Comments on: Arkansas Couple Realizes the Benefit of Managing their Own Retirement Accounts http://www.solo401k.com/2008/11/26/arkansas-couple-realizes-the-benefit-of-managing-their-own-retirement-accounts/ The Ultra-Powerful Investment & Retirement Plan for the Self-Employed Thu, 01 Sep 2011 17:00:43 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Jeff Nabers http://www.solo401k.com/2008/11/26/arkansas-couple-realizes-the-benefit-of-managing-their-own-retirement-accounts/comment-page-1/#comment-6117 Jeff Nabers Thu, 02 Dec 2010 23:40:44 +0000 http://solo401k.wordpress.com/?p=41#comment-6117 Hi, Rod. Let me help clarify this for you. The Stoddards didn't approach these transactions as a way to deal real estate (flipping). They simply bought real estate with mineral rights knowing those mineral rights would be valuable. The process worked something like this: 1. Acquire property with mineral rights 2. Lease the mineral rights to an energy company 3. Sell the property if/when a buyer comes along willing to pay a price worth selling for Acquiring the property didn't put them into "active mode." Leasing the mineral rights didn't put them into "active mode" either. Receiving lease income is a very passive activity. They happened to be in an area with lots of mineral activity, and with many of their properties they were receiving purchase offers frequently. Deciding to accept an offer doesn't put them into "active mode." If they went all around the country continuing to execute a "system" it would likely be viewed as a business, but they haven't done that. In fact, I don't think they've done any mineral deals recently. They had a few transactions that made them a lot of money. Making a lot of money doesn't throw up an "active trade or business" red flag immediately. It might if ridiculous profits are generated on a continuing basis. Close inspection of the Stoddard's transaction reveals that they acquired properties, received mineral lease income, and later sold when the offers were too irresistible,. It's a tale of inspiration and possibilities to showcase the financial power of the Solo 401k. It's not a roadmap of exactly how to duplicate their transactions and results. They made a lot of money because they had their mind and eyes open to opportunities and they made good decisions. I hope this helps! Jeff Hi, Rod.

Let me help clarify this for you.

The Stoddards didn’t approach these transactions as a way to deal real estate (flipping).

They simply bought real estate with mineral rights knowing those mineral rights would be valuable. The process worked something like this:

1. Acquire property with mineral rights
2. Lease the mineral rights to an energy company
3. Sell the property if/when a buyer comes along willing to pay a price worth selling for

Acquiring the property didn’t put them into “active mode.” Leasing the mineral rights didn’t put them into “active mode” either. Receiving lease income is a very passive activity. They happened to be in an area with lots of mineral activity, and with many of their properties they were receiving purchase offers frequently. Deciding to accept an offer doesn’t put them into “active mode.”

If they went all around the country continuing to execute a “system” it would likely be viewed as a business, but they haven’t done that. In fact, I don’t think they’ve done any mineral deals recently. They had a few transactions that made them a lot of money. Making a lot of money doesn’t throw up an “active trade or business” red flag immediately. It might if ridiculous profits are generated on a continuing basis. Close inspection of the Stoddard’s transaction reveals that they acquired properties, received mineral lease income, and later sold when the offers were too irresistible,.

It’s a tale of inspiration and possibilities to showcase the financial power of the Solo 401k. It’s not a roadmap of exactly how to duplicate their transactions and results. They made a lot of money because they had their mind and eyes open to opportunities and they made good decisions.

I hope this helps!

Jeff

]]> By: Rod E. http://www.solo401k.com/2008/11/26/arkansas-couple-realizes-the-benefit-of-managing-their-own-retirement-accounts/comment-page-1/#comment-6116 Rod E. Thu, 02 Dec 2010 23:15:43 +0000 http://solo401k.wordpress.com/?p=41#comment-6116 This is so confusing, your previous article stipulates you need to have your investments in passive type mode to avoid the IRS from taxing the entire 401k, but this article clearly shows it as being active yet it is ok, can you please clarify. Thank you. This is so confusing, your previous article stipulates you need to have your investments in passive type mode to avoid the IRS from taxing the entire 401k, but this article clearly shows it as being active yet it is ok, can you please clarify. Thank you.

]]> By: admin http://www.solo401k.com/2008/11/26/arkansas-couple-realizes-the-benefit-of-managing-their-own-retirement-accounts/comment-page-1/#comment-34 admin Fri, 11 Dec 2009 20:07:36 +0000 http://solo401k.wordpress.com/?p=41#comment-34 William, There is no clear line drawn by the IRS and the determination is on a case-by-case basis. If you were to get audited they would look at many factors. The more properties bought and sold, the more it looks like an active operation. The shorter the holding period, the more it looks like an active operation. Jeff William,

There is no clear line drawn by the IRS and the determination is on a case-by-case basis. If you were to get audited they would look at many factors. The more properties bought and sold, the more it looks like an active operation. The shorter the holding period, the more it looks like an active operation.

Jeff

]]> By: William http://www.solo401k.com/2008/11/26/arkansas-couple-realizes-the-benefit-of-managing-their-own-retirement-accounts/comment-page-1/#comment-33 William Tue, 08 Dec 2009 05:35:22 +0000 http://solo401k.wordpress.com/?p=41#comment-33 So if they are real estate professionals and purchased property that they then flipped inside their accounts, are they subject to UBIT? I'm very hazy on what the IRS defines as a "unrelated trade or business". If I'm hands off (only pick the property and direct others to renovate/improve/etc.) the property and subsequently sell it at a profit without ever having generated a passive income (rent, gas/oil royalties, etc.), does this automatically mean that the profits are subject to UBIT, because I'm selling a "good or service"? Does it matter if what I do in my own business is related to what I invest in? That is, if I actively invest in real estate and then buy/sell real estate inside my self directed accounts, does this automatically mean that my self directed accounts are subject to UBIT? Thanks for your response Jeff. - William So if they are real estate professionals and purchased property that they then flipped inside their accounts, are they subject to UBIT? I’m very hazy on what the IRS defines as a “unrelated trade or business”. If I’m hands off (only pick the property and direct others to renovate/improve/etc.) the property and subsequently sell it at a profit without ever having generated a passive income (rent, gas/oil royalties, etc.), does this automatically mean that the profits are subject to UBIT, because I’m selling a “good or service”? Does it matter if what I do in my own business is related to what I invest in? That is, if I actively invest in real estate and then buy/sell real estate inside my self directed accounts, does this automatically mean that my self directed accounts are subject to UBIT?

Thanks for your response Jeff.

- William

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