June 11, 2025 • 30 mins
Feeling the chaos of the stock market in your retirement plans?
This episode explores how the Solo 401k, a powerful strategy for self-employed professionals and small business owners, puts you back in control.
Expert Dmitriy Fomichenko joins the show to explain how you can use it to bypass custodians, invest in real estate, save aggressively on taxes, and take full control of your financial future.
This conversation is a masterclass in building tax-free wealth. We explore how to use your Solo 401k for real estate investing, creating leverage without the usual penalties.
You'll also learn the critical differences between an IRA vs 401(k) vs Solo K, and the prohibited transactions you must avoid staying compliant with IRS rules.
If you're ready to make your money work smarter, this episode is your blueprint.
TIMESTAMPS:
00:00 – Intro: Why Solo 401ks Matter Now
01:18 – Dmitriy's Immigrant Journey & Founding Sense Financial
02:54 – IRA vs 401(k) vs Solo K Explained
04:43 – Investing Beyond Wall Street
6:55 – Massive Tax Advantages of Solo Ks
11:24 – Real Estate Leverage Without Tax Penalties
14:06 – Prohibited Transactions & IRS Rules
19:44 – Maintenance Made Easy
23:10 – Dual 401k Strategy for Married or Multi-Income Households
26:41 – Final Tips: Control, Leverage & Long-Term Wealth
28:47 – Where to Connect with Dmitriy
Guest:
Dmitriy Fomichenko
Website: https://www.sensefinancial.com
HOST:
Melissa Aarskaug
Executive Connect: https://www.executiveconnectpodcast.com
YouTube: https://www.youtube.com/@ExecutiveConnect
CONNECT WITH US:
Podcast Website: https://www.executiveconnectpodcast.com
YouTube: https://www.youtube.com/@ExecutiveConnect
SOCIAL:
LinkedIn: https://www.linkedin.com/in/melissa-aarskaug/
TikTok: https://www.tiktok.com/@melissa_aarskaug
X: https://x.com/melissaaarskaug
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Anybody who has an income or has other retirement account can set up an IRA and contribute individually the limit for contribution is
(00:08):
$7,000 a year. But when you're self-employed or on a business and if you're good at that you have virtually unlimited
income potential there because you can build a system and you can make a lot more money.
So if you're good at what you do and you stop generating good income the problem that
we all have in common the more income we make the more taxes we can pay you can go off-road you can go
(00:31):
in the mud you can get through the snow so that's what we provide in for you we provide
in you with that vehicle that can go anywhere you want pretty much and you're in in the driver's seat
the fact is this no one is going to care more about you retirement than you are but start
to your own and then educating yourself so that's when the opportunity comes you can take a lot of
(00:54):
children tired of watching your retirement savings do the cha cha with a stock market what if
you could take control of your money and make it work for you without paying extra to a custodian
today on financial freedom blueprint we're diving deep into solo 401k's aka solo case it's the
(01:17):
ultimate retirement plan for the self-employed and small business owners get ready to learn how to
build wealth leverage real estate and enjoy tax deferred or tax-free growth all while staying in the
driver's seat whether you're flipping properties running an online business or just want your
(01:39):
retirement accounts to stop snoozing this one's for you welcome to meet tree thank you so much for
inviting me it's great to be here with you we can forward i'm so excited to talk to you and hear
a little bit about your background now to kick it off tell me a little bit about you and i love
(02:02):
your accent let's talk a little bit about where you're from and how you got into the business you're
in today sure yeah i do have an interesting story as you can hear from my accent i'm not from here
originally i actually immigrated in this beautiful country back from the former subit union
(02:23):
so i'm from brash originally but it's been 29 years
ago so hard to believe how time flies we came here as refugees my parents and grandparents they
been persecuted for their fate for their christian beliefs and my grandfather actually was sentenced
(02:46):
to death because of holding a bible study my father was kicked out from the medical school
but bought my parents and my grandparents they ended up here my grandparents are gone now but i
have a great heritage and i'm so blessed to live here in this beautiful country especially
(03:08):
with the fact what's going on in my home country when i was born
thank you for that that must be very difficult and i were grateful to have you here and i want to
take a deep dive into all things solo 401k and solo k it's often called the ultimate retirement plan
(03:34):
could you help me understand the difference between ira's 401ks and why self-deployed individuals
should consider a 401ks, excuse me, a solo k ready to lead smarter and invest wiser on the executive
connect podcast we unpack executive strategies for wealth and influence hit the subscribe button now
(03:58):
don't just watch acts absolutely yeah so an ira's individual retirement account anybody who has
an income or has other retirement account can set up an ira and contribute individually the limit
for contribution is seven thousand dollars a year now there are employer sponsored plans such as 401k
(04:22):
403b 457 those are established by the employer that you're working for and they offered the
opportunity for you to contribute to that plan but if yourself employed or own a small business without
full-time employees working for you then you can actually establish your own plan that's where the
solo 401k comes in because in the solo 401k essentially it's a 401k like you might have
(04:49):
working for somebody but you got to have your own business or you establish a 401k and there is
no other participants in this plan besides business owner and sometimes the spouse also participates
this plan are plans are very powerful number of advantages but that's the difference between
(05:11):
those various retirement plans that's a great example so talking a little bit about your
retirement your roles unlike ira's solo k's give you the freedom to invest in a very different
a variety of different assets and kind of like you mentioned it when you work at a w2 job you have to
(05:36):
invest in exactly what that employer has for you to look at what are some of the non-traditional
investments that can supercharge retirement savings yeah so the problem is with having
a just a conventional retirement account whether it's an ira or a 401k or even a solo 401k
(05:59):
because guess what you can establish solo 401k you can go to vanguard or fidelity and you can
establish solo 401k if you're self-employed but it will be a custodial plan there is a custodian
let's call them a middleman they hold the assets of your 401k and they provide you the investment
platform and as a custodian they have the power to limit the investment choices for you
(06:23):
