A QRP, or Qualified Retirement Plan, is a retirement plan that is tax-favored under Section 401 of the Internal Revenue Code, also referred to as the Tax Code or the IRS Code.
QRPs are a great alternative to Self-Directed IRAs and 401(k)s, given that some of the most powerful tax strategies exist within the aforementioned section of the tax code, which covers many types of tax-sheltered QRP plans.
For those that qualify, a QRP offers significant benefits above the self-directed IRA, some of them are:
- You don’t need a custodian from a financial institution for a QRP like a self-directed IRA does.
- You can take personal loans from the plan, of up to $50,000 – to be used for any purpose.
- Prohibited transactions do not disqualify a QRP.- It has its consequences, of course, but they’re not nearly as harsh as what you might get from a self-directed IRA.
It’s important to note that A QRP can only be sponsored or created by an employer for the exclusive benefit of his employees or by a self-employed individual, otherwise, it won’t provide any tax benefits.
Investing with a QRP
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Our goal is to provide you with a basic understanding and education about how the eQRP may be of value in your overall retirement planning. Let’s look at the top 10 advantages of an eQRP over an IRA or other type of investment.
Top 10 QRP Advantages
There are many reasons why the eQRP is powerful enough to help your break the shackles of financial bondage!
1. NO UDFI with Leveraged Real Estate
Did you know the IRS will tax you if you use your IRA for your real estate investment and there’s
debt involved? Yeah, it’s a sneaky tax called UBIT (Unrelated Business Income Tax) that gets triggered by any debt in an investment your IRA makes. Since IRAs are governed under section 408 they are not exempt and are subject to this tax, which is up to 37% on all the gains you make from the leverage.
The eQRP is exempt from the UDFI! It conforms to IRS rules under Section 401 which means the eQRP is exempt from the UBIT tax triggered by UDFI!
What if you already have leveraged real estate in your Self-Directed IRA?
All you have to do is roll over your IRA money and investments into an eQRP and presto, no more tax. You must do this before you sell the assets! Yes, you can transfer ownership of those assets from your self-directed IRA into the eQRP. It’s called an in-kind rollover. No tax, no penalty, no UBIT slap!
2. Fewer Plan Restrictions Mean More Freedom
The eQRP is the Ferrari of retirement plans because of the way it’s written – with far fewer restrictions when compared to 401(k)s and even Solo 401(k)s.
For example, Solo(k)s don’t allow employees. An eQRP allows them!
Most 401(k) plans already have limits written into them. They restrict what you can and can’t do, what you can invest in, and when you can access your money.
With an eQRP, YOU have total control over:
- What you invest in – from real estate, real physical gold and silver, tax liens, business startups, foreign real estate, LLC, joint ventures, private loans, and many more.
- The performance of your investment.
- Asset allocation.
Plus, since you’re managing your money, no more advisor fees chewing up the returns and principal from your account year after year regardless of performance. The eQRP is written to give you every investment option legally allowed. You can do anything you want within the framework of the law.
3. Contribution Limits for an eQRP are 10X Higher Than for an IRA
As you may know, an IRA (Individual Retirement Account) allows you to contribute $6,000 per year, or $7,000 if you’re over age 50.
The problem with this is that over the next 20 years you’re only going to be able to get approximately $100,000 into your retirement plan. That’s just not enough to get close to what you’ll need for retirement. It might be a good chunk to live on for a year but it won’t last for decades.
Considering people are living longer than ever, and with new life-extension medical technologies on the horizon, you will need more than an IRA.
Doing the math on contributions:
Regular IRA contributions:
$6000 x 20 years = $120,000
eQRP contributions:
$58,000 x 20 years = $1,160,000
That’s rollover10x more! * Based on single contributions
In addition, with an eQRP, you can contribute $58,000 per person, up to $116,000 with your spouse max, and even more if you’re over 50. (An extra $6,500 per person over age 50 per year can be contributed – this is the catch-up bump.)
That’s more than $1 million in contributions over the same 20 years and more than $2 million with a spouse. 10X more!
4. Lots of Investment Options
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There are, literally, millions of things that you can invest in with an eQRP, including real gold and silver you can legally take possession of.
Some investment options are
- Syndications
- Real Estate (anywhere in the world)
- Apartments, Multiplexes, and Houses
- Small Business Startups, LLCs
- Trust Deeds and Mortgage Notes
- Single Family and Multi-Unit Homes
- Securities
- Stocks, Bonds, Mutual Funds
- Commercial Property
- And many more!
5. Flexibility to Adjust Your Contributions
With an eQRP, your contributions to the plan are totally up to you. If the business is slow and you need to reduce your contributions, you can slow down. If the business is going great, you can max out.
You’re protected from economic downturns or anything else that would make it difficult or impossible to contribute.
This flexibility is one of the reasons the eQRP is so much better than other tools. For example, with cash-value life insurance, you must contribute every year or face your principal being eaten up by fees and policy costs. Not so with an eQRP. It’s flexible to fit your life.
6. Borrow Your Money Anytime
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Your eQRP is like a private bank line of credit. It is always available to you. At any time, you can write yourself a check and have the cash immediately.
Need $50k in 5 minutes? You can borrow up to $50,000 or half of your plan assets, or whichever is less.
