Buying my existing investment property with self-directed IRA

[Usman U.]

Hello all,

I've been reviewing these forums and have been doing a lot of thinking of paying off my existing investment property with my 401k funds.

Current State:

1. Investment property has 150k mortgage left. Valued around 350k.

2. 401k has a total of about 400k. I've been doing my own investments in the market at around 20-30% returns per year. I'm a bit nervous about the next 2-3 years in the market, so I'd rather use the existing funds to just pay off my investment property (that I own).

3. With the pay off and the extra 150k cash balance (I've lived it in 2 out of the past 5 years), I could use that to pay down my current mortgage of my primary residence heavily, and ultimately my goal is to pay off my primary residence by the end of this year.

I want to do this for the following reasons:

1. Be debt free by the end of the year.

2. Have the 401k self directed own the investment property. It gives around 2k per month return. I know I lose out on deductions for personal, but I honestly don't care b/c I'd rather just have the 401k flat out own it and collect as a retirement.

3. The extra 150k personal profit won't be taxed due to capital gains < 500k and I've lived in the property for 2/5 years. The existing tenant / management company won't be affected b/c I'm still technically the owner/landlord. The extra 150k money can make a huge dent into my current mortgage primary residence and will help me pay of primary residence mortgage this year.

Is this a dumb idea? I am happy investing in the market, and have been doing very well over the years picking stocks/funds, but I'd rather just flat out own my investment property and 'cash out' of the market and into the investment property. 

I don't really understand the nuances on how this would all work so just looking for any advice before proceeding.