Solo401K/Revocable living trust

[retire to nature]

Hi All,

Hope you are doing well. I am almost 1 year semi retire soon in couple month. My times flys, no bordem at all. haha

Even though I studied a lot about FIRE and retirement plan, I have learned about solo401k lately. I could have started from 2016. I was doing just company 401k max. I lost my nursing job 401k this year, so I want to open solo401k account to cut taxes.

With the lack of study, I thought, I could just saving solo401k like IRA, but I had to make EIN number and now realizing have to make revocable living trust.

I am single no kid or any significant family to leave my asset for now except my lovable two dogs. I have official family in S Korea, but I may not leave to them. I am not interested in relationship now, but never say never.

My retirement assest is only 250k (my nursing career was on and off), and other rental houses and stocks are about 3mil. so putting to solo401k for max was my solution to save some money on tax and ACA.

But I want to be full retirement asap, so soon I wouldnt have no income from rental. Still not sure when I would get rid of all either because I dont want to pay too much tax due to capital gain plus NIIT.

I was thinking to put a trust bank account only in trust and buy more index fund as 401k. Or do i have to put the rental properties to RLT??
If I dont have income from rental but I have money in the bank account, can I still do 401k or not?

Since I had sudden death of family, I may need to plan more detail for my future, but I wouldnt think about it right now. RLT will be for only the purpose of solo401k for now. So I am doing for revocable.

I have studied about RLT, will make simply for the purpose only including only the bank account. Or is it better to plan all together now? I have watched youtube MArk J Kohler. It seems like some way to say more tax would be put rental properies to RLT under LLC. But I am not sure if I do all the complicated process.

Am I going right direction? Am I missing something?

Thank you in advance.

 

[RetiredHappy]

You need to have earned income to start and contribute to Solo 401K. In other words, you have to keep working as an independent contractor or as a sole proprietor to contribute what you make in your job into the Solo 401K.

I don't understand why you need a Revocable/Living Trust for the Solo 401K. Revocable / Living Trusts are used to avoid probate and have nothing to do with Solo 401K.

 

[Aerides]

I have a solo/sep 401k, I don't have any trust. Since you have an EIN and a business from your rentals that probably works for the income requirement.

Who told you that you needed a trust?

 

[RetiredHappy]

Rental income cannot count towards Solo 401K
https://www.irafinancialgroup.com/l...is considered passive,income to the Solo 401k.

 

[OldShooter]

... Am I going right direction? Am I missing something? ...

IMO what you are missing is the understanding that this is complex stuff and you will need to hire a professional, probably a CPA specializing in individual taxes, to get it right. To my eye, you seem to have some important stuff kind of mixed up in your questions.

Another admonition, often seen here: "Don't let the tax tail wag the investment (or estate planning) dog." Figure out where you want to be and then figure out the most tax-efficient way to get there.

Good luck.

 

[Doingitwrong]

Why do you need/think you need a RLT?
The property in a RLT will bypass probate when you pass, but no tax benefits.

Short RLT answer - you can put everything in the world in it (basically). I had a client worth $30 million+ that didn’t have a personal checking account. His utility bills came in the RLTs name. K-1s came to the RLT. Literally everything he owned, except gold and silver found when he died. His pour over will transferred those assets to the RLT.

Solo 401k is another post.

 

[retire to nature]

I have a solo/sep 401k, I don't have any trust. Since you have an EIN and a business from your rentals that probably works for the income requirement.

Who told you that you needed a trust?

I sent the application to vanguard and they said i need a trust name and trustee sign etc. I couldnt understand well at that time, and later I studied more and concluded to what I said in the post to open a trust account which require some document. below from allybank.

A Certification of Trust (sometimes referred to as a Trust Abstract or Affidavit of Trust, depending on the state), or a written Trust agreement with a Social Security number or Tax ID number must be set up outside of Ally Bank and may require the services of an attorney.

I may not want to see an attorney but was gonna write trust and get notarized it.

 

[retire to nature]

Rental income cannot count towards Solo 401K
https://www.irafinancialgroup.com/l...is considered passive,income to the Solo 401k.

Thank you for the link. Didnt know anything about it.

 

[retire to nature]

You need to have earned income to start and contribute to Solo 401K. In other words, you have to keep working as an independent contractor or as a sole proprietor to contribute what you make in your job into the Solo 401K.

I don't understand why you need a Revocable/Living Trust for the Solo 401K. Revocable / Living Trusts are used to avoid probate and have nothing to do with Solo 401K.

Since I ran into that I need a trust to open a vanguard solo401k, I connected the youtube and learn about trust because I want revocable obviously.

 

[RetiredHappy]

I sent the application to vanguard and they said i need a trust name and trustee sign etc. I couldnt understand well at that time, and later I studied more and concluded to what I said in the post to open a trust account which require some document. below from allybank.

A Certification of Trust (sometimes referred to as a Trust Abstract or Affidavit of Trust, depending on the state), or a written Trust agreement with a Social Security number or Tax ID number must be set up outside of Ally Bank and may require the services of an attorney.

