self-directed 401 k loan

[Walker Seid]

I'm interested in rolling over my 401k into a solo 401 K in order to take out money for a down payment on investment property. is this a good idea or a bad idea? I'm wondering if it is a better idea than pulling my retirement And taking the tax penalties

[Dmitriy Fomichenko]

@Walker Seid

I don't think taking early distributions, paying taxes and penalties (both on state and federal level) and then investing the rest is wise financial move. Depending on your tax bracket it may end up costing you nearly 50% of the amount you take out! The fact that you can still use those funds to buy investment property using tax-deferred environment makes the first option even less appealing.

I would suggest you you explore the option of using truly self-directed Solo 401k instead of SD IRA. There are several major advantages of using this investment vehicle, you can check my other posts to learn more but here are just a few:

1. Checkbook control - you don't have to deal with a custodian when making investments or paying expenses, simply write the check.
2. If you use leverage when buying investment property by using Solo 401k you will avoid paying UBIT.
3. Access to your retirement funds even before you retire via loan feature.

Keep learning and educating yourself!