Dmitriy Fomichenko

About Dmitriy Fomichenko

Dmitriy is the founder and president of Sense Financial Services LLC, boutique financial firm specializing in self-directed retirement accounts with checkbook control. He began his career in financial planning and real estate investing in 2000. He owns multiple investment properties in various states and is a licensed California Real Estate Broker. Over the years, he has instructed hundreds of investment and financial planning seminars and has mentored thousands of investors.

Posts by Dmitriy Fomichenko:

May 28 2014

E-Trade Brokerage Account for Solo 401k from Sense Financial

Dmitriy Fomichenko Bank Account, Setup

An E-Trade Solo 401k brokerage account with checkbook control from Sense Financial is ideal for those looking to still have option to invest in equities while also gaining checkbook control over their retirement funds.

Brokerage option: continue to trade equities and grow your retirement funds tax-deferred, deposit investment gains from your Solo 401k's alternative investment holdings (e.g., rent check proceeds from real estate) directly into your Solo 401k E-Trade brokerage account, and make your annual Solo 401k contributions directly into the brokerage account.

How it works

E-Trade is simply providing a brokerage account for your Solo 401k, and Sense Financial is your Solo 401k provider. In other words, even though E-Trade also offers a Solo 401k, their Solo 401k plan documents restrict you to investing only in stocks and mutual funds. Our Solo 401k documents allow you to serve as trustee of the Solo 401k and invest in alternative investments such as real estate, precious metals, tax liens, promissory notes, private stock, etc. E Trade is not involved in the administration of the Solo 401k.

Documents for Opening E-TRADE Solo 401k Brokerage Account:

To open E-Trade Solo 401k with checkbook control, you will need to submit to them your plan documents, along with E-Trade's Investment-Only (Non-Custodial) Retirement Plan Application, which can be found HERE.

Note: Brokerage accounts at other trading platforms (such as TD Ameritrade, Schwab, etc.) can be set up in a similar way. Please inquire with your brokerage for details.

March 7 2014

Can I invest in life insurance with my Solo 401k?

Dmitriy Fomichenko Investing, Prohibited Transactions

There are many financial experts who adamantly state that qualified plans funds (e.g., 401k) should never be used to purchase life insurance. Although it is restricted, you could use your Solo 401k to invest in life insurance. This makes sense in the following cases:

You may not otherwise qualify for life insurance because of health reasons;
You don’t have other disposable funds; or
Your want more protection for your beneficiaries.

If you are interested in purchasing life insurance with your Solo 401k, note the following:

General guidelines for investing in life insurance with Solo 401k

In general, no more than 50% of Solo 401k or Individual 401k plan contributions may be used to purchase “whole” life insurance (i.e., policies with both nondecreasing death benefits and non increasing premiums), and no more than 25% may be used to purchase term life insurance.

Different treatment for Solo 401k contributions used to purchase life insurance

When a self-employed business owner invests her Solo 401k in life insurance, he does not receive a tax deduction for Solo 401k contributions attributable to the purchase of a life insurance benefit.

Ownership of life insurance policies

The Trustee of the Solo 401k is the owner of any life insurance policies purchased under the Solo 401k plan. Further, any life insurance policy purchased under the Solo 401k Plan must designate the trustee as owner and beneficiary under the policy. The insurance premiums are paid with funds from the Solo 401k’s checking account.

Reasons not to invest Solo 401k plan assets in life insurance

Although IRC 501(a) provides tax-exempt status to a qualified plan, including a Solo 401k, resulting in tax-deferred investment accumulation on the Solo 401k plan assets, a life insurance vehicle is tax-deferred on its accumulation outside of the plan as well. As such, the assets in the Solo 401k plan that are used to purchase life insurance are not getting any special income tax benefit on the accumulation in the contract by being held in the Solo 401k plan. The purchase of life insurance will reduce the amount available for investing in other assets such as real estate. Although life insurance may have an investment element (i.e., cash value accumulations), you may be foregoing higher returns by not investing all your Solo 401k plan in other investments.

This information is provided is for educational purposes and it is not intended, nor should it be interpreted as, any form of tax, legal, financial or investment advice. One must always consult with their respective professional in all such matters.

February 5 2014

Contributions to both SEP and Solo 401K in the same year

Dmitriy Fomichenko Contributions, Funding

Does the IRS allow contributions to both SEP IRA and Solo 401K in the same year?

Answer:

Yes, you may contribute into the SEP IRA and Solo 401K plan in the same year. However, you cannot exceed limitations of contributions in total.

The Solo 401K plan is more advantageous and allows you to maximize your contributions quicker since it includes both an employee deferral and a profit sharing component. The SEP IRA only has a profit sharing component. Most individuals will stop utilizing the SEP IRA and use only the Solo 401K plan. There is no reason to keep the SEP IRA open.

January 25 2014

Calculating participant loan

Dmitriy Fomichenko Maintenance, Participant Loans

I understand that the loan amount allowed for my Solo 401k is up to 50% of the 401(k) account balance or $50,000 whichever is less. If my Solo 401(k) owns real estate, does the value of the real estate count as part of the account balance, or is it only based on the cash balance in the account?

Answer:

The value of all assets including real estate is taken into account to calculate the value of the 401(k). However, the 401(k) loan can only be taken based upon available cash in the account.

