Are there other options besides taking a loan from my 401k?
I can loan myself a max of $50,000. While that will help, I may need more and I have a pile of cash sitting there that I'd like to diversify away from stocks and bonds.
Are there other creative 401k options ?
Another option is to invest the 401k directly in real estate where the 401k takes title to the property. All expenses and income flows through the 401k. However, if you are talking about a current employer 401k this option won't be available. On the other hand, if it is a former employer plan, you can open a self-directed solo 401k if you are self-employed, or a self-directed IRA and then transfer the 401k to one of these vehicles which can then be invested in real estate.
Following are the similarities and differences between the solo 401k and the self-directed IRA.
The Self-Directed IRA and Solo 401k Similarities
The Self-Directed IRA and Solo 401k Differences
Another option is to invest the 401k directly in real estate where the 401k takes title to the property. All expenses and income flows through the 401k. However, if you are talking about a current employer 401k this option won't be available. On the other hand, if it is a former employer plan, you can open a self-directed solo 401k if you are self-employed, or a self-directed IRA and then transfer the 401k to one of these vehicles which can then be invested in real estate.
Following are the similarities and differences between the solo 401k and the self-directed IRA.
The Self-Directed IRA and Solo 401k Similarities
The Self-Directed IRA and Solo 401k Differences
Steve S. do a self directed account, and you now have access to All of your money. We work with 401k people all the time.
It looks like from this link that all proceeds have to go back to the IRA. How would I access the profit before 59.5?
Can I pay down the loan faster from money outside the IRA?
http://homeguides.sfgate.com/invest-real-estate-ira-401k-pay-little-taxes-7022.html
@Steve S. You can't access the profit before 59.5 with a retirement account. If you buy a property with the money, all of the rent profits have to go back to retirement account. I don't really like retirement accounts.
You could take your money out now, get taxed on it, then you can enjoy the profits. Also, stop putting money into that account. Open a business account and put it in there. Buy your properties with your business. Enjoy the profits. It's really up to you. If you hold on to the retirement funds, and start taking it out when it is built up, the tax's are going to be higher as you are pulling out more money.
@Steve S. You can't access the profit before 59.5 with a retirement account. If you buy a property with the money, all of the rent profits have to go back to retirement account. I don't really like retirement accounts.
You could take your money out now, get taxed on it, then you can enjoy the profits. Also, stop putting money into that account. Open a business account and put it in there. Buy your properties with your business. Enjoy the profits. It's really up to you. If you hold on to the retirement funds, and start taking it out when it is built up, the tax's are going to be higher as you are pulling out more money.
What about using 72(t) to access the funds in an Early Retirement scenario?
http://www.investopedia.com/terms/r/required-distr...
This is the website explaing 72(t). It's plausible, but you will only be pulling out a very minimal amount of your total Retirement.
What is the Difference between having it in a Retirement account and having it in a normal account?
If your going to Self Directing, the difference is, in a retirement account you can't take you money out until your retired. In a normal account, you can do whatever you want. Also, you can't take depreciation on retirement account's properties. You can with a normal property.
If you get sued by a tenant, they can go after who/what owns the asset. That means your IRA or 401K owns the property. That means they can get at everything in your Retirement account.
If you didn't have the money in a 401K or IRA, and jut bought the houses, and put them in Individual LLCs, then you would reduce your Liabilty. The tenant can only go after everything under that houses LLC. That would probably only include the 1 house. Your personal accounts are safer this way.
I was told by equity Trust:
We do offer Solo 401(k) accounts, the 401(k) is a Qualified Plan and you must have a properly structured business where you are the only employee/owner and receive W-2 payroll from the business to make contributions.
I would have to receive a W-2? Another self directed 401K company told me I didn't need this to have one?
Also, lets say you buy a rental for 50K and get 1000 a month, does that just go back into a money market account to be used for rental expenses? I would like to take 40% for expenses and invest the rest in stocks or mutual funds. Equity Trust and other companies have been vague on this answer and say their fees are higher to invest in stocks. It seems like I would need to transfer some of my profits out of the self directed accounts into a regular brokerage account.
I would appreciate some guidance from someone experienced with these accounts. Thanks-
@Joe Pitrolo
1. Self-employment income does not have to be generated through W-2 income; it can also be generated through schedule C income. The rule is that it has to be earned income not passive income. Most individuals that open a solo 401k are sole proprietors.