I may not want to see an attorney but was gonna write trust and get notarized it.

Trusts are written by trust attorneys. A certification of trust is also issued by the attorney based on the trusts. You cannot just write a trust and get it notarized. What is your purpose in wanting a revocable trust? There is no tax advantage. It only helps to avoid trust assets from going through probate when you pass away. Since you don't care about leaving money to your famiy, so why bother?

 

[RetiredHappy]

Since I ran into that I need a trust to open a vanguard solo401k, I connected the youtube and learn about trust because I want revocable obviously.

You don't need a trust to open a Solo 401K. You need to own a business or as independent contractor, and money that you get paid by the business as salary can be contributed into the Solo 401K.

 

[Doingitwrong]

I sent the application to vanguard and they said i need a trust name and trustee sign etc. I couldnt understand well at that time, and later I studied more and concluded to what I said in the post to open a trust account which require some document. below from allybank.

A Certification of Trust (sometimes referred to as a Trust Abstract or Affidavit of Trust, depending on the state), or a written Trust agreement with a Social Security number or Tax ID number must be set up outside of Ally Bank and may require the services of an attorney.

I may not want to see an attorney but was gonna write trust and get notarized it.

This clears up the original post.
I’ll just tell you what I have as in don’t know Vanguard’s process.
1. An IRS pre-approved plan in my plan’s name (custodian and I went through the 80 pages and selected options/elections).
2. An EIN for the Plan. I applied for it.
3. An EIN for me as administrator/trustee of the Plan. I applied for it so I could file my 5500 annually with the DOL.
That’s it. No RLT

 

[retire to nature]

IMO what you are missing is the understanding that this is complex stuff and you will need to hire a professional, probably a CPA specializing in individual taxes, to get it right. To my eye, you seem to have some important stuff kind of mixed up in your questions.

Another admonition, often seen here: "Don't let the tax tail wag the investment (or estate planning) dog." Figure out where you want to be and then figure out the most tax-efficient way to get there.

Good luck.

You may be right to ask to professionals. I have some mistrust issue plus very big curiosity on many things haha.

I have mentioned CPA about establish LLC to save money and protection, he said I dont need to. I may need to establish each LLC for each property which I won't.

I just dont like to believe that experts will do take care of my max benefit in my perspectives. Most CPA is just do like turbo tax. And some specialty will not be as good as turbotax.

I like this forum, because it is anonymous so can criticize the post more sharply and no time limit. most of consultate has time limit, so I dont think they would cover all my questions.

It is just a culture to believe an expert would do better and feel more comfortable. But from my experience, it wasnt to me. I have met dump laywers and CPA etc. I have very sharp eyes and criticizing skills, my paying service wasnt much satisfied.

And I am just researching now, and already learned alot from the replies.
I may end up to go the correct expert but I will go with pre research first.

 

[retire to nature]

This clears up the original post.
I’ll just tell you what I have as in don’t know Vanguard’s process.
1. An IRS pre-approved plan in my plan’s name (custodian and I went through the 80 pages and selected options/elections).
2. An EIN for the Plan. I applied for it.
3. An EIN for me as administrator/trustee of the Plan. I applied for it so I could file my 5500 annually with the DOL.
That’s it. No RLT

I am glad not need to make RLT.

So I made EIN of course from IRS. I am not sure if I did #1 process. I made it online, I went thru the option to click for the next page etc.

So in the application, I used the EIN number and I signed me as administrtor and trustee for sure.

Because I called vanguard to make sure the application was processed and was expected to have a 401k account open. But she was saying need some document like copy of trust(which I assumed I need to make a trust), the name of trust, and trustee signature etc.

At the call with vanguard agent, she was kinda not expert about that either. She kept on hold to ask questions to other and she was just repeating what other said without understanding the stuff to herself. She may be the confusion maker here then.

 

[OldShooter]

... It is just a culture to believe an expert would do better ...

What do you do for a living? Do you believe that any 18 year old kid could walk in off the street and do your job just as well as you do?

 

[Doingitwrong]

You may be right to ask to professionals. I have some mistrust issue plus very big curiosity on many things haha.

I have mentioned CPA about establish LLC to save money and protection, he said I dont need to. I may need to establish each LLC for each property which I won't.

I just dont like to believe that experts will do take care of my max benefit in my perspectives. Most CPA is just do like turbo tax. And some specialty will not be as good as turbotax.

I like this forum, because it is anonymous so can criticize the post more sharply and no time limit. most of consultate has time limit, so I dont think they would cover all my questions.

It is just a culture to believe an expert would do better and feel more comfortable. But from my experience, it wasnt to me. I have met dump laywers and CPA etc. I have very sharp eyes and criticizing skills, my paying service wasnt much satisfied.

And I am just researching now, and already learned alot from the replies.
I may end up to go the correct expert but I will go with pre research first.

