational Savings Account and that number on that form, that value of that IRA account may not be accurate if we didn't have them update the value of their assets with us. And just nearly impossible for us to try to do it all when folks can invest into just about anything you can take title to.

Right.

So we have to do it and we have to chase down folks and have them turn in those fair market valuations. Yes, it's required for all of them. But for 401ks, some investors may not think that they need to get them simply because, well, there's no ira. You're the custodian now. Technically you should be doing it for yourself.

That's a good, good point there for you. For people out there that are listening, they're looking at starting one of these and adding things and using especially they're going to be rolling over money into one of the accounts and things like that. They still got to have that aspect. Now question for you. They've got still titled the same way for the most part. Correct. Is there any special titling issues with any of these?

Oh, that's a great question. So with IRAs like the simple, your personal accounts, your traditional Roths or Health savings or Educational savings, all of those are titled in the name of Quest Trust Company sbo. The account holder's name, the type of account and their account number like IRA12345. But 401k titling is actually entirely different because again you're acting as your own custodian. So you're able to just execute paperwork as the Trustee of the 401k in the name of the 401k. So my name was Bob Jones. I have a consulting company. I wanted to name my 401k Jones Consulting 401k. That's the legal name of my 401k. So when I purchase an asset like a rental property, the warranty deed, the closing documents, all of it would be. And the name of my 401k plan, Jones Consulting 401k. I can name it whatever I want comma Bob Jones Trustee. So it's really clearly in the name of my retirement account and I have clear signing authority as the Trustee of the 401k. But you'll notice that Quest IRA's name is no, we're on there because we're not holding the asset. We're not acting as the custodian the same way we do for the IRAs.

So there's basically, if they're going to set up one of these accounts, there's forms that they get from you guys to fill up, to start it up and then go into a bank and other things to set things up. Is that correct?

That is correct. So essentially with the 401k plan we are acting as the plan document provider. So we have the IRS approved prototype plan documents that we use to set up the 401k plan with the self employed individual who's opening the account. And then now that the 401k plan is created, they grab an ein number for it and go set up a checking account in the name of the 401k plan as an entity. And that's what they have check writing authority over as the trustee.

That's good stuff. And who are some individuals may not individual names but people that you would have them recommend that they definitely talk to a CPA or somebody else that's handling the documentation or sign off on things is an extra level of security so they're not screwing things up. Or can you not say, well I.

Know that there's some great books out there. One of the things that I've really encouraged over the years is not just going through one of our 401k consultations and trying to set up an account, but also doing some due diligence and reading a Book. One of the things that I think most good books will also have are some resources or maybe they're written by a CPA or bookkeeper. Our president did contribute to a book that's written by a third party CPA named Doug Spotiford, and it's available for purchase on his website, assets101.com you can't miss it. It says Solo 401K and huge letters on it. But one of the things that you get by reading his book or any other book out there is really a lot more of that education on your responsibilities. The keeping, the record keeping, the IRS reporting, all of that gets committed to memory quite a bit better than a conversation that you had a year ago. I think that's why I get so many crazy calls and they call me like after they did something. It's that, well, they forgot what we talked about a year ago. And so I've been really encouraging folks to do due diligence in a book. And usually you'll find resources too. Strong attorney resources in that book are John Heyer and Jeff Watson. And then obviously it's written by a cpa. So I bet he can give you a good idea about how to handle the bookkeeping as well.

What was the name of the book? One more time.

I actually have the old version sitting right here. Like I said, you can't miss it if you look it up. But it's available through their website, assets101.com and there's other books out there too. In fact, I'm reading another one right now, but I may have left it at home. There's a lot of hype and excitement out there about an account called a qrp. Have you heard of this before? So, qualified retirement plan, solo 401k. Yeah, it's what it stands for. Qualified Retirement Plan. Honestly, you could refer to A Simple step or the solo 401k as a qualified retirement plan. But they started marketing solo 401ks. QRP is like it's a new product and how it's better and offers more asset protection because they have the solo 401k invest into an LLC to create additional levels of asset protection. So I've been getting a ton of calls about QRP plans and it just kind of cracks me up that folks are just marketing something under a new name and they don't think it's the same thing. It really is. It really is. And yes, you can invest your 401k into LLCs or other structures to create liability protection, but consult with your attorney on that.

That's the truth. Yes. Rebecca is not an accountant or an attorney. You should always consult with your proper asset protection individuals out there to make sure you're doing what fits you best. Correct, Rebecca?

Oh, absolutely, absolutely.

And John Hyer and Jeff Watts are two of the best in the industry out there. Definitely. I think Jeff is moving to Dallas and John Heyer's moved to Puerto Rico just recently too. Yeah.

Oh really? He's moving over to Puerto Rico. I always see him in pictures with those fedoras.

Yeah.

I was gonna say yes, that Puerto Rico look. But your comment is a bit funnier.

