On January 1st, something incredible happened that you really need to know about.
For the first time in 13 years, there’s been a major overhaul in the retirement tax code.
With this new change, multifamily investors now have the ability to make an investment in 2020 that can relieve them of their taxable burden from 2019. Up to $57,000!
How is this possible? Tell me more!
Today, I brought Damion Lupo, creator of Black Belt Wealth, on to talk about this important tax code change. Damion is not a CPA or Tax Attorney, but he knows a heck of alot about taxes and tax changes.
Check it out in the video below, or read on.
The Secure Act
In the past, if you wanted to write off contributions for a retirement account, you had to set up a retirement plan in the year that you wanted to make the contribution. For example, if you opened a retirement plan in 2013 you would be able to write off those contributions for that same year. If you didn’t set up a plan by December 31, 2013, it was too late.
And this is how it has been for a very long time. But on January 1st, Congress changed the game with the Secure Act.
They basically said: “Okay, we’re going to let you set up a plan in 2020 for 2019”.
What does that mean for you as a passive investor? If 2019 was a good year for you, it means a lot!
If you made a couple hundred thousand dollars in 2019, you could have another $57,000 in write-offs for last year even though it’s 2020.
So if you’re sitting looking at your tax bill for 2019 and realize you don’t have anymore write-offs, you still have time to set up a retirement plan for 2019 and reduce your taxable burden(!!!)
It gets better! Normally, if you made more than the QBI limit of $157,000 in income, you’d lose the ability for the 20% deduction off your passive entity income.
But now, if you made $200k, for example, you can contribute $57,000 to be under the $157,000 limit. This means you’d be able to get your income down to around $120k, saving around $20,000 in taxes using this strategy!
THE Retirement Plan for Multifamily Investors
When we talk about setting up a retirement plan for passive investors in multifamily real estate, we’re talking about the eQRP plan.
We advise our passive investors to move their IRA retirement funds into an eQRP plan. Why? It more easily allows them to invest those funds in multifamily real estate, and it relinquishes UBIT (the taxation within your IRA).
The UBIT is the IRA disaster zone that we always want people to avoid. Most people probably don’t know that within a self-directed IRA, you will likely be taxed when we sell a building because of this UBIT tax.
I won’t get into all of the details, but it's shocking.
I went through it myself some 15 years ago when I passively invested in a dead and had to create tax IDs for my IRA for crying out loud!
I had to pay taxes, filings, and late fees going back 7 years. It was a real nightmare.
Related Article: How to Avoid UBIT Taxes Inside an IRA
If you need another reason to consider an eQRP over an IRA, how about the fact you can save (up to) a whopping 37% in taxes!
That’s right – in an IRA, you can pay up to 37% on the investments it funds. With an eQRP, it’s 0% because it’s tax-exempt for certain real estate.
That’s why the eRQP is so important to those that are investing in multifamily syndication deals.
I’ve since shifted from the traditional Roth IRA to the eQRP that Damion and his team provide.
In fact, I would encourage anyone reading this to shift your IRA to an eQRP, or at least find out about it.
I’d like to invite you to learn more with this FREE Book*: QRP Book – New 2020 Rules!
I feel really strongly about this topic because I don't want my investors to pay taxes that they don’t have to! (And not only that, but the paperwork involved on the IRAs is just ridiculous!)
Have Employees? Read On…
With the introduction of this new change to the tax code, there’s another added benefit to getting an eQRP set up today: covering employees.
Generally speaking, Congress wanted to cover more people with the Secure Act. So, they implemented this change that companies with (1) employees and (2) a retirement account, have to cover those employees.
That’s a big deal! Anybody that works 10 hours or more a week is now required to be covered by their employer for that period of time.
That’s a problem if you have a solo 401k because it blows the thing up! This makes the solo 401k less appealing, and the eQRP more valuable because it covers employees that are part-time or full-time.
If you’re going to have employees and you want to have this deduction, the eQRP is your best friend. Really, it’s the only game in town at this point!
With the Secure Act a key piece of real estate planning was killed, known as the Stretch IRA.
It used to be that a person could inherit an IRA and spend it over the course of their lifetime. This was used in estate planning for the last 25 years, give or take.
Congress killed that. Now, if you inherit an IRA or give it to someone else when you die, they have to spend it within 10 years.
- The Secure Act allows individuals to create new retirement accounts in 2020, whose contributions will count for the previous taxable year (2019).
- This allows individuals to reduce their tax burden by an additional $57,000 (maximum).
- Passive multifamily investors can take advantage of this change by setting up an eQRP.
- eQRP’s have many advantages over the traditional IRA for the multifamily investor; namely the ability to avoid UBIT tax and the loads of associated paperwork.
- eQRPs are great for employers, as they also cover employees as required by law.
- Another change made by the Secure Act is the end of the Stretch IRA, which had been used in family estate planning for decades.For more information on eQRPs and the updated tax laws, check out Damion’s free ebook* at www.themichaelblank.com/QRP
*Disclaimer: This is an affiliate link and I get a small fee when you setup a call with Damion.