and they always limit to those confined to the stock market because that's how they make money
by selling you those kinds of investments well they're different we're working with self-employed
individuals we're establishing the plan for them but we're not a custodian we're just a document
provider and when we create this plan for them it's an open architecture plan the plan documents
(06:47):
don't have any restrictions on investments again those restrictions are placed by the custodian
that you're with the fidelity the Schwab the Merrill range the Vals Fargo right well when you have
a solo 401k plan created by our team then you don't have restrictions iRize doesn't have restrictions
for real estate or alternative assets you can invest in virtually anything let me actually correct
(07:14):
myself there are some restrictions and we can get into those just just limitations but you can
invest in virtually anything with some drinks at solo 401k plan a lot of our clients invest in
real estate the problem look this is not new Melissa what we are experienced just in the last couple of
(07:35):
weeks with the with the tariff announcements the market dropped 20 percent I mean that's for some
people who are approaching retirement and they need this kind of money it can be devastating loss
well guess what you and I we have no control over that we have no control over that when you
invest in alternative assets you have much greater control and your risk is much smaller
(07:59):
yes spot on I know I I personally hate when the market goes down 20 percent it is not a great day
for me I know one thing that has become such a hot topic is taxes right we all two things for certain
we're paying taxes and we're gonna die I want to talk about the tax advantages and kind of the power
(08:24):
play of the solo case you can you can minimize or even a limit them I understand so can you explain
to us a little bit about pre tax Roth and the profit sharing contributions that work within an
actual solo okay absolutely yeah let's dive into that let me just give you a quick disclaimer here
(08:46):
I'm not a CPA taxes is not my area of expertise I understand enough taxes I've done my own taxes
for a number of years I don't do them now because of the complexity of my tax situation but I
talk with people every day I can say that probably I know more than some of the CPAs out there
(09:07):
but again I'm not I'm not tax expert so let me just give you a general a picture here a dry picture
for you well if if you own a business or self-employed the difference between being an employer
right because if you're working for someone you your ordinary salary or you get an hourly pay
(09:29):
there is a limit right because look there is a 20 24 hours on a day you can work more than 24 hours
for somebody but when you're self-employed or on a business and if you're good at that you have
virtually unlimited income potential there because you can build a system and you can make
(09:49):
a lot more money so if you're good at what you do and you start generating good income the problem
that we all have in common the more income we make the more taxes we're gonna pay right so solo
for one key on top of all the other advantages being able to invest in alternative assets it's a
great tax shelter because guess what with the solo for one key you can contribute to this plan
(10:15):
over 70 thousand dollars a year per person okay per participant so think about this way
if you also bring your spouse into the picture right your your spouse is also involved in your
business and your spouse also receives compensation from your business then you can double that
now think about that if you put 70 grand and your spouse put 70 grand that's 140 thousand dollars
(10:41):
so what you're doing is you actually dropping your taxable income or reducing your tax
taxable income by 140 thousand dollars in this example well immediately you probably will drop a
couple of a couple of tax brackets down so you're gonna be paying 140 thousand dollars less in a
(11:02):
lower tax bracket so the tax savings can be 40 50 60 thousand dollars potentially depending
on your overall picture so this is a great tax shelter rather than paying to the ankle
stem why not set up a self-directed solo for one key contribute to that plan maximize your
contributions reduce your tax liability by yourself instead of to the ankle stem and then the money
(11:27):
that you contribute now you have in your solo for one key you get to invest how you wish so it's
super awesome every time I talk about this I get excited because it's it's it's so powerful
I love it and I love here enthusiasm with it and it's great because now you're really making your
money work for you while you're also working for your money so that's a great a great point with
(11:55):
the spousal contributions I'm curious um you know I think I hear a lot as well Demetri is real estate
I hear a lot of people that are looking at a piece of real estate as a retirement so I want to talk
a little bit about many investors don't realize that they can leverage real estate inside of solo
(12:17):
k without getting hit by the u d f i taxes so how can you use non-recourse loans for real estate work with
and real I guess the second question is what are the benefits of doing that are you a high income
professional looking for smarter ways to protect your wealth the Texas Freedom Fund gives you the
opportunity to invest in energy assets leveraging proven fracking technology and prime access to
(12:42):
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from tax advantages under laws dating back to the Reagan era take control of your financial future
visit texasfreedomfund.executiveconnectpodcast.com
yeah so actually that's a great question Melissa but let me back up a little bit okay let me explain
(13:04):
the difference between a sub-directed IRA and a sub-directed solo funder and k and how that affects
leverage real estate so when you buy real estate inside inside of an IRA um you can pay cash for it
obviously it's not advantageous so it's best to use leverage and you can use leverage inside of
(13:27):
a retirement account some people just pay cash but you can actually obtain financing now one of the rules
that IRS places on retirement accounts is that you as the account owner cannot provide a guarantee
for the loan inside of a retirement account whether it's an IRA or 401k therefore the loan must be
(13:49):
non-recourse non-recourse simply means that you're not providing guarantee in the property is the only
security for a loan now typically the rate is gonna be a little bit higher and typically the
lenders will require a 20 to 40% down but you can still find us even if you put 50% down you can buy
two properties instead of one right so when you do that inside of an IRA the portion of the income
(14:15):
that is derived from the leverage portion of the property it's called unrelated debt financing
can or uDFI now this income inside of an IRA is subject to UBIT which stands for unrelated
