This Seems Too Easy, What Mistakes Could I Make?

By Peter Rizzo

Life Settlements in a Retirement Account? Think Again.

This is a question we get asked every day not only by new clients but by existing clients as well. When looking at the different road maps and reading the website, there seems like very few rules for something that we have been told is very complicated. The rules of Checkboook IRA LLC and the Solo 401(k) are very simple.

Here are a few tips to stay on the right side of the rules:

  1. Be a good record keeper. This may seem very simple and rudimentary, but many people let the record-keeping get away from them and then end up with weeks of work or just saying, “I will start tomorrow,” and never do. Nothing will make an auditor more suspicious than someone with bad records.
  2. For the Checkboook IRA LLC be sure to use the EIN of the custodian for any accounts other than a bank account. People are often confused about this and end up having to change 1099’s for their transactions. If you have a solo 401(k) you use the EIN of the plan with all your transactions and Bank Account. Failure to do this properly could result in improper reporting of transactions to the IRS.
  3. If you have a Solo 401(k): The 5500EZ form is due July 31 of each year for any plan with the value of over $250,000. Remember that date.
  4. If you have a Checkbook IRA LLC, know the LLC registration requirements in your state. It is important to file the registration when due for some states do not require a registration fee but have a very stiff penalty if you don’t register on a yearly basis.
  5. When setting an account up crypto exchanges, investment clubs and any other investment remember you’re setting up for the LLC and not yourself personally. In the case of the solo 401(k) you’re setting it up for the Solo 401(k) plan.
  6. Do not deal with disqualified parties. It’s very easy: it’s your first line relatives—mother, father, spouse (partner) child, grandchild and mother and father in-laws. As much as you would love to invest in a rental property for your son or daughter in college, don’t do it.
  7. Be sure you have what you say you have in investments in your LLC or solo 401(k). It’s important to be honest about what investments and their value. 
  8. Your investments are not for your personal use; they are there for investment purposes to grow your retirement account value and a shelter to future taxes, in the case of a ROTH.
  9. Remember what work you can or cannot do on a Real Estate investment. You can’t do  any maintenance or improvement of the property by yourself but you can do administrative tasks such as rental management, hiring contractors and accounting in the case of a rental property.
  10. Be aware what you can and can’t invest in. If you have Checkbook IRA LLC, everything except for collectibles and life insurance is acceptable and the solo 401(k) virtually anything that is legal is acceptable. We always tell people though with the Solo 401(k) if you are investing in life insurance work with your CPA, for there are some nuances that you must follow and it’s best to have a CPAs guidance.
  11. With the popularity of cryptocurrency, it is important to understand that we are following and you should follow anything new that might come up with the rules for retirement accounts. Right now everything is permissible but that could change and you must keep up-to-date on any new developments.

This list must seem very rudimentary, but it is very simple and the rules are very simple to follow. We always caution people that an IRA or solo 401(k) are very good tools to invest your retirement dollars in alternative investments such as cryptocurrency real estate mortgage notes or other types of investments that are not usually found in some of the big brokerage houses.

Even the normal stock accounts are popular with our clients, for they feel they have the ultimate control over them and you can move the money in a heartbeat to different investments. So our message is very simple: Follow the rules and you can achieve great wealth and it’s not worth risking your account to break them.

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