Renton, WA · Member since 2013 · 21 posts · 1 vote
I have a 401(k) plan with enough money to make down payment on a house. Has anyone ever taken that their 401(k) money and put it in a self-directed IRA and then bought a rental property with it? How does this typically work? I have my 401(k) with Boeing specifically if that helps.
Most 401K providers keep the money until you leave employment. Especially most large corporations. Only after finding other employment can you move it to an IRA and then to a SD IRA.
Check with your HR dept to see if it's possible. But almost certainly you're confined to the investments their brokerage partners lay out for you.
If you can't roll it into a SD IRA, you may be able to borrow up to $50k from it and use that money without all the restrictions that come with SD-IRA funds.
Why not hard lend it out after you borrow from your 401k? Yes, the interest income is taxable, but you have much more flexibility out of the SD account.
I have done this with 2 IRAs. Anyone telling you it is not possible is misinformed. It is a great move and has worked out well. Just be careful, many ways to slip up. In box me and I can tell you more. ALso, you can save a lot of money and do the paperwork yourself (financial advisors charge thousands, you can do it for less than $100).
Ali Chami I think what you and Andrew are talking about are slightly different. The difference is that his funds are locked within a 401k and you mentioned yours were in an IRA. You are right, once they are in an IRA you can do it, but I think the discussion point was the difficulty in moving the 401k money into a Rollover IRA so that it can be placed into a self-directed IRA.
The reason employers do not support individuals rolling their money into IRA's is because the employer benefits from from keeping your contributed funds to your 401k under its umbrella. The larger retirement base, the better rates, service, fees, etc the employer receives from the holding company. Because of this, the only option typically is to roll the money over once you leave the company.
Andrew, It is an excellent way to buy property and done by many smart investors though out the country.
But smart investing subject to many things. Your SD IRA must be truly self-directed, UBIT taxes, enough capital in reserve for maintenance, unexpected/uninsurable, vacancy's and on and on.
So you need to be good at property management. Skilled enough to negotiate seller financing because you cannot use the IRA to borrow against so the unpaid balance will must be secured solely by the property.
Sub to (wrap around) purchases works great here but you will need documentation help from a local real estate attorney. Also, with this type of purchase a cooperative seller before, during and after is very important.
Good and back instructors on this technique out there so do you research as losing money in your IRA and very bad strategy as you are so limited to amount to fund each year.
Consider finding a skilled local investor to mentor you through a few transactions. Maybe give them a partial interest in the transaction in return.
There is nothing like compounding you profit with tax free growth and try to start a Roth and do this for the even better benefit, tax free withdraw.
Search SD IRA/Roth or Real Estate IRA's and you'll find all kinds of good info and custodians to help you with this concept.
Go at it slow, start small and make small mistakes.
I have bought a few rentals in my Self Directed IRA and have partnered with a property manager on them. He collects the rent, finds the tenants and, deals with the maintenance-I check my account online each month!