business income tax okay so if you finance property inside of an IRA you can do that
(14:37):
you can set up a self-directed IRA you can buy a property using leverage but then
portion of the income will be subject to taxation when you do that inside of a solo 401k
solo 401k is exempt from taxes on leverage truly state so this is a great way to use self-directed
solo 401k to buy real estate with leverage and pay zero taxes that's great thank you for making
(15:04):
sense no no that was a great explanation thank you for sharing i think it helps us understand
the differences um i'm a big fan of understanding what not to do with investments because sometimes
it's harder to unwind then just do it right the first time so i want to talk a little bit about
insights on what's prohibited so with great responsibility comes or with great power comes great
(15:29):
responsibility so what are some of the common and prohibited transactions when it comes a solo case
that people should avoid really so i love that with freedom comes responsibility right so solo
401k gives you a lot of freedom this is uh you know let me actually before we dive into that let me
(15:53):
use this illustration because i love this i often use this and in my consultations when i explain
this to to new worklions for those for whom this subject is new what we're basically doing for you
is we creating a vehicle and let me use this illustration let's say you have just a regular
(16:14):
handa court right and and you driving that you get off your driveway and you you go on the street
you take the highway right you you get from point A to point B but there are limitations you can go
offroad with this vehicle now imagine that you now have a four by four may say this that uh can go
(16:34):
anywhere right you can go offroad you can go in the mud it's four by four it won't get stuck you can
even get through the mud you can get through the snow right so that's what you're providing for you
you're providing you with that vehicle that can go anywhere you you won't pretty much and you're
in in the driver's seat you're not there with you you're providing the vehicle you're you're driving it
(16:58):
you're in the driver's seat now irs has certain restrictions and those restrictions uh two
aspects you need to understand number one with an IRA you cannot invest in life insurance
and collectibles so collectibles and life insurance are are disallowed investments the only two
(17:21):
not the only two that you remember now one more is a sub chapter s corporation and the reason for
the sub-s chapter s is because to invest in the s corp you have to be a physical person and your
IRA or 401k is not a person it's it's an entity but it's not a person so those are the only investment
(17:42):
limitations that so you you can invest that's why in virtually anything real estate a private
landm a trustees cryptocurrency precious metals a private companies you can go outside of the
country i have clients from a lower and they actually invest a lower majority of them are obviously
(18:03):
in the u us but i have clients who invested in India in Canada and South America in Japan in europe
you can do all of that you can actually buy investments outside of the u s you you're not limited
because again the only two investments that are disallowed collectibles and life insurance now in
(18:24):
addition to that irs defines uh yourself which is uh as an account owner you and your immediate
family members as disqualified persons and as a disqualified person you're prohibited from engaging
in any transaction with your retirement account whether it's an IRA or 401k or providing
(18:47):
any services to retirement account and let me give you a couple examples right let's say you buy
an property uh in your soul of 401k and that property might need some work right it needs some fix up
you cannot do the work you cannot hire your father to do the work or your father's company to do the
(19:08):
work because there is a connection your your immediate family members uh and that's your parents
grandparents uh your your kids uh grandkids and their spouses and your spouse and yourself
so think of it a vertical line okay that's easy to understand a vertical line
you can go sideways your cousin your your sibling your nephew your uncle or aunt
(19:34):
those are not disqualified so you could technically if you buy a property that needs fix up and your
uncle owns a construction company your 401k and hire your ankles company to do the work
but not immediate family members another example you are buying a property somewhere at the uh
(19:55):
maybe vacation destination uh place maybe it's an under beach or uh in in the mountains or in the lake
you're not allowed to use that yourself or your immediate family members cannot use that
whether you pay a fair rent or not receiving the benefit from the asset that your 401k
owns constitute a prohibited transaction so the easy way to remember is that all the transactions
(20:22):
involving your IRA or 401k from that matter must be arms lent and arms lent mean in that
no disqualified person is involved in the transaction in any way whether it's directly or indirectly
and that's how you stay out of trouble uh there's so much you can do with this but yeah there are
(20:43):
a little bit of a boundary that boundaries that you need to be aware of those are great examples
I appreciate you sharing those um and correct that's what I was actually trying to say with great power
comes great responsibility thank you for that yes let's talk like easy one two three maintenance
(21:06):
so setting up a for a solo k sounds amazing but complicated so can you share a little bit about
what's the process and what should listen listeners will consider to maintain these solo 401k's
yeah so uh the process is pretty straightforward because you are not doing all the work we're doing
(21:29):
all the work for you okay now we're establishing the plan we're gonna maintain that for you
or in compliance with IRS now uh the investments that you're gonna make with your 401k those are
your responsibility because remember you're in the driver's seat so you need to understand the rules
they're not rocket science they're pretty simple to understand okay and I always tell my clients
(21:52):
look if you're not sure about something don't do it until you talk to me or someone on my team
ask the question before don't don't ask me question after the fact ask me before we're available our
clients have unlimited access to us we provide unlimited support so again once you understand the
(22:14):
rules they're easy but maybe in the beginning there might be a learning curve and that's why you're
there for you but if you if you're in the position right and that sounds attractive to you you
want to be in control of your retirement because you know frankly Melissa the fact is this no one is
going to care more about your retirement than you are won't you agree oh yes 100% and that's why
(22:41):
now I'm not telling you become super expert in investing or real estate and things like that
