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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:

Office equipment for Solo 401k use

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Can I purchase a fax machine/scanner using my Solo 401k bank account?  This will be used exclusively for the properties that I will purchase using the Solo 401k.  It will not be used for any other personal purposes.

Answer:

We strongly recommend against doing so.

While your intention may be to use this scanner/copier/printer/fax machine exclusively for the Solo 401k, the machine will be located in your home. This makes it likely that either yourself or someone else in your household will use the machine for personal benefit, even without meaning to or without you knowing. This would create a prohibited transaction.

Accredited investor

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I'm considering investing my Solo 401k into an investment that only allows accredited investors. How does the Solo 401k qualify to be accredited?

Answer:

In order for a Solo 401k to qualify as an accredited investor, the 401k owner must qualify:

1. Annual income of over $200,000 single, or $300,000 married, in each of the past 2 years.

2. Net worth in excess of $1,000,000, not including equity in investor’s personal residence.

Depreciation

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Can I claim depreciation expense on a property owned by my 401k?

Answer:

No. You could if there was taxable income, but because rental income from the property owned by your 401k is sheltered from taxes, there is nothing to deduct it against. It also does not affect your personal income tax.

Required minimum distributions

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At what age do required minimum distributions begin for the Solo 401k?

Answer:

Required Minimum Distributions (RMDs) are minimum amounts that retirement plan account owners generally must withdraw annually starting with the year they reach age 72 (73 if you reach age 72 after Dec. 31, 2022). This is true whether you’re still active in the business or not.

You have to calculate RMD for your Solo 401k separately from an IRA. For more details regarding RMD, please consult with your CPA and visit the following IRS page:

https://www.irs.gov/retirement-plans/rmd-comparison-chart-iras-vs-defined-contribution-plans

For your convenience, we have a RMD Calculator on our website:

RMD Calculator

As the plan administrator it is your responsibility to withhold the taxes and report the distribution, learn more here:

Withholding 20% Tax on Distribution

Transfer an annuity into my Solo 401k

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How do I transfer my IRA annuity into my Solo 401k?

Answer:

An annuity is simply an investment of an IRA. IRS rules allow you to transfer any IRA (except Roth) into your new Solo 401k plan.

In order to do so, you will need to contact the company holding your annuity and sell or liquidate it. Then you can simply request a Direct Rollover of your IRA into your Solo 401k plan.

The rollover instructions and form are located here:

Transfer/Rollover

Solo 401k account statement

We are applying for a new mortgage and the lender would like to see a quarterly statement for our retirement accounts. I spent some time yesterday and prepared a "snapshot" by generating a report from Quickbooks (I use this software to track my Solo 401k balances and transactions) but they would not accept that. The underwriters for the loan are wanting to see a statement like they are used to.  I am not a financial guru and not certain what a "typical statement" would include in their minds.  Do you have anything prepared that I could plug my numbers into?

Answer:

Yes, we have a template that you can use:

Solo 401k statement SAMPLE.xlsx

Please note the following instructions to properly complete the statement:

  • Download the file and save it on your hard drive.
  • Open the file and edit the cells that are highlighted in yellow. Do not edit any other cells since the sheet includes formulas.
  • Insert your plan information. Refer to your Adoption Agreement document and copy any required information from there.
  • Account number: for the first portion, use the plan number (usually 001).  The second portion of the number should be the last 4 digits of your Social Security Number.
  • After you finish editing, double-check for accuracy.
  • Remove the yellow highlights and save the file.
  • Save the file in PDF format. You can then provide the PDF file to the person requesting the statement. Do not send it in Excel format. There are free software versions on the web which would allow you to convert to PDF. If for some reason you are unable to save it as a PDF, you can print the file and then scan it or send it via fax.

Correcting a prohibited transaction

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Under Internal Revenue Code a penalty tax is assessed equal to 15 percent of the amount involved in the prohibited transaction. After the prohibited transaction has been identified, it must be corrected immediately - certainly within the taxable year. However, if the prohibited transaction is not corrected during the taxable year, then an additional penalty tax in the amount of 100 percent of the prohibited transaction amount will apply.

Correcting the prohibited transaction means to undo the transaction to the extent possible and in any case to make good to the plan or affected account any loss resulting in the transaction, by restoring to the plan or affected account any profits made through the use of the plan assets. The plan must be placed in a financial position no worse than if the disqualified person had acted under the highest fiduciary standards (IRC Sec. 4975(f)(5) and ERISA Sec. 502(i)).

Charitable donation from my 401k

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Is it possible to make a charitable donation from my 401k to a church or another non-profit without tax-consequences?

Answer:

If you plan to include retirement assets in a charitable donation, you should consider how it may affect your finances. In some cases, it can be more beneficial to designate the charity of your choice as the beneficiary of your retirement account. It also might be possible to direct a distribution to a charity.

Please consult with your CPA for details as we are not qualified to provide you with tax advice.

Filing a 1099 for a contractor working on a property owned by my 401k

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Do I need to get a tax ID from a contractor working on a property in my 401k so that I can file and submit 1099 to the IRS?

Answer:

According to the IRS if you pay independent contractors, you have to file Form 1099-MISC, Miscellaneous Income, to report payments for services performed for your trade or business. 401k is not considered your trade or business but we suggest that you confirm with your CPA regarding filing requirements.

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