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Senior Member
Posts: 2,324
Reply with quote  #1 
Alot of hoopla exists about having an IRA and a self directed provider.  But with contibution limits of 5500 / 6500 I'm not sure how quickly you can ramp up.  (Though if you buy options on your flips, maybe that might be a quicker acceleration).

But the contribution limits for a  solo 401K are much higher---maybe as high as $54,000.  To my way of thinking, contributions that high would ramp up alot quicker than the IRA limits.

So, for most real estate investors, if they had the solo 401k option, it would appear advantageous.

However, one serious problem is that only active type income qualifies---you can't use portfolio, dividend or interest income.

Also, your active earnings must far exceed the $54,000 in order to qualify----you can only contribute up to 25% of your income.   Which means that your active income would need to be $216,000 or more to qualify.

Although if you have that much active income, you are maybe paying alot more taxes anyway----if you are going to the trouble of pumping up your active income there may be a downside.

So, based upon one theory, you might be better off using some of your real estate to purchase an active business that would have active income that would qualify for solo 401k treatment.

But the then you are going to have to manage your new active business----plus you are setting yourself to (arguably) pay more taxes.

So, I see this is as a complicated issue.   I wish there was a business classified as active that didn't require so much oversight or management---that might be the best outcome.  Or maybe try to find some businesses related to real estate that qualify as active income.  But then you would also need to do the math to figure out if you are actually coming out ahead to a material degree.

So, I see this as an issue.

But rather than chasing after active income and the unique tax features of a solo 401k, it might (arguably) be better to just make the self directed IRA the recipient of options to buy and grow it that way.

Senior Member
Posts: 2,065
Reply with quote  #2 
Originally Posted by larrywww
(Though if you buy options on your flips, maybe that might be a quicker acceleration).

Larry, Can you explain options on flips?

Thank you.

Senior Member
Posts: 2,324
Reply with quote  #3 
Your IRA buys an option of some % of your flip deals.  

I think they explain that your IRA can be a partner with another party if the jump into the deal at the same time.

I know that Rick Solis had a complicated partnership with a property manager in which his IRA was given a % of the ultimate profit and his IRA money helped to fund the deal.  (I think he described how he did these deals with Andrea Esplin in the Norris Podcast some years ago---I think the programs are still there).

FYI, I don't consider myself a tax expert or an IRA expert-----but I think it's possible.  (If it isn't, I would be interested to know about it).

I have never seen the paperwork that was used----maybe it his partner's flips that his IRA owned a % of ---(who wasn't his relative or an excluded person, but someone who managed his properties)----I don't really know.

For example, here is an article that discusses partnering with your own IRA in buying real estate (although the possibility of prohibited transactions increases if you do this with yourself).

If you think about it----it's kind of astonishing that you could grow your IRA with the simple expedient of doing options---but I tend to think it is possible.

I don't know anyone in particular who teaches on this subject, but if you wanted someone in your area it is my belief that Dyches Boddiford (out of Atlanta, I think) might cover this in his course.

BTW, Rick Solis is supposed to show up on Norris' radio show next week. (I know this because Bruce Norris had to track him down by posting to his Facebook page---he has been on vacation since exiting the market).

Senior Member
Posts: 2,065
Reply with quote  #4 
A few years ago, as I was winding down my flipping activity, I remember Rick Solis explaining
a self-directed I.R.A. tactic that he conducted with his investing partner.

On every flip that they acquired, they would take out a hard-money loan on the property, alternating each other's I.R.A. as the beneficiary. I could go into further detail, but I'm sure you get the mechanics and benefits.

It was one of those circumstances where you say to yourself, "Jeez, I wish I had thought of that."

Senior Member
Posts: 2,324
Reply with quote  #5 
I agree.

I have always felt that Rick Solis---because he has been through multiple cycles and his proximity to Bruce Norris and his staff---always planned things pretty well.

Also, I've always liked his attitude---he would explain everything to you.

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Senior Member
Posts: 1,068
Reply with quote  #6 
Based on my observation, the American culture is different with ours. It seems easy for folks to pick up their bag and move. Home is where our family is. I have 5 siblings on my side and wife has 6 siblings on her side. Everyone is living within a 20 mile radius of San Jose. We can't move anywhere. You can say our parents had a lot of fun when they were young. [wink]

If it weren't for our families, I'd sell everything, pick up my bag, move to NC to retire and enjoy life with Paul even though I'm not doing too shabby here in the Bay. Looking at the folks around me, I'm so glad I'm out of the W2 life. Such a high stress life. Not worth it.


"Be formless, shapeless like water." Bruce Lee

Senior Member
Posts: 2,324
Reply with quote  #7 
The other issue with some of these type of retirement accounts is what happens when you hit age 70.5?

That means game over for a Traditional IRA, you can't further contribute to it, and you are required to make RMDs (required minimum distributions) from it.

Much better in this regard is a Roth IRA.  You can continue to contribute to a Roth, A Sep or a 401k past 70.5----provided you still have active income.

Here is an article on the subject.

As the article observes:

The rules for post-70 ½ IRA contributions depend upon whether the account is a traditional IRA, Roth IRA or SEP IRA. Direct contributions to a traditional IRA are not permitted after the client reaches age 70 ½, although the client may roll funds from another type of retirement account into his or her traditional IRA.

Conversely, the client may contribute directly to a Roth IRA after he or she has reached age 70 ½ (up to the annual $6,500 limit, which includes a $1,000 catch up amount). Direct Roth IRA contributions, however, are subject to income limitations that apply to reduce the contribution limits for taxpayers who earn more than $184,000 (married taxpayers) or $117,000 (single taxpayers) in 2016.

This means that although you can continue to contribute to your Roth IRA if you are under the income limits, if you are over those limits you can't do a backdoor Roth after age 70 ½. You can, however, convert some of your traditional IRA to a Roth IRA after taking our your required minimum distribution.

If you are still working, you can avoid required minimum distributions and continue contributions to your employer-sponsored 401(k) or SEP IRA. You also don't need to start taking required minimum distributions so long as you do not own 5% or more of the company:

Clients who are still working after age 70 ½ may generally continue contributing to employer-sponsored 401(k) accounts and SEP IRAs. In fact, employers must continue to make employer contributions to the SEP IRA of an employee who is over age 70 ½ if it makes similar contributions to younger employees’ accounts.

If the client plans to work past age 70 ½, he or she can avoid RMDs by leaving the funds in the employer-sponsored 401(k). As long as the client continues to work for the same employer that sponsors that plan, and does not own 5% or more of the company, he or she can avoid taking distributions from a 401(k), thereby avoiding the associated income tax liability that those distributions generate.


There are great tax savings opportunities between age 70 ½ and age 90. Which options provide the best tax savings depends on your specific situation.
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