you can certainly use resources that are available but at least be the the main decision maker
right and you can utilize the expertise of maybe a property manager or some investment providers
(23:02):
and so forth but you know don't just you know hang off hang off your retirement to somebody else
because they probably not going to do as good of a job as you can because you ultimately you can more
so once you make that decision you can talk to our team you'll complete an application just a simple
(23:24):
basic information about you in your business we'll take you 10 to 15 minutes to complete
and then my team will create the plan documents for you it takes a couple days to drop the documents
then we'll send them to you for your signature you sign it now your plan is an effect the next step is
you're gonna do the rollover or or you're gonna fund your solo for our okay and there's two ways to
(23:47):
fund it number one is you can do a rollover from existing retirement plan so if you have an IRA
if you have an old employer 401k or a pension plan you can move those into solo for a 1k solo
for a 1k will accept rollover from any other qualified retirement plan with one exception
(24:09):
and that one exception is the RAT IRA so if you have a RAT IRA it cannot be moved to solo for a 1k
it can be self-directed too so you can get control of the funds it just cannot be moved to solo for a 1k
so that's one way go ahead i was gonna ask you it made me think when you said that so for the the
(24:31):
married couple were ones the w2 employee and one owns a small business can they have both a solo
k and a 401k that they're contributing to what wall each okay to the plan it's it's not even about
the spouses right i just let's say you right you you've worked for the employer just one individual
(24:53):
you've worked for the employer you have a 401k to your employer but guess what on the side you flip one
property a year right a good example of flipping a lot of my clients and real estate many of them flip
so if you flip one property a year guess what you're in business you're self-employed or maybe you
have a real estate license and you do one cell a year right or maybe you drive for uber and
(25:18):
and and and in fact if if you just employed and you don't have any self-employment activity maybe
you should start driving for uber one time a quarter right and generate that self-employment
activity to be eligible for solo 401k so that you can take advantage of that and and you can have
the employer 401k and you can have a solo 401k as well you can have multiple 401k's at once
(25:44):
that sounds like a winner strategy to me to me tree i love that example i want to get
kind of any final thoughts or any kind of extra tips and tricks that we may have missed
that you want to share with our listeners yeah absolutely so remember that you have unlimited
(26:04):
investment potential there unlimited investment options and you you want to invest in something
that you understand so i'm not going to tell you what to invest your money i mean if you're comfortable
with the stock market stay where you are but if you want to invest in something that you have
better understanding again many of my clients are real estate agents so you're in real estate you
(26:30):
help people buy maybe investment real estate you understand that that nature of that business
then you probably will do better investing in real estate because look you can also use leverage
you can use leverage to your advantage and you can buy you can actually increase the purchase
in power can do that with the stock market unfortunately and you have no control over the stock
(26:55):
market but with alternative assets you have much greater control you you can minimize the risk too
because look stock market we've seen that and we're talking about the 20% drop that's just across
right if you're invested in index mutual fund you're you experience probably 20% drop or so but if
(27:17):
you're investing in individual stock you can you can lose everything i'm not a stock investor i'm
gonna have me that i have a little bit money in index mutual funds but i wanted to play with the
stock market let me just share my experience extend which is again limited i opened the educational
account for my daughter and i just want to play with this so i put four grand in there and i bought a few
(27:42):
stocks okay and one of them went almost to zero now granted i didn't invest much in that it was
the money that i didn't care about losing but it went almost to zero i don't know if it's ever coming
back so that's the the challenge of this and i have no control over that it's not gonna happen
with real estate because you have physical acid there that is you know there is always demand
(28:08):
then as we've seen in over time real estate goes up in the value yeah it made me think when you were
mentioning earlier about the stock market going down 20% i hear that a lot with friends that work for
large publicly traded companies they're investing a lot of money because they can buy the stock cheaper
(28:30):
at the company they work for so they they're dumping a lot of their money into stocks like you said
that they cannot control so i think this is a great solution for those who kind of can wear both hats
we have covered so much today i love it solo k's are the place to be for anyone that's looking to
(28:52):
learn more about solo k's or connects with you where can they find you well you can find me
anywhere on social media and facebook and linked to you and i have a unique name so i think you'll
find me there bigger pockets and instagram but you can also just go to our website which is
(29:14):
sensfinancial.com sense is common sense because what we're talking about here is a common sense
so sensfinancial.com and you can request a consultation complimentary consultation with one of our
retirement account experts i don't do those as much now but whenever i do a consultation with someone
(29:38):
i always try to put myself on your shoes i want to understand your situation before i can tell you
you know maybe give me some recommendation what makes sense what doesn't make sense ultimately
it's your decision you're going to have to make that decision because it's your retirement
but i'll give you my recommendation so feel free to reach out and you can speak either with myself or
(30:02):
one of my team members and just explore start learning this may or may not be for you now this might
be a good opportunity for you maybe for the future but start learning and educating yourself so that
when the opportunity comes you can take advantage of it. Demetri thank you so much for being here
(30:24):
and sharing your time with our listeners that's the executive connect podcast
Anybody who has an income or has other retirement account can set up an IRA and contribute individually the limit for contribution is
(00:08):
$7,000 a year. But when you're self-employed or on a business and if you're good at that you have virtually unlimited
income potential there because you can build a system and you can make a lot more money.
