How to Roll an Existing Retirement Account into Your 401k

The number of retirees was double what was expected in America these past two years, affecting the labor market and leading to the “great resignation.” Interestingly, the trend has not led to an increase in social security applications; for now.

According to data from this Federal Reservesurvey of consumer finances, 54.5% of Americans between 55 and 64 have retirement accounts. However, there are several reasons why retirees are not currently drawing from these. The first reason is difficulty getting through to an office to complete the procedure.

Economists also say that people can currently afford to put their social security on hold since they have received some unemployment from the stimulus packages and seen their investments perform well (stocks, house prices, etc.)

Planning for retirement as a business owner is often overwhelming. It is essential to consider several factors as you prepare for retirement, including the right retirement plan, not incurring penalty fees and losing tax benefits because of early withdrawals, and a good strategy to leave the business.

Establishing a Solo 401K LLC

One of the best savings options for retirement in the U.S. is the 401k, allowing employees to defer the tax on their contributions towards their retirement. LLC owners can also take advantage of the tax benefits of a 401K plan, as long as their business activities are considered self-employment and active engagement.

Benefits of a Solo and Self-Directed 401K LLC

With a Solo 401K LLC, every entrepreneur can establish a retirement fund. There is also another aspect, anybody with a retirement fund (401k, IRA, TSP, and more) can also establish an LLC. There is a maximum amount of tax-deductible contributions you can make to your 401k account annually. From the age of 50, you can increase your tax-free contributions.

It is straightforward to set up a beneficial 401k, and besides the tax benefits, they ensure higher contribution limits, tax-deferred compound tax earnings, and the creation of an LLC.

Rolling Existing Retirement Accounts into a 401K

The process of rolling any existing retirement fund into a 401k is easy, allowing you to benefit from all its advantages. Besides the lower taxes, you can also invest the money as you please (bonds, stocks, real estate, loans, etc.) Another benefit of a 401k LLC is asset protection; as a matter of fact, it is even better than a traditional LLC. Finally, you also save on fees since you don’t need your custodian’s permission. The whole process requires less than two weeks before you can begin investing in your Self-Directed 401K LLC.

An asset protection fund in Wyoming is the only other way you can achieve, and surpass, this type of flexibility.

Forming a Wyoming 401K Owned LLC

Whatever your existing retirement funds (former employer 401K, traditional investment retirement fund (IRA), or any other), it is easy to create an LLC owned by your Solo 401K, according to Wyoming Trust & LLC Attorney.

Form a new LLC with the help of experts to ensure you get every aspect correct, including the operating agreement. At Wyoming Trust & LLC, the process starts by rolling over your existing retirement account before creating the LLC and setting up a bank account.

Drawing up a 401K Operating Agreement

There are generally two essential sections the operating agreement of a Self-Directed 401(k) LLC must include. These are “Investment Retirement Accounts” and “Prohibited Transactions” as ruled by the relevant IRS Code. The LLC must also be a “Manager Managed.”

The tax benefits of the LLC depend on the fact that you own the IRA and the IRA owns 100% of the LLC.

The operating agreement is an agreement with yourself, and Wyoming law does not require it. It is more important to ensure you avoid violations of any laws.

However, the operating agreement is essential because you need it to open the LLCs banking account. The custodian setting up the self-directed IRA account will request it.

Rules for A Self-Directed IRA or 401K

Your Operating Agreement must clearly state some essential things. The first is which transactions and investments are prohibited, including self-dealing and investing in collectibles. Secondly, you cannot buy or sell assets from family and other people on the list of the IRS, otherwise known as “disqualified individuals.”

None of the fund’s earnings can directly benefit you before your retirement. A UBIT occurs when using leverage to profit from investments.

An IRA LLC also has the same rules for prohibited transactions as a regular IRA. The IRA must purchase LLC units to become a member of an LLC. If the IRA is the sole member of the LLC, the LLC is considered a single-member LLC that is a disregarded entity that files no business tax return to the IRS.

An IRA can only own 100% of a newly formed LLC that is issuing units for the first time. Otherwise, it is considered a prohibited transaction. The IRA owner or his family are “disqualified parties” and cannot earn anything from the IRA LLC.

Your name or the name of the IRA cannot appear in investments; these are all titled to the ARA LLC investments.

Finally, you must have separate bank accounts for the IRA LLC and yourself. The income and expenses of the IRA LLC must be visible in its bank account, and you cannot pay for any of the IRA LLC expenses from personal funds. UBIT rules are clear that the LLC must secure funds and repay loans. The owner of the IRA cannot personally guarantee debt for the LLC. All annual IRA contributions and IRA/401k transfers are made to the self-directed IRA, never to the IRA LLC.

Conclusion

Rolling your existing retirement account into your 401K is easy. The two do differ significantly, but there are several similarities, including IRS rules, protection from creditors, and investing in other types of investments, like real estate. If you haven’t quite understood the differences between a self-directed IRA and Solo 401K, Wyoming Trust & LLC Attorney can help you decide which of the two are best for your retirement planning.

Produced in Association with Wyoming Trust & LLC Attorney