are there any potential income taxes payable on investments within the strategic affluence 401k?...

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Are there any potential income taxes payable on investments within the

Strategic Affluence 401k?


Potential Income Taxes

Yes, potentially, depending on the tax treatment for that certain investment.


PASSIVE Investments

In most cases, your Strategic Affluence 401k will be in passive investments, such as rental properties,

precious metals, loan interest, dividends, royalties, options, capital gains/losses, etc...


PASSIVE Investments

And with passive investments, there are likely no income taxes to be paid.


ACTIVE Investments

With active investments, however, there are IRS rules specific to retirement plans, including the Strategic

Affluence 401k, that require that plan to pay a tax on the earnings received from any active business.


Unrelated Business Income Tax (UBIT)

This tax is known as the Unrelated Business Income Tax, or UBIT.


Unrelated Business Income Tax (UBIT)

Active investments receive their income as business profits, not as passive dividends. And, by definition,

any active trade or business is “unrelated” to the function of a retirement plan, so the plan would

normally pay this tax with active investments.



For instance, if your Strategic Affluence 401k is engaged solely in “rehabbing” or “flipping” properties,

this would likely constitute the running of an active business and the net profits would be subject to

income tax.



Or if your Strategic Affluence 401k is a partner in an active business venture, the net profits would be

subject to income tax.



As mentioned in the real estate training, there is no hard and fast rule from the IRS on how many “flips”

your 401k could engage in prior to being subjected to income tax if the majority of your investments are

passive…



Just be sure to consult with your tax advisor, and keep the flips to a minimum if you want to avoid paying

income tax!



To be clear, some investors realize that certain investments provide such a substantial after-tax

return, the trade-offs are still well worth it!



You just have to run the numbers and determine for yourself if certain opportunities are worth paying the

tax on for such substantial growth.



Sometimes, it might just make sense!



Be sure to keep in mind any potential STATE income tax in your calculations as well to help make this

determination.


Debt-Financed Income Tax

Lastly, many investors ask about a subset of UBIT known as Debt-Financed Income Tax, so we will

quickly address that here…



This tax pertains to many retirement accounts, such as IRAs. In this case, if the assets are acquired via funding from a loan, the IRA would be required to pay income

taxes based on the usage of the borrowed money.



For example, if a Self Directed IRA purchases a $100,000 rental property using $40,000 of its own

funds and borrowing $60,000 with a loan, then approximately 60% of the profit would be subject to

taxes since 60% of the investment capital came from a loan.



If the property generated $10,000 in annual rent, this means around $6,000 of the rental income would be

taxed. (There is more detail in calculating the tax percentages, but let this suffice for now with rounded

numbers).



If a property is debt-financed and therefore becomes subject to income tax, the IRA is then required to file a tax return, report the income and expenses, and pay

taxes on the gains.



But the great news is that your Strategic Affluence 401k is classified as a qualified pension plan with the

IRS and, if you properly structure your transaction, your Strategic Affluence 401k won’t owe taxes for debt

financing when dealing with Real Estate.



So you can leverage your real estate and certain other investments within your Strategic Affluence 401k

generally without being subject to the “loan tax” – a HUGE exemption that provides significant

advantages for this plan over others.

are there any potential income taxes payable on investments within the strategic affluence 401k?...

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