So if you're good at what you do and you stop generating good income the problem that
we all have in common the more income we make the more taxes we can pay you can go off-road you can go
(00:31):
in the mud you can get through the snow so that's what we provide in for you we provide
in you with that vehicle that can go anywhere you want pretty much and you're in in the driver's seat
the fact is this no one is going to care more about you retirement than you are but start
to your own and then educating yourself so that's when the opportunity comes you can take a lot of
(00:54):
children tired of watching your retirement savings do the cha cha with a stock market what if
you could take control of your money and make it work for you without paying extra to a custodian
today on financial freedom blueprint we're diving deep into solo 401k's aka solo case it's the
(01:17):
ultimate retirement plan for the self-employed and small business owners get ready to learn how to
build wealth leverage real estate and enjoy tax deferred or tax-free growth all while staying in the
driver's seat whether you're flipping properties running an online business or just want your
(01:39):
retirement accounts to stop snoozing this one's for you welcome to meet tree thank you so much for
inviting me it's great to be here with you we can forward i'm so excited to talk to you and hear
a little bit about your background now to kick it off tell me a little bit about you and i love
(02:02):
your accent let's talk a little bit about where you're from and how you got into the business you're
in today sure yeah i do have an interesting story as you can hear from my accent i'm not from here
originally i actually immigrated in this beautiful country back from the former subit union
(02:23):
so i'm from brash originally but it's been 29 years
ago so hard to believe how time flies we came here as refugees my parents and grandparents they
been persecuted for their fate for their christian beliefs and my grandfather actually was sentenced
(02:46):
to death because of holding a bible study my father was kicked out from the medical school
but bought my parents and my grandparents they ended up here my grandparents are gone now but i
have a great heritage and i'm so blessed to live here in this beautiful country especially
(03:08):
with the fact what's going on in my home country when i was born
thank you for that that must be very difficult and i were grateful to have you here and i want to
take a deep dive into all things solo 401k and solo k it's often called the ultimate retirement plan
(03:34):
could you help me understand the difference between ira's 401ks and why self-deployed individuals
should consider a 401ks, excuse me, a solo k ready to lead smarter and invest wiser on the executive
connect podcast we unpack executive strategies for wealth and influence hit the subscribe button now
(03:58):
don't just watch acts absolutely yeah so an ira's individual retirement account anybody who has
an income or has other retirement account can set up an ira and contribute individually the limit
for contribution is seven thousand dollars a year now there are employer sponsored plans such as 401k
(04:22):
403b 457 those are established by the employer that you're working for and they offered the
opportunity for you to contribute to that plan but if yourself employed or own a small business without
full-time employees working for you then you can actually establish your own plan that's where the
solo 401k comes in because in the solo 401k essentially it's a 401k like you might have
(04:49):
working for somebody but you got to have your own business or you establish a 401k and there is
no other participants in this plan besides business owner and sometimes the spouse also participates
this plan are plans are very powerful number of advantages but that's the difference between
(05:11):
those various retirement plans that's a great example so talking a little bit about your
retirement your roles unlike ira's solo k's give you the freedom to invest in a very different
a variety of different assets and kind of like you mentioned it when you work at a w2 job you have to
(05:36):
invest in exactly what that employer has for you to look at what are some of the non-traditional
investments that can supercharge retirement savings yeah so the problem is with having
a just a conventional retirement account whether it's an ira or a 401k or even a solo 401k
(05:59):
because guess what you can establish solo 401k you can go to vanguard or fidelity and you can
establish solo 401k if you're self-employed but it will be a custodial plan there is a custodian
let's call them a middleman they hold the assets of your 401k and they provide you the investment
platform and as a custodian they have the power to limit the investment choices for you
(06:23):
and they always limit to those confined to the stock market because that's how they make money
by selling you those kinds of investments well they're different we're working with self-employed
individuals we're establishing the plan for them but we're not a custodian we're just a document
provider and when we create this plan for them it's an open architecture plan the plan documents
(06:47):
don't have any restrictions on investments again those restrictions are placed by the custodian
that you're with the fidelity the Schwab the Merrill range the Vals Fargo right well when you have
a solo 401k plan created by our team then you don't have restrictions iRize doesn't have restrictions
for real estate or alternative assets you can invest in virtually anything let me actually correct
(07:14):
myself there are some restrictions and we can get into those just just limitations but you can
invest in virtually anything with some drinks at solo 401k plan a lot of our clients invest in
real estate the problem look this is not new Melissa what we are experienced just in the last couple of
(07:35):
weeks with the with the tariff announcements the market dropped 20 percent I mean that's for some
people who are approaching retirement and they need this kind of money it can be devastating loss
well guess what you and I we have no control over that we have no control over that when you
invest in alternative assets you have much greater control and your risk is much smaller
(07:59):
