| Self Directed IRA | Self Controlled 401k |
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IRA custodian required -Tax code requires a bank or trust company to hold title to the IRA as the custodian |
NO custodian required – Business owner is allowed to have 100% administration authority over their plan |
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IRA custodian – IRA owner must submit investment paper work and wait on the custodian to process |
NO custodian - Means no paper work to submit thus avoiding lost time or investment opportunity |
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IRA custodian - Can say “NO” to an investment if they are not comfortable with it or do not understand it |
NO custodian – Means no one can limit your freedom of choice. Note: You must avoid disallowed investments and prohibited transactions (check with your professional tax adviser) |
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IRA custodian - Charges ongoing percentage or transactional fees. Real estate investments involving multiple steps can add up fees very quickly in addition to the normal expenses associated with real estate transactions |
NO custodian – Equals more tax deferred profit inside your plan which in turn provides more capital for you to invest |
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IRA custodian – Controls the purse strings to your money. You are NOT allowed check book control |
NO custodian – You have 100% check book control of the funds inside your 401k via a checking / savings account held at one of the nation’s largest banks |
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IRA custodian – May allow the IRA to invest in a Limited Liability Company? May allow the IRA owner to manage the LLC including the checkbook? |
NO custodian – Your 401k does not require an LLC for you to have check book control, which avoids the extra layer of complications and bookkeeping |
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IRA tax code - Does NOT allow a married couple to comingle their funds into one common account. Nor does it allow joint ownership in a common investment such as real estate |
401k tax code - Designed to allow participants in the plan to pool their funds into a common account. Note: Selecting investments and the performance of investments is unique to each individual and must be accounted for on a separate basis |
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IRA tax code - Does NOT allow long term personal loans to be issued to the IRA owner |
401k tax code – Says, YES… Participant loans can be issued under the 50/50/5 rule. 50% of account value up to a maximum of $50,000 with a maximum loan term of 5 years |
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IRA TAX TRAP – When financing is used to leverage an investment (i.e. real estate) inside the IRA this will result in a very nasty tax called Unrelated Business Income Tax (UBIT) of up to 15% payable by the IRA for the calendar year of the transaction |
401k tax code – Financing (leverage) of an investment inside the 401k does not (in the majority of cases) incur Unrelated Business Income Tax (UBIT) as long as personal non-recourse financing is used (always check with your professional tax adviser) |