Interesting.
I’m afraid I’m over qualified to participate here.
You’ll get solid advice from others. After all you got from solo 401k to RLT on your own so any input will help.
-A professional with 25 years currently on CCH software

 

[RetiredHappy]

From which source of money are you going to fund your Solo 401K? Rental income does not qualify.

 

[retire to nature]

To oldShooter and Doingitwrong

Sorry if I made you or others upset or offensive.

I didnt mean all the experts, yes of course they would do know better in broaden knowledge. What I meant they dont know is about to personal life.

For example, since I was in medical field, we as patients, dont talk about our personal daily life much until we are asked about detail question when we have sleeping issue or eating or constipation issues.

they just listen 10mins and prescribe meds. Even though I was a licensed RN, later I realized what i did wrong recently that caused the problems. of course I had non necessary medication believed Dr would know everythings.

Or my mom was admitted to ICU due to unconsciousness recently, she had to go a different hosptial possibly ungercy or covid issue. They did all kind of costy tests, but it was her ammonia level up due to her liver issue. But since the hospital dont know about my mom at all, it ended up very big bills.

My immigration laywer was waking up from nap and typing my name and charged me 3.5k about 15 years ago. she kept mistypo things and i ended up using her keyboard and type. I thought they do a lot of specialty knowledge about it. but it was just my information. so later i had to do 2 more immigration application, i could do it myself alright.

My probate laywer was serious dumb. I had two laywer since it was two state. IL laywer was great, but MO was typing my mom's name twice for dad' part. so he was making all kind mistake from day 1. If it was not my second probate, I would still hang there due to his mistakes. I asked him to call to court to verify something. He spent one week and kept excusing no one answered. I googled and called the court and one immidieatly answered and solved my problem. He was calling wrong dept or number etc. I chose him because he was so cheap of course and it was my second probate and my case was so straight forward, so I didnt want to pay so high rate. he apologized and didnt even charge my title change fee as an apology.

Yes, I may be narssistic since I study and solve things by myself. my self esteem is pretty high. But I am not sick narcissist at all.

I do airbnb and see many ppl. recesntly I asked PHD student in electrical engineering to move bedding laundry washer to dryer. he said need to spin again to squeeze water better. When I went to check the dryer, the comforter was water leaking wet but it was in "DRYER" running almost 3hrs continously. He didnt bother level out the comforter to water off and just ran spin again and moved to dryer.

Another post doc guest asked the door was not unlocking. I checked it. he did turn on one side which locking side, and didnt try to turn the other side.

So from what i mean in my replies, I assume there are those kind of ppl exist. And I have very difficult time to find good expert. Also, I had to change CPA every other year due to alot of moving from other state, CPA retirement, Sister issue etc.

one month ago, I had to go the title company. I was asked sign all the page. they even didnt tell me their name. just feel like to charge me money. even real estate agent were same to me. they talked about tips which I already knew about from internet.

I researched seizure issue in dogs for my dog. I paid neurologist, I heard exactly what internet says about cause is unknown, and paid specialty dr fee with 3 month waiting period.

What i meant internet and unlimit time consuming can be more personalized help than 1 hour limit consultaition

 

[retire to nature]

From which source of money are you going to fund your Solo 401K? Rental income does not qualify.

I was planing the capital gain. Is it qualified? your link was totally new to me. I need to research more.

 

[RetiredHappy]

I was planing the capital gain. Is it qualified?

NO.

 

[retire to nature]

Rental income cannot count towards Solo 401K
https://www.irafinancialgroup.com/l...is considered passive,income to the Solo 401k.

so the link said

The Solo 401k should be set up at "a trust" rather than a bank, as this will enable the most control over the business owner’s money by the business owner.

Dont I need a trust?

 

[RetiredHappy]

Read Post #12. Go talk to a CPA. You are in over your head. Since you think that you can use capital gains to fund Solo 401K, which I don't believe is allowed, you better talk to a professional before going on a fool's errand.

 

[retire to nature]

Read Post #12. Go talk to a CPA. You are in over your head. Since you think that you can use capital gains to fund Solo 401K, which I don't believe is allowed, you better talk to a professional before going on a fool's errand.

Thanks. I emailed to my CPA since I am confused with this link. at the end of the page, it says i can do solo401k with passive income.

https://www.bankrate.com/investing/passive-income-ideas/

 

[Sunset]

so the link said

The Solo 401k should be set up at "a trust" rather than a bank, as this will enable the most control over the business owner’s money by the business owner.

Dont I need a trust?

You don't need a trust.
I set up a Vanguard solo 401K , got an EIN from the irs website.
No trust needed.
Only 1099 (contractor jobs) get earnings, some of which can go in solo 401K.

 

[Golden sunsets]

The OP shouldn't waste her time trying to understand how to set up a Solo 401K if she doesn't have any qualifying income. ( Either W-2 income or 1099 contractor income.) I do think her language barrier is the major issue in her understanding her options and the various pieces of information she is reading. Perhaps find a professional in the financial or tax world who knows the rules AND is fluent in the same language as the OP, so that the professional can explain the facts in a way the OP can understand.