yes spot on I know I I personally hate when the market goes down 20 percent it is not a great day
for me I know one thing that has become such a hot topic is taxes right we all two things for certain
we're paying taxes and we're gonna die I want to talk about the tax advantages and kind of the power
(08:24):
play of the solo case you can you can minimize or even a limit them I understand so can you explain
to us a little bit about pre tax Roth and the profit sharing contributions that work within an
actual solo okay absolutely yeah let's dive into that let me just give you a quick disclaimer here
(08:46):
I'm not a CPA taxes is not my area of expertise I understand enough taxes I've done my own taxes
for a number of years I don't do them now because of the complexity of my tax situation but I
talk with people every day I can say that probably I know more than some of the CPAs out there
(09:07):
but again I'm not I'm not tax expert so let me just give you a general a picture here a dry picture
for you well if if you own a business or self-employed the difference between being an employer
right because if you're working for someone you your ordinary salary or you get an hourly pay
(09:29):
there is a limit right because look there is a 20 24 hours on a day you can work more than 24 hours
for somebody but when you're self-employed or on a business and if you're good at that you have
virtually unlimited income potential there because you can build a system and you can make
(09:49):
a lot more money so if you're good at what you do and you start generating good income the problem
that we all have in common the more income we make the more taxes we're gonna pay right so solo
for one key on top of all the other advantages being able to invest in alternative assets it's a
great tax shelter because guess what with the solo for one key you can contribute to this plan
(10:15):
over 70 thousand dollars a year per person okay per participant so think about this way
if you also bring your spouse into the picture right your your spouse is also involved in your
business and your spouse also receives compensation from your business then you can double that
now think about that if you put 70 grand and your spouse put 70 grand that's 140 thousand dollars
(10:41):
so what you're doing is you actually dropping your taxable income or reducing your tax
taxable income by 140 thousand dollars in this example well immediately you probably will drop a
couple of a couple of tax brackets down so you're gonna be paying 140 thousand dollars less in a
(11:02):
lower tax bracket so the tax savings can be 40 50 60 thousand dollars potentially depending
on your overall picture so this is a great tax shelter rather than paying to the ankle
stem why not set up a self-directed solo for one key contribute to that plan maximize your
contributions reduce your tax liability by yourself instead of to the ankle stem and then the money
(11:27):
that you contribute now you have in your solo for one key you get to invest how you wish so it's
super awesome every time I talk about this I get excited because it's it's it's so powerful
I love it and I love here enthusiasm with it and it's great because now you're really making your
money work for you while you're also working for your money so that's a great a great point with
(11:55):
the spousal contributions I'm curious um you know I think I hear a lot as well Demetri is real estate
I hear a lot of people that are looking at a piece of real estate as a retirement so I want to talk
a little bit about many investors don't realize that they can leverage real estate inside of solo
(12:17):
k without getting hit by the u d f i taxes so how can you use non-recourse loans for real estate work with
and real I guess the second question is what are the benefits of doing that are you a high income
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(12:42):
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yeah so actually that's a great question Melissa but let me back up a little bit okay let me explain
(13:04):
the difference between a sub-directed IRA and a sub-directed solo funder and k and how that affects
leverage real estate so when you buy real estate inside inside of an IRA um you can pay cash for it
obviously it's not advantageous so it's best to use leverage and you can use leverage inside of
(13:27):
a retirement account some people just pay cash but you can actually obtain financing now one of the rules
that IRS places on retirement accounts is that you as the account owner cannot provide a guarantee
for the loan inside of a retirement account whether it's an IRA or 401k therefore the loan must be
(13:49):
non-recourse non-recourse simply means that you're not providing guarantee in the property is the only
security for a loan now typically the rate is gonna be a little bit higher and typically the
lenders will require a 20 to 40% down but you can still find us even if you put 50% down you can buy
two properties instead of one right so when you do that inside of an IRA the portion of the income
(14:15):
that is derived from the leverage portion of the property it's called unrelated debt financing
can or uDFI now this income inside of an IRA is subject to UBIT which stands for unrelated
business income tax okay so if you finance property inside of an IRA you can do that
(14:37):
you can set up a self-directed IRA you can buy a property using leverage but then
portion of the income will be subject to taxation when you do that inside of a solo 401k
solo 401k is exempt from taxes on leverage truly state so this is a great way to use self-directed
solo 401k to buy real estate with leverage and pay zero taxes that's great thank you for making
(15:04):
sense no no that was a great explanation thank you for sharing i think it helps us understand
the differences um i'm a big fan of understanding what not to do with investments because sometimes
it's harder to unwind then just do it right the first time so i want to talk a little bit about
insights on what's prohibited so with great responsibility comes or with great power comes great
(15:29):
responsibility so what are some of the common and prohibited transactions when it comes a solo case
that people should avoid really so i love that with freedom comes responsibility right so solo
401k gives you a lot of freedom this is uh you know let me actually before we dive into that let me
