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About

Jeff Nabers

? Self Directed Account

A tax favored retirement account designed for generally unrestricted investment, often into real estate, mortgage notes, private companies, and/or other legally allowable assets.

I go through life questioning assumptions, and it turns out that much of the common adage about investing is in direct contradiction to what I have learned from wealthy mentors and clients. Four years ago I began to parlay my success from mortgage lending and personal real estate investment into Self Directed IRA/401(k) facilitation.

My Company, Nabers Group, is the world’s only full service Self Directed Plan Provider. Our core services are in establishing IRA LLC & Solo 401(k) accounts. Our account establishment process uniquely addresses the most common self directed investing flaws, and provides various possible solutions.

I’ve been featured as an expert Self Directed IRA/401(k) information source for:

I annually visit with the U.S. Department of Labor (the government organization responsible for interpreting and enforcing retirement plan prohibited transactions code) in Washington, D.C., and I’m the founding member of the nonprofit professional trade & education association, IRA Association of America.

Stay connected with me:

Buy my book today:

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Comments»

1. Jeff Williams - April 9, 2008

Hi Jeff,

Nice work on the website. Lot’s of good information that will surely help all investors at any level from novice to seasoned.

Keep up the good work.

Sincerely,

Jeff Williams

2. mike johnson Myrtle Beach/SC - May 14, 2008

yo Jeff, hope all is well in Denver

3. Brian Armstrong - June 13, 2008

Hi Jeff,

Thanks for the comments on my site regarding retirement accounts.

Healthy discussion is good and it looks like you’ve got some great experience to back it up. Thanks!
Brian Armstrong

4. Chris - June 18, 2008

Hi Jeff – which do you recommend more. A self-directed Roth IRA, self directed 401(k), or SEP-IRA. Thanks.

Also, how much do you charge to setup these self-directed accounts along with yearly fees.

5. Chris - June 18, 2008

and can you recommend any other companies that setup self-directed retirement accounts? Thanks.

6. Jeff Nabers - June 22, 2008

@Chris – Anyone who can qualify for a Solo 401(k) will experience many unique benefits above and beyond an IRA. I just recorded some video of a sit down chat with Eric Wikstrom (CPA, CFP, & CEO of Integrated Wealth Strategies) in which we discussed this. The bottom line is that, when eligible, it’s generally advantageous to use a Solo 401(k).

As for Roth or non-Roth… keep your eye on my blog… I’ll post a comparison within the next week.

Also, my company (Nabers Group) is the world’s only full service retirement account provider… we’ve developed our services to fill a gap in the marketplace that we believe others have left… so my primary (although biased) recommendation would be to call us at 877-903-2220.

7. CLARENCE COOK - June 24, 2008

MY QUESTION IS WHAT IS THE NEW RULEING THAT THE IRS HAVE PUT ON THE 401K AND IS THEIR A DEAD LINE FOR SINGLE PEOPLE THAT HAVE ONE AND ALSO EMPLOYERS ALSO RE SPONDABLE FOR THEIR EMPLOYEE. EMAIL ME AT TOPCAT@ACNINC.NET THANK YOU.

8. Michael Schultz - July 22, 2008

My question is as follows: I am the only participant in a 401k and will be the only one employed and consequently the plan fiduciary. I formed an LLC with 2 other members(parents and brother) to invest in a captive insurance company of which we are minority shareholders. Am I subject to the prohibited transaction rule if I allocate money to the LLC in order to purchase shares in the captive? I am a 33% member in the LLC and our investment is in a minority shareholder position. Your thoughts and to what extent can your organization provide administration services if it is custodialized at Fidelity or should I be prepared to move the account?

9. Jeff Nabers - July 22, 2008

Michael,

If you and your parents collectively own 50% or more of the LLC, then the LLC is a disqualified person which means your 401k buying the LLC’s membership units would be a prohibited transaction.

If you and your parents collectively own less than 50% of the LLC, then you have a gray area which can still likely be a prohibited transaction if your 401k buys membership units in the LLC.

If the captive is a separate entity, and the LLC only owns a very small portion of it, you may be able to safely invest your 401k directly into the captive.