2. If you want to have a solo 401k where you will be able to invest in both alternative investments such as real estate, in addition to equities (stocks and mutual funds), then you will need to adopt a solo 401k from a solo 401k provider who can assist you in opening a brokerage account for the solo 401k at Fidelity Investments, TD Ameritrade or Charles Schwab for example. One of these brokerage firms will then issue a checkbook that you can use for placing your real estate investments and any unused funds can be invested in the stock market. Many of our clients go this route as it is generally one-stop shop.
My company provides a 401k where I can do the normal pre tax contributions, but they also put profit sharing into a separate sub-account of my 401k called "profit sharing".
In this case, does it have the same rules as a 401k as far as investing that money in real estate? I currently have about $1m there and don't want it all in stocks or bonds and would like some of it in real estate I own but it seems like that may not be a viable option.
Unless you are age 59 1/2, then your 401k savings is likely tied up in your current employer plan and limited to what they offer as far as investment choices.
You can check to see if the plan offers an "in-service" distribution option and if you qualify. Most plans do not, because they are designed and implemented by Wall St focused firms that want to keep your money in the plan where they earn management fees and commissions. At 59 1/2, an in-service distribution will be available to you per the tax code, even if you are still working with the company.
If you change jobs, you would then have the ability to move the current 401(k) to a plan of your choosing such as a self-directed IRA - or Solo 401k if you qualify.
If some of the money in your current plan was rolled into that plan from a prior job/company, then you should have the ability to roll that out to a plan of your choosing.
Unless you are age 59 1/2, then your 401k savings is likely tied up in your current employer plan and limited to what they offer as far as investment choices.
You can check to see if the plan offers an "in-service" distribution option and if you qualify. Most plans do not, because they are designed and implemented by Wall St focused firms that want to keep your money in the plan where they earn management fees and commissions. At 59 1/2, an in-service distribution will be available to you per the tax code, even if you are still working with the company.
If you change jobs, you would then have the ability to move the current 401(k) to a plan of your choosing such as a self-directed IRA - or Solo 401k if you qualify.
If some of the money in your current plan was rolled into that plan from a prior job/company, then you should have the ability to roll that out to a plan of your choosing.
Thanks. I'm meeting with my CPA next week to discuss options.
The first challenge you would be starting an account. The second one is finding a bank that will open up an account like this. I have had the hardest time finding a bank that will do this for me. The only one I found is Charles Schwab.
My 401k has a self directed option with Charles Schwab but if I can't access the funds for over 20 years AND I can't take depreciation, it doesn't really make sense for me
You are looking at this from the entirely wrong perspective. A retirement plan provides tax sheltering that allows you to grow the value of the savings much more than you could in a taxable account.
Like many, you want to compare investing in real estate with taxable funds and doing so with tax-sheltered retirement funds. That is apples and oranges.
When evaluating whether it makes sense to put retirement savings into real estate, you need to compare how the retirement savings will perform as compared to if it was invested in conventional financial products.
Many smart investors diversify their tax-sheltered IRA or 401k into solid, income producing assets such as real estate or private mortgages and end up with much better results for their future.
You are looking at this from the entirely wrong perspective. A retirement plan provides tax sheltering that allows you to grow the value of the savings much more than you could in a taxable account.
Like many, you want to compare investing in real estate with taxable funds and doing so with tax-sheltered retirement funds. That is apples and oranges.
When evaluating whether it makes sense to put retirement savings into real estate, you need to compare how the retirement savings will perform as compared to if it was invested in conventional financial products.
Many smart investors diversify their tax-sheltered IRA or 401k into solid, income producing assets such as real estate or private mortgages and end up with much better results for their future.
Understood. In addition to those benefits, I'm wanting to access several hundred thousand in those accounts that I don't currently have access to in order to avoid putting cash into properties.
That is simply not how retirement plans are designed to work. If you want "access" to the funds, you need to take distributions and pay the taxes.
That is simply not how retirement plans are designed to work. If you want "access" to the funds, you need to take distributions and pay the taxes.
That's exactly how I understand them to work if they are in selfndirected acclunts but that comes with other rules that may not make it a viable option.
Which of course is why I asked the question to try to learn about options or lack tuereof. Obviously no one would pay the penalties required to access funds to use them for an investment property. If one was desperate, maybe, but not to invest.