Yeah. It's a little warmer in Puerto Rico than the middle of Ohio in the winter. For sure. Part of the reason Jeff's moving to Dallas too. It's a little warmer there. Let's do this. We don't want people bombarding you with questions and phone calls. If they don't even have stuff set up or don't even have an account set up of some sort already or if they're working at a job, if they've got a W2 job, do a quick recap. Should they do one of these three if they've got a job?

If you don't have self employment income, meaning you're just a W2 employee, none of these accounts would be a good fit. These are all designed for somebody who has self employment earnings like 1099 Schedule C earnings are like their own corporation where they're paying themselves a W2H quite truly.

So if they have a side hustle that's working well and they're still working for somebody, they can then at that point, Correct?

Absolutely.

That's good stuff. That's awesome stuff out there for you. Now let's do a quick sidetrack. Are you going to be talking about some of this stuff or Quincy or Nathan? So we're going to be going over quite a bit of this at the QuestExpo upcoming in August.

Yes. And I also wanted to touch on one more thing you mentioned about the best way for folks to get in touch with us if they have more questions. Well, we always have tons of free education on our website. We actually have a whole webinar that's just employer plans that you can check out so you can kind of get a recap. It's a little bit more organized, step by step. Here's how they compare. Here's slides that tell you how much you can contribute. We can also send you the PowerPoint for that if you really wanted to have it and make Some better notes watching it yourself. We also have just a video on the solo 401ks because like I mentioned, they're a topic all on their own. I can spend an hour and a half depending on how many questions somebody had on a 401k consultation. And so basically we have 18 IRA specialists on staff here at Quest. So overall we're here to provide you that one on one consultation. Whether a personal account like a traditional or Roth IRA would work well. And going over those and if you have self employment income, how you can work with these accounts. And then it's also just super great to consult with your CPAs or tax advisors because you may need them to help you look over your income and make sure that you qualify to contribute to a SEP or simple or 401 and just how much you qualify to contribute from your self employment earnings.

Nice.

Beyond that, the Quest Expo, yeah, that's coming up and it's going to be off the hook. So we threw it in August of last year up in Dallas, Texas and before the event was over we had so many great reviews of the event from all the attendees that we said, heck, we need to do this again. Let's just pick a date right now next year and start marketing it and selling tickets. So we did. And it's growing up so fast, so we almost have like 300 ticket sales already. And by the time the event gets here, I have no doubt that it's gonna be close to like a thousand, maybe 800. So we're really going to knock it out of the park. Plus also just because we have so many clients in Houston, Texas, which is where we've moved the event this year. It's gonna be at the down in the Houston area on August 23rd through the 25th. And we already have a really great lineup of speakers. We're still confirming a few and putting together several panels. I'm really excited about it. But there's just so much that the event offers. You can definitely check it out@questexpo.com to actually see a little bit of a video of last year's. You'll really get a taste of just how much education, how much folks loved it and why. You should come and check it out too because they're going to cover fantastic topics from small dollar IRAs to asset protection and a whole lot more.

That's right. August 23rd through the 25th. If you use the discount code CARSON19, it'll give you a nice little discount off of the ticket price. It's a Friday Saturday and Sunday event going on. Not going till late, late on Sunday. Nathan confirmed with me recently. But the Friday, Saturday, Sunday, it's going.

To be like a half day on Sunday. Yeah, you're right, because folks got to travel home and we have so many people flying in for the event as well.

Yeah, exactly. So looking forward that you'll have vendor area booths, a lot of great stuff. We may actually be filming live podcast or two from the actual expo as well with everybody. Would be kind of fun for everybody to do. So.

That's incredible.

Yeah, yeah, definitely. So that's. Once again, guys, you can reach out to best phone number to give you a phone call at, Rebecca, or get any of the CISP professionals on the phone.

Oh, yeah. So 855-fun- IRAs is our toll free number. You can ask for an IRA specialist and they can definitely help you answer questions about our employer plan options. And then we can also schedule you a solo 401k consultation if that's the best account for you to get all the great benefits that the Solo 401k has too.

Now, are somebody able to like bring on their CPA and sit with you or get on the same phone with you at the same time too?

Oh, absolutely. Not a problem. Three way calls are more than welcome.

Awesome. Good stuff. Well, Rebecca, thank you so much for taking time. I know like I said, busy day there in Dallas with everything that happened over the weekend with the weather. You guys experienced a little bit of some stuff there at the offices too.

Oh yeah, there was definitely some water that came in one of our office suites right onto a new color printer. Like we're hoping it dries out. The thing's huge. It's the nicest printer that we have here in the office and water just poured down on it, so fingers crossed. Well, I mean, it's just a printer. We'll recover, we'll rebuild.

We'll rebuild. Exactly. Good stuff, Rebecca. Well, thank you so much for being on the Nooklust show podcast today. Alrighty.

Thank you so much for having me and have a great day.

You too, Rebecca. Go. See you later. Thanks. All right, everybody, that's gonna wrap it up for this episode of the Note Closer Show. Once again, check out Quest Trust Company if you're definitely one of those plans. Looks like it's gonna work for you. And feel free to give everybody a phone call anybody else over there at Quest Trust Company and get rock and roll. Otherwise, we'll see you all at the top, everybody.