10. VI - October 15, 2008

i am a real estate land flipper..thought of opening self directed IRA LLC w/ entrust but they said about the UBIT…so someone suggested self directed SOLO 401 (open a trust) and the 401K own the trust so i can direct 401K

1) So does the 401K have to pay UBIT…i asked around and they said no b/c it is qualifed plan

11. Jeff Nabers - October 15, 2008

VI,

There are two types of UBIT that a retirement account can be required to pay:

1. General UBIT resulting from ownership of a business / operating company. This is the full trust tax rate applied to the taxable income. Taxable income over $10,000 is taxed at 35%; trust tax rates ramp up much more quickly than personal or corporate tax schedules.

2. UDFI (debt-related UBIT) results from owning real property leveraged by mortgage debt. This applies the trust tax to the portion of the taxable income that is attributable to the leveraged amount. Because of this “discount’ the effective tax rate is often around 12% or lower.

A Solo 401k is exempt from #2 (UDFI). Your first statement was that you are a flipper. That means the UBIT concern is about #1 above because if you flip properties in a certain way can make the endeavor more like a business rather than passive investment holding.

Solo 401k plans are exempt from #2 above, but NOT #1 above. So the issue here is whether your flipping appears to be more like a passive investment or more like a business. Here are some key factors:

How long do you hold each property? The shorter, the more it seems like product inventory of a business.

How many properties do you flip per year? If it’s a lot, you have to spend a lot of time doing it. A lot of time isn’t passive investment.

Do you advertise? Generally advertising is a business activity.

Another issue if you are deemed to be running a business is prohibited transactions. You can manage an LLC that your plan invests into as long as you don’t go beyond administrative duties (paperwork and decisions). You are a disqualified person for your plan to transact with, so if it turns out that you are running a business by going beyond administrative/ministerial duties, then you have done a prohibited transaction. In an IRA it results in a fully taxable distribution of the account in its entirety; in a qualified plan it results in a 100% tax on the amount involved in not corrected within a year.

This can get kind of tricky. My business works like this:

I can help you through these types of understandings for no consulting cost if you establish your plan with my company.

12. Paul Smudski - October 22, 2008

Jeff,

I’m very interested in your business and the services you provide. I’m a Real Estate Investor and I’m working to develop a network of IRA holders as Private Lenders. I also provide some basic education on the subject of Self-Directed IRAs.

I am just starting in the education area and was wondering from your standpoint what kind of licensing I would need to provide it.

In addition, I’m curious as to your educational background and licenses, if you wouldn’t mind sharing.

Thank you.

13. Jeff Nabers - October 22, 2008

Paul,

My background is in mortgage lending and personal real estate investment. My mortgage license expired after I sold my mortgage business, and I continue to hold my real estate license which I have used only for my personal buying and selling.

We develop educational programs to license to others through our affiliate program. Our affiliate program is a simple arrangement where a person or company can generate leads to refer to us for IRA LLC or Solo 401k establishment services and receive a referral fee/commission.

Feel free to give us a call to find out more about the affiliate program. Thanks for your interest.

14. Tracy - October 24, 2008

Hi Jeff,

Thanks for your post about Socially Responsible Investing! I just wanted to point out a way everyone can use their money to support green efforts without sacrificing profit: choose a socially and environmentally responsible bank! I’m working with a green bank called ShoreBank, to promote their Online High-Yield Savings Account. Please contact me directly if you would like to know more about ShoreBank’s efforts to protect the environment. Thanks!

15. Susan - March 5, 2009

Hi Jeff,

Do you mind to talk a little bit about your educational background and work experience?

16. Jeff Nabers - March 5, 2009

Susan,

I dropped out of college at age 19 to be mentored by a 30 year-old millionaire. Initially my goals were mostly financial and materialistic (which would later evolve), and I worked in direct marketing. After becoming the top producer in the marketing company, I was burnt out, and my mentor came out of retirement to start a mortgage company. I jumped on board with him and came to the realization that anyone who can make it in direct marketing can make it bigger and easier in a more traditional type business model. As a newbie in the mortgage business I read a lot about real estate investing, and started doing some of my own.

After a year as a loan officer, I opened my own mortgage lending company, hired and trained a staff, and got it somewhat on auto-pilot. I focused mostly on real estate investing and came across the concept of self-directed IRAs. It seemed simple enough, so I sent my investment partners to custodian corporations to get self-directed IRAs setup. There were many shortcomings, and my partners were upset with me. I rolled up my sleeves and set out to address their concerns and solve their problems related to self-directed IRAs and related obstacles. I thought it would take a couple weeks. I usually finish what I start; in this case my initial research ended up taking almost two years full time. From that point, I saw a need for consulting in the field and started a consulting firm.