(15:53):
use this illustration because i love this i often use this and in my consultations when i explain
this to to new worklions for those for whom this subject is new what we're basically doing for you
is we creating a vehicle and let me use this illustration let's say you have just a regular
(16:14):
handa court right and and you driving that you get off your driveway and you you go on the street
you take the highway right you you get from point A to point B but there are limitations you can go
offroad with this vehicle now imagine that you now have a four by four may say this that uh can go
(16:34):
anywhere right you can go offroad you can go in the mud it's four by four it won't get stuck you can
even get through the mud you can get through the snow right so that's what you're providing for you
you're providing you with that vehicle that can go anywhere you you won't pretty much and you're
in in the driver's seat you're not there with you you're providing the vehicle you're you're driving it
(16:58):
you're in the driver's seat now irs has certain restrictions and those restrictions uh two
aspects you need to understand number one with an IRA you cannot invest in life insurance
and collectibles so collectibles and life insurance are are disallowed investments the only two
(17:21):
not the only two that you remember now one more is a sub chapter s corporation and the reason for
the sub-s chapter s is because to invest in the s corp you have to be a physical person and your
IRA or 401k is not a person it's it's an entity but it's not a person so those are the only investment
(17:42):
limitations that so you you can invest that's why in virtually anything real estate a private
landm a trustees cryptocurrency precious metals a private companies you can go outside of the
country i have clients from a lower and they actually invest a lower majority of them are obviously
(18:03):
in the u us but i have clients who invested in India in Canada and South America in Japan in europe
you can do all of that you can actually buy investments outside of the u s you you're not limited
because again the only two investments that are disallowed collectibles and life insurance now in
(18:24):
addition to that irs defines uh yourself which is uh as an account owner you and your immediate
family members as disqualified persons and as a disqualified person you're prohibited from engaging
in any transaction with your retirement account whether it's an IRA or 401k or providing
(18:47):
any services to retirement account and let me give you a couple examples right let's say you buy
an property uh in your soul of 401k and that property might need some work right it needs some fix up
you cannot do the work you cannot hire your father to do the work or your father's company to do the
(19:08):
work because there is a connection your your immediate family members uh and that's your parents
grandparents uh your your kids uh grandkids and their spouses and your spouse and yourself
so think of it a vertical line okay that's easy to understand a vertical line
you can go sideways your cousin your your sibling your nephew your uncle or aunt
(19:34):
those are not disqualified so you could technically if you buy a property that needs fix up and your
uncle owns a construction company your 401k and hire your ankles company to do the work
but not immediate family members another example you are buying a property somewhere at the uh
(19:55):
maybe vacation destination uh place maybe it's an under beach or uh in in the mountains or in the lake
you're not allowed to use that yourself or your immediate family members cannot use that
whether you pay a fair rent or not receiving the benefit from the asset that your 401k
owns constitute a prohibited transaction so the easy way to remember is that all the transactions
(20:22):
involving your IRA or 401k from that matter must be arms lent and arms lent mean in that
no disqualified person is involved in the transaction in any way whether it's directly or indirectly
and that's how you stay out of trouble uh there's so much you can do with this but yeah there are
(20:43):
a little bit of a boundary that boundaries that you need to be aware of those are great examples
I appreciate you sharing those um and correct that's what I was actually trying to say with great power
comes great responsibility thank you for that yes let's talk like easy one two three maintenance
(21:06):
so setting up a for a solo k sounds amazing but complicated so can you share a little bit about
what's the process and what should listen listeners will consider to maintain these solo 401k's
yeah so uh the process is pretty straightforward because you are not doing all the work we're doing
(21:29):
all the work for you okay now we're establishing the plan we're gonna maintain that for you
or in compliance with IRS now uh the investments that you're gonna make with your 401k those are
your responsibility because remember you're in the driver's seat so you need to understand the rules
they're not rocket science they're pretty simple to understand okay and I always tell my clients
(21:52):
look if you're not sure about something don't do it until you talk to me or someone on my team
ask the question before don't don't ask me question after the fact ask me before we're available our
clients have unlimited access to us we provide unlimited support so again once you understand the
(22:14):
rules they're easy but maybe in the beginning there might be a learning curve and that's why you're
there for you but if you if you're in the position right and that sounds attractive to you you
want to be in control of your retirement because you know frankly Melissa the fact is this no one is
going to care more about your retirement than you are won't you agree oh yes 100% and that's why
(22:41):
now I'm not telling you become super expert in investing or real estate and things like that
you can certainly use resources that are available but at least be the the main decision maker
right and you can utilize the expertise of maybe a property manager or some investment providers
(23:02):
and so forth but you know don't just you know hang off hang off your retirement to somebody else
because they probably not going to do as good of a job as you can because you ultimately you can more