Back in 2008, the banks froze almost all real estate investors’ credit cards because they wanted to reduce their risk. Even successful investors got frozen.
So what happens when you need cash for something and banks aren’t your friend? Use your built-in $50,000 line of credit. Once you roll over your retirement money into your eQRP you’ll simply write yourself a check for up to $50k or 50% of your account. Takes seconds and you’re always approved.
This can be a life-saving option when you need money or just want to use your assets to fund things so instead of paying interest to the BANK, pay interest to YOURSELF!
The loan must be amortized for no more than five years (except for loans that are used to buy your residence). You must also charge a reasonable rate of interest. Payments must be made at least every quarter in substantially equal amounts.
You can always make more frequent payments, such as monthly or weekly. It is important to remember that loan repayments are NOT planned contributions. A neat side effect of the interest you’re paying to the plan is that money will increase your account balance even more!
As an owner, you cannot deduct interest on the loan, but the plan pays no tax on the interest income either. All eQRPs come with the credit line built-in!
7. Total Checkbook Control
The eQRP allows you, the owner, to choose any person you’d like to be the trustee, including yourself. Since the trustee is responsible for funding the investments, you suddenly find yourself in total and complete control.
As trustee of the plan, you no longer have to get approval for every investment you’d like to make. No more outside custodian or trustee hovering over you (unless you want one).
When you want to invest in an eligible investment you simply write a check or send a wire. This control means all assets of your eQRP are under your sole authority, direction and discretion.
It also means you eliminate the expense and delays associated with a custodian, a common problem with most Self-Directed IRAs. This enables you to act quickly when the right investment opportunity presents itself.
Timing is everything. When speed matters, you’ll be glad you have the eQRP ready to execute and tie up those great deals.
8. One Consolidated Account
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It can be incredibly time-consuming to manage all the different 401(k) and IRAs that many people have floating around and there’s not a lot of power having money spread out.
With your eQRP, you can rollover any investment money from your 401(k), 403b, 457, IRA, and SEPs. You’re allowed to transfer those funds and assets into your eQRP tax-free and penalty-free.
You can rollover as many accounts as you’d like and consolidate them into your eQRP.
Consolidating all these funds will save you money and time managing the funds. One account. Easy!
9. No Taxes For 100 Years
The current tax code allows any owner of an eQRP to leave their accounts to an heir who can decide to take distributions of the money over their entire life expectancy. This is true for deferred, (regular), and ROTH accounts.
Let’s say you set up a ROTH account today, grow it for the next 40 years, and then leave it to someone who happens to be 25-years-old when you pass away. That person doesn’t pay any taxes on the account, the gains, or the distributions. (Assuming the account balance is less than the current estate tax exemption, which is over $5,000,000 in 2020.)
The heir gets to grow the account, spend the money, and do so for 10 years, with zero tax. You’ve now got the power to opt-out of the tax system for the next 100 years. Your children and grandchildren will thank you.
Remember: Any Roth Conversions can IMMEDIATELY be taken out tax-free and penalty-free!
10. Tax-Free Gains of 20, 30, 50%, or more for Roth
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Your eQRP has a built-in ROTH option. This is a chunk of your retirement money (or all, if you want) that you pay taxes on before contributing the money. In this case, you pay the tax now and then pay zero tax on the growth and distributions forever.
Let’s say you contribute $10,000 to your eQRP and pay taxes on that money today.
Wouldn’t it be nice to have that $10,000 grow by 10X and then 10X again and have it be worth a million dollars? Rest assured this will never happen in the stock market.
But, what if you invest in real estate and use leverage (debt)? What if you buy a property, use your $10,000, and take out a mortgage for the rest of the purchase price?
Example: You buy a house for $100,000 and use $10,000 from your ROTH eQRP, then borrow the other $90,000. You do some repairs and sell the house for $200,000 a couple of years later. You just made 1000%. Not 10%. Not 100%. But 1000% in two years!
Oh, and since you used the ROTH, all your gains are tax-free and it stays in the plan to continue growing.
Now, remember, if you had used a Self-Directed IRA to buy a property and used a mortgage, you’ll trigger UDFI. In the last example, you’d pay about $30,000 in taxes if you use your IRA.
The Bottom Line
A QRP — especially one that’s required to cover non-owner employees of a business — is very complex and costly to run. The IRS and DOL compliance requirements are incredibly elaborate, and if those rules are not followed it gets 10x more costly.
For that reason, our friends over at eQRP Co have written the QRP Book that can help you learn to navigate the nuances of the tax code and also protect your investments. The QRP Book will also help you get full control of your 401(k) & IRA money and avoid the IRA Tax on Real Estate Investments like multifamily and residential assisted living properties!
Order a FREE copy of the QRP book by clicking here
Our mission is to transform your financial future by providing a way to take control of your retirement money – money that’s stranded in 401(k) or IRA accounts.
We also want to help you achieve financial freedom by offering investment opportunities with tremendous value-add potential
And remember! If you want to learn more about syndication, you can read our blog or subscribe to our newsletter! We frequently share information like the one in this article to help you learn more about passive investing, real estate, and our favorite asset class: Multifamily properties!