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Self-Directed IRA vs Solo 401(k): Checkbook Control, Prohibited Transactions, and UBIT/UDFI Explained

Lane and John Park discuss how investors can use qualified retirement plan funds to invest in non-traditional assets like real estate and private equity through true self-directed structures, contrasting them with “self-directed” brokerage accounts that still limit investments. They compare self-directed IRAs (which require an IRS-approved custodian) with Solo 401(k)s (which allow the account holder to be the trustee), explaining checkbook control via IRA LLCs or IRA trusts, including why trusts can reduce recurring LLC fees in states like California. The conversation covers Solo 401(k) eligibility (legitimate self-employment with no employees other than a spouse), higher contribution limits, Roth options, participant loans, and the exemption from UDFI. They also review prohibited investments (life insurance and collectibles), disqualified persons rules, UBIT/UDFI tax concepts, deal-funding timelines, and investor Q&A including a real-world UBIT surprise from new-build profits.

00:00 Intro to Self Direction

01:00 Solo 401k Eligibility

02:33 Why Big Brokers Fail

06:38 Checkbook Control Basics

09:13 IRA Trust Option

11:03 Solo 401k Advantages

13:13 SDIRA Setup and Funding

13:54 Custodian vs Control

20:46 Prohibited Assets Rules

23:04 Disqualified Individuals

25:28 UBIT and UDFI Taxes

28:25 UDFI Real Estate Example

31:26 Solo 401k Tax Exemption

33:47 Solo 401k Setup Details

36:18 Solo 401k Loan Feature

37:00 Plan Rules vs IRS

38:46 Contribution Limits Explained

42:13 Loan Terms and Repayment

43:28 Roth and Backdoor Strategies

46:43 Paying Kids and Audits

47:58 Punting Taxes with QRP

51:02 Setup Timeline and Funding

54:18 Checkbook Control Custodians

58:25 When QRP Investing Makes Sense

01:04:37 Retirement Tax Trap Parents

01:06:26 Parents Money Risk Choices

01:07:24 How Much to Retire

01:08:54 Stop Overfunding 401k

01:10:32 Back Into 4 Percent Rule

01:13:47 Financial Independence Mindset

01:14:53 Three Bucket Strategy

01:16:51 Kids Inheritance Limits

01:19:28 UBIT Surprise in Solo 401k

01:21:29 Blocker Corps and AI Learning

01:24:10 Finding the Right Tax Pro

01:28:17 Trivia and Wrap Up

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Lane Kawaoka is a developer and multi-family syndicator who owns 10,000+ rental units and is the leader of “Hui Deal Pipeline Club” which has acquired over $2.1 Billion AUM of real estate by syndicating over $200 Million Dollars of private equity and most importantly distributed more than $45M back to our investors since 2016.

Check out our Top-50 Investing Podcast, The Wealth Elevator.

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