With my consulting firm I solved the problems and provided the assistance to self-directed IRA investors that nobody else would provide. I eventually learned that most of the problems would have been proactively avoided if the individual would have started the account setup and due diligence process with a more useful and service-oriented company in the first place. Nothing like “that company” existed so I converted my consulting firm to a self-directed retirement plan provider. To this day, we are the only company that provides quality ongoing support after the account is opened.

Jeff

17. Jeff - October 22, 2009

Jeff,

I am receiving so much conflicting advice on the subject of financing a franchisee business from a self directed 401K attached to a C corporation that I would be the sole owner of – it is unbelievable. I was very interested in your series of articles – culminating in your 3rd article with the interpretation that the so called ROBS strategy is illegal and under such a strategy I would be fully liable for taxes and penalties on the 401K funds used toward the business.

Another advisor is telling me that your interpretation is clearly missing the fact that 401k rules allow an exception to the prohibited transactions rules for participant investment in employer stock and further does not reflect the fact that the strategy has been used by 1000’s of small business owners for more than 10 years. He says there has yet to be a single action brought forth against any employer or service provider.

Color me confused. Can you please address this other advisor’s rebuttal to your interpretation.

Thanks,
Jeff

18. Jeff Nabers - October 22, 2009

Jeff,

Sure. It sounds like there are 2 rebuttals.

1) MISSING THE EXEMPTION – If you read my 3 part post carefully, I am not missing the exemption at all. In fact it is clearly addressed in Part 1. The exemption is for “qualifying employer securities” and this exempts the acquisition of the stock as an isolated transaction. It does not exempt the entire scheme from ERISA or IRC 4975 (prohibited transactions). Check out the DOL Advisory Opinion 2006-1A. This set the precedent that 4975(c)(1)(D) and (E) are always applicable to retirement plan strategies regardless of exemptions and staying within certain % ownership amounts in an attempt to create loopholes.

2) THE STRATEGY HAS BEEN USED THOUSANDS OF TIMES – Unfortunately, whether something has been done a lot has absolutely no effect on whether it is illegal. It all comes down to the written law and how the government applies it. The reason there has yet to be a single action is because nobody has asked DOL to give an official opinion on it. They don’t ask because they are afraid of an unfavorable answer. The important thing to note is that the ball is in THEIR (the government’s) court. If they have not gone after thousands of people who have broken the law, it doesn’t mean that the law wasn’t broken. And they can choose to go after these entrepreneurs whenever they want, resulting in 115%+ taxation.

Jeff

19. Jeff Nabers - October 22, 2009

p.s. to Jeff… The “this has been used thousands of times” argument is possibly a bad thing. If a tax law has been abused and broken through a certain strategy, the more the strategy is used the closer it comes to reaching a point where it is “worth it” for the IRS to allocate resources to cracking down on it.

If ROBS was used 100 times and the IRS could only collect a couple million dollars in tax revenue, they couldn’t really afford to assemble an effort to do so. On the other hand if ROBS was used 5,000 or 10,000 times, there are hundreds of millions of dollars (possibly over $1 billion) in tax revenue for the IRS to collect by creating a program that goes after the scheme.

Furthermore, the more ROBS setups a particular firm has done in the past, the more likely they will be a primary target of the eventual enforcement efforts.

It’s a weird situation. The DOL makes the rules (or at least interprets them) and the IRS enforces them. Lack of agency intercommunication is part of the reason that ROBS hasn’t been totally shut down, but this zero enforcement phenomenon isn’t likely to last.

20. Dave - October 28, 2009

If I’m a Realtor and I have an IRA LLC that purchases rental properties, if I act as the agent in purchases or sales of those rental properties my commissions would be a prohibited transaction. Correct?

Is there any way to deal with this problem such as signing over commissions to the IRA LLC? Or having the broker directly pay the IRA LLC? Or do I really have to use another agent to aid in the purchase or sale of properties for my own IRA LLC?

21. Jeff Nabers - October 28, 2009

Dave,

The short answer is “yes, receiving a commission that results from directing your retirement account is a prohibited transaction.”

But that’s not the whole answer. Give our office a call at 877-903-2220 and we can fill you in a more thorough response.

:-)

Jeff


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