Example

Your plan has $20,000 in liquid cash and owns investment property worth $100,000. The total plan value is $120,000. Based on the rules, you can have access up to 50% of the value of the plan or $50,000 whichever is less. In this case the maximum loan amount would be $50,000. But you only have $20,000 in cash available, therefore $20,000 would be the maximum amount you could take out as a loan without liquidating your investment property.

December 19 2013

Transferring a Fidelity Solo 401k to a Sense Financial Solo 401k

Dmitriy Fomichenko Assets, Bank Account, Funding, Investing, Setup, Transfers and Rollovers

I have a Solo 401k Plan which I originally established at Fidelity. However, I don't like being limited to only the investment options they offer. How do I transfer it to a new self-directed Solo 401k with checkbook control set up by Sense Financial?

Answer:

You would first need to have Sense Financial restate your plan documents. Our plan documents name you as trustee and allow you to invest in alternative investments such as real estate, precious metals, etc., in addition to stocks and mutual funds with a brokerage.

With your restated plan documents from Sense Financial, you can then open a new account at Fidelity for your restated Solo 401k. This new account would be need to be established as a non-prototype account. Fidelity would not function as custodian with this new account.

You will also need to notify Fidelity that you have had your Solo 401k plan restated. You can request that your existing plan be transferred internally to your new account set up for your restated Solo 401k. This would be considered transfer in kind by Fidelity. Therefore, there will be no charges to you because you will not be selling your assets.

November 1 2013

Are there any options to get Roth funds under my control?

Dmitriy Fomichenko Funding, Roth Solo 401k, Setup, Transfers and Rollovers

If you have Roth 401k funds, you can roll them over into the Solo 401k Roth sub-account.

If you have Roth IRA funds, the only way to get them under your control is to withdraw from the Roth IRA account or to transfer them into self-directed Roth IRA. Please contact us for details.

November 1 2013

Spousal Participation

Dmitriy Fomichenko Adopting Employer, Bank Account, Setup, Solo 401k Eligibility

Can my spouse participate in my Solo 401k plan?

Answer:

A spouse is eligible to participate in your plan if he or she is an employee of the company that adopts the plan.

Eligibility for a Solo 401(k) requires that there are no full-time employees in the adopting company other than owners, partners and their spouses. Independent contractors and part-time employees (who work under 1000 hours per year) are not considered full-time employees.

If your spouse is an employee of the company that adopts your Solo 401(k) plan, he or she is considered an “owner-employee” since the two of you are married. Another common occurrence is a husband and wife both owning and operating a business together. In both cases, both spouses can participate in the same Solo 401(k) plan.

Example

Let’s say Mary has a marketing company called “MMM Marketing”. Mary employs her husband, John, to do bookkeeping for the company. John can participate in the Solo 401(k) plan created for MMM Marketing.

Benefits of having a spouse participate in your plan

An eligible participant can make contributions to the plan from income received from the adopting employer.

Since your spouse will have his or her own set of contribution limits, spousal participation effectively doubles the total limits on contributions to the plan.

A spousal participant can also transfer eligible existing retirement funds into the plan.

Spousal participation also serves to eliminate the costs of having to create and maintain multiple plans.

As long as your spouse is an employee of the company that adopts the plan, he or she can participate. Your spouse does not necessarily need to be an owner of the company.

Establishing separate accounts

If your spouse is participating in the plan, we recommend setting up a separate bank account in the name of the trust for the additional participant’s contributions and/or rollovers. This is best for ease of accounting. Each account can be labelled with "FBO" (for benefit of) for each participant. The same would apply when opening other types of accounts in the name of the 401k trust, including brokerage accounts.

November 1 2013

What kinds of employees and contractors can my business hire?

Dmitriy Fomichenko Setup, Solo 401k Eligibility

What kinds of employees and contractors can my business hire?

Answer:

If your business has adopted a Solo 401k plan, you can employ part time persons and independent contractors. Part time persons are those who work under 500 hours per year. Independent contractors are workers who receive 1099 compensation rather than W-2 compensation.

November 1 2013

What if my wife has employees in her business

Dmitriy Fomichenko Setup, Solo 401k Eligibility

Can I set up a 401k for my business where I don’t have employees even if my wife has employees in her business?

Answer:

No, even if you are on paper don't own the business of your spouse, in the eyes of the IRS you own it 50/50, therefore neither of you are eligible to establish a Solo 401k plan.

November 1 2013

How would my new LLC or other business affect my Solo 401k?

Dmitriy Fomichenko Setup, Solo 401k Eligibility

If I create an LLC or any other business at a later date that is unrelated to my sole proprietor business, how does that affect my solo 401k?

Answer:

The LLC or other business should not have any full-time employees, even if the LLC or other business is not the adopting business of the plan. If you own any business(es) with full-time employees, you are no longer eligible for the Solo 401k. A full-time employee is considered to be one who works over 1,000 hours a year and gets a W-2.

If your sole proprietorship is the adopting business of the plan and the LLC or other business does not have any full-time employees (besides yourself and potentially, your spouse), you can continue to use and contribute to your Solo 401k from the income generated by your sole proprietorship.

For further questions, please consult your CPA or tax advisor.