so once you make that decision you can talk to our team you'll complete an application just a simple
(23:24):
basic information about you in your business we'll take you 10 to 15 minutes to complete
and then my team will create the plan documents for you it takes a couple days to drop the documents
then we'll send them to you for your signature you sign it now your plan is an effect the next step is
you're gonna do the rollover or or you're gonna fund your solo for our okay and there's two ways to
(23:47):
fund it number one is you can do a rollover from existing retirement plan so if you have an IRA
if you have an old employer 401k or a pension plan you can move those into solo for a 1k solo
for a 1k will accept rollover from any other qualified retirement plan with one exception
(24:09):
and that one exception is the RAT IRA so if you have a RAT IRA it cannot be moved to solo for a 1k
it can be self-directed too so you can get control of the funds it just cannot be moved to solo for a 1k
so that's one way go ahead i was gonna ask you it made me think when you said that so for the the
(24:31):
married couple were ones the w2 employee and one owns a small business can they have both a solo
k and a 401k that they're contributing to what wall each okay to the plan it's it's not even about
the spouses right i just let's say you right you you've worked for the employer just one individual
(24:53):
you've worked for the employer you have a 401k to your employer but guess what on the side you flip one
property a year right a good example of flipping a lot of my clients and real estate many of them flip
so if you flip one property a year guess what you're in business you're self-employed or maybe you
have a real estate license and you do one cell a year right or maybe you drive for uber and
(25:18):
and and and in fact if if you just employed and you don't have any self-employment activity maybe
you should start driving for uber one time a quarter right and generate that self-employment
activity to be eligible for solo 401k so that you can take advantage of that and and you can have
the employer 401k and you can have a solo 401k as well you can have multiple 401k's at once
(25:44):
that sounds like a winner strategy to me to me tree i love that example i want to get
kind of any final thoughts or any kind of extra tips and tricks that we may have missed
that you want to share with our listeners yeah absolutely so remember that you have unlimited
(26:04):
investment potential there unlimited investment options and you you want to invest in something
that you understand so i'm not going to tell you what to invest your money i mean if you're comfortable
with the stock market stay where you are but if you want to invest in something that you have
better understanding again many of my clients are real estate agents so you're in real estate you
(26:30):
help people buy maybe investment real estate you understand that that nature of that business
then you probably will do better investing in real estate because look you can also use leverage
you can use leverage to your advantage and you can buy you can actually increase the purchase
in power can do that with the stock market unfortunately and you have no control over the stock
(26:55):
market but with alternative assets you have much greater control you you can minimize the risk too
because look stock market we've seen that and we're talking about the 20% drop that's just across
right if you're invested in index mutual fund you're you experience probably 20% drop or so but if
(27:17):
you're investing in individual stock you can you can lose everything i'm not a stock investor i'm
gonna have me that i have a little bit money in index mutual funds but i wanted to play with the
stock market let me just share my experience extend which is again limited i opened the educational
account for my daughter and i just want to play with this so i put four grand in there and i bought a few
(27:42):
stocks okay and one of them went almost to zero now granted i didn't invest much in that it was
the money that i didn't care about losing but it went almost to zero i don't know if it's ever coming
back so that's the the challenge of this and i have no control over that it's not gonna happen
with real estate because you have physical acid there that is you know there is always demand
(28:08):
then as we've seen in over time real estate goes up in the value yeah it made me think when you were
mentioning earlier about the stock market going down 20% i hear that a lot with friends that work for
large publicly traded companies they're investing a lot of money because they can buy the stock cheaper
(28:30):
at the company they work for so they they're dumping a lot of their money into stocks like you said
that they cannot control so i think this is a great solution for those who kind of can wear both hats
we have covered so much today i love it solo k's are the place to be for anyone that's looking to
(28:52):
learn more about solo k's or connects with you where can they find you well you can find me
anywhere on social media and facebook and linked to you and i have a unique name so i think you'll
find me there bigger pockets and instagram but you can also just go to our website which is
(29:14):
sensfinancial.com sense is common sense because what we're talking about here is a common sense
so sensfinancial.com and you can request a consultation complimentary consultation with one of our
retirement account experts i don't do those as much now but whenever i do a consultation with someone
(29:38):
i always try to put myself on your shoes i want to understand your situation before i can tell you
you know maybe give me some recommendation what makes sense what doesn't make sense ultimately
it's your decision you're going to have to make that decision because it's your retirement
but i'll give you my recommendation so feel free to reach out and you can speak either with myself or
(30:02):
one of my team members and just explore start learning this may or may not be for you now this might
be a good opportunity for you maybe for the future but start learning and educating yourself so that
when the opportunity comes you can take advantage of it. Demetri thank you so much for being here
(30:24):
and sharing your time with our listeners that's the executive connect podcast
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