The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed by Congress back in March when the pandemic was just starting to heat up.
One aspect of the 800 page bill that investors need to understand is the impact to their retirement accounts. Specifically, you now have the ability to access (up to) $200,000 without penalty.
Join me today with my guest, Damion Lupo, to learn how to maximize this unique opportunity.
Check out the video below, or read on!
The New Rules for Early Withdrawal
Thanks to the CARES Act, you can now take up to $100,000 out of any retirement account without incurring a penalty. This is an unprecedented opportunity to access your money that’s otherwise been sitting stuck.
Whether it’s a 401(k) setup through your employer, an IRA, or a TSP, you can withdraw up to $100,000 and do whatever you need with it. The CARES Act allows for this early distribution because Congress wants people to have access to their money so they can use it to get them through these tough times.
This is amazing because, normally, you’d have to pay a 10% penalty for early withdrawal. Now, you can withdraw that money without incurring those fees and use it for your life or for your business.
The good news doesn’t stop there. The early withdrawal gives you access to the first $100,000. There are also new rules for borrowing against certain retirement vehicles, which gives you access to (up to) an additional $100,000.
New Rules for Borrowing from a 401(k) or TSP
The rules on borrowing from retirement accounts used to allow for up to $50,000, (or 50% of your money, whichever is less), was able to be borrowed and paid back over a 5 year period.
Thanks to the CARES Act, you now can borrow up to $100,000 or 100% of your money (whichever is less) and pay it back over a 6 year period. It’s important to note that these rules for borrowing only apply to 401(k)s and Thrift Savings Plans (TSP). It does NOT apply to IRAs.
If you have a 401(k) with a current employer, you may need to go to them to request a plan amendment. It’s generally a one page form that states the company is allowing, through the CARES Act Amendment option, for people to pull money out via a loan or disbursement.
This change, combined with the restrictions lifted on early withdrawals, means that you now potentially have access to $200,000 and not make a single payment for a year. That’s a lot of money sitting stuck that you can tap into right now.
Maximizing The Opportunity
To recap, you now have the ability to bridge any gap that you have in employment or to take advantage of opportunities through the changes made to retirement plans in the CARES Act. You have access to up to $200,000 in liquidity that wasn't really there before.
But there is a catch.
Any tax-deferred funds withdrawn are still considered taxable income. Once you withdraw the money from your retirement account, you have 2 options:
- You can keep the money and pay taxes on it over the next 3 years, instead of being fully taxed in the year it is withdrawn (which is the norm).
-OR-
- You can repay the distribution within 3 years, in which case it would not be taxable.
The good news is that you don’t have to make the decision right away. You have until April of 2021 to make that call. In the meantime, you can pull that money and start using it as you see fit.
Considering the way Wall Street has been performing this year, shifting away from the stock market and into an alternative investment may be an attractive move. With 3 years grace to pay back the withdrawal without taxes, investors have time to divert and grow their money.
Another important thing to note here is that the money can be returned to any retirement account; it doesn’t have to be placed back into the original 401(k) or IRA that it was initially pulled from.
This is where Damion Lupo and his team come in to play. They specialize in creating a new retirement vehicle where you can both repay your funds AND use it to invest in multifamily real estate.
It’s called an eQRP and it’s a game changer.
Introducing the eQRP
At Nighthawk Equity, we are a big proponent of the eQRP (also known as a Solo 401k or QRP). For us, it serves as both a retirement product and a tax product.
You might be wondering – how can a retirement account help with taxes?
First, the eQRP does the trick in helping us to avoid a specific tax that is a burden to real estate investors: the Unrelated Business Income Tax (UBIT). We’ve had plenty of discussions about UBIT in the past, and below is a list of resources for you to get familiar with this beast of a tax.
Related Article: How to Avoid UBIT Taxes Inside an IRA
Related Podcast: The Danger in Using Your IRA to Invest in Multifamily, with Damion Lupo
Second, in addition to helping us steer clear of UBIT, the eQRP also saves us (up to) 37% in taxes. How? It’s tax-exempt for certain real estate, which is a huge advantage when you compare it to other vehicles, like an IRA.
The Real Estate Guys refer to the eQRP as, “the real estate investor’s secret weapon”. You can see what others have to say, and request some time on Damion’s calendar to learn more. You’ll even get a free hard or soft copy of his book when you set up a call.
To talk to Damion*, visit www.TheMichaelBlank.com/qrp
*Disclaimer: This is an affiliate link and I get a small fee if you set up a call with Damion.
Speaking of taxes, there’s a little bonus that I wasn't planning on throwing in here today but want to mention, and that’s the Net Operating Loss Carry Back. This allows you to buy real estate in 2020, get some bonus depreciation, and use it to potentially get the taxes you paid way back in 2015.
It’s a big deal to be able to use all these rules together and you need a team to help you evaluate and execute. This is where we come into play.
Get to Know Us
It seems that every year there are new laws passed that can have a huge impact on investors. And there’s always new products, like the eQRP, being created. Our team at Nighthawk Equity is deeply plugged in to the real estate and investing community, and we are dedicated to keeping our passive & active investors in the know.
Be sure to check out these resources we’ve put together for you, and if you’re ready to get started with investing in multifamily real estate, you can reach us via www.NightHawkEquity.com.
[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section]Resource Guide: Getting Started with Active and Passive Investing
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