San Antonio, TX · Member since 2017 · 5 posts · 1 vote
I’m a beginner and was in the process of saving cash to begin investing but.....
I just lost my W-2 job and have a chunk of money in my 401k. I have considered rolling it into a self directed ira to begin purchasing buy and hold investment properties. Is their any way to make monthly income off of those or does all money made have to stay inside the IRA? I really want to submerge myself in real estate and never have a W-2 job ever again. I currently live in a paid for house and have 3 kids as well! I have enough funds to live on for a year but am willing risk some of that for some monthly cash flow.
I’ve worked hard up to this point financially to be in this position and am just looking for some guidance as if you were in the same position.
There are couple ways you could access your IRA/401k funds early without penalties (you can't avoid taxes) but this requires advanced planning and may or may not make sense for you. After all, you still will need money after 60, that is what retirement accounts are designed for, to provide for your financial needs when you retire.
But in the meantime you need to support your family now so you would have to figure out a source of income, you don't have to go back to W-2 for this, there are many other ways you could make money while you are working on building passive income.
Now that you have access to your 401k and if you know how to get returns better than stock market - self-directed IRA might be a way to go. I personally prefer private lending using my retirement funds, three main reasons for this are: it is completely passive, low risk (make sure you do your due diligence on the collateral) and nice returns (I average over 10%).
San Antonio, TX · Member since 2017 · 5 posts · 1 vote
6y
@Aaron K. Thanks for the input! I was hoping to find a loophole unbeknownst to me, to jumpstart some monthly cash flow utilizing this money. I definitely won’t cash it out....just yet!
Rental Property Investor · Channahon, IL · Member since 2018 · 161 posts · 103 votes
6y
@Daniel Welch I found your ‘loophole’ it’s the knowledge you will be gaining with real estate! Agree with @Taylor L. and @Aaron K. don’t take the money out , you’ll have to pay a big penalty. Stay on course. Your Self directed (if you choose) will grow as well as your knowledge!
San Antonio, TX · Member since 2017 · 5 posts · 1 vote
6y
@Diana Dorantes thanks for the insight and motivation. I can't wait to jump right in! I think I'm on to something with this self directed IRA thing. Can't wait to learn more!
There are couple ways you could access your IRA/401k funds early without penalties (you can't avoid taxes) but this requires advanced planning and may or may not make sense for you. After all, you still will need money after 60, that is what retirement accounts are designed for, to provide for your financial needs when you retire.
But in the meantime you need to support your family now so you would have to figure out a source of income, you don't have to go back to W-2 for this, there are many other ways you could make money while you are working on building passive income.
Now that you have access to your 401k and if you know how to get returns better than stock market - self-directed IRA might be a way to go. I personally prefer private lending using my retirement funds, three main reasons for this are: it is completely passive, low risk (make sure you do your due diligence on the collateral) and nice returns (I average over 10%).
Rental Property Investor · NC · Member since 2018 · 776 posts · 776 votes
6y
Not an expert on self-directed IRAs but I know there are some strict laws about certain aspects of investing. Like you can't do any of the rehab yourself, rent ready a unit, or draw rent payments from the account. I think its easier to manage for private lending or note investing. Just something to consider moving forward. Good luck!
San Antonio, TX · Member since 2017 · 5 posts · 1 vote
6y
@Dmitriy Fomichenko that is great information and awesome blogs you've written. I stumbled across your blog post about self directed solo 401k. Would you say that the self directed solo 401k is more beneficial than a self directed IRA?
The few key differences that stuck out to me were no fees and the ability to access a loan up to 50k for personal use. Did I understand that right?
Also, if I were to get my real estate license to become an agent would that qualify me for the solo 401k?
If you qualify for truly self-directed Solo 401k - that would be superior vehicle to SD IRA for several major reasons one of them being contributions limit nearly 10 times higher.
Because Solo 401k does not require a custodian you can eliminate all transaction and custodian fees.
Any legitimate self-employment activity (including being real estate agent) would qualify you for Solo 401k.