Building a Fourplex and funding through 401 (k)

[Lisa Tanner]

We have 36 acres of raw land that our house sits on. We got it for a great price and are wanting to build a 4 plex on our front 5 acres, using our 401 (k) savings.

my husband and I are new to real estate investing. This will be our first investment. We have 36 acres, and are wanting to pull $55,000 out of our 401(k) and roll it into a self directed IRA, use that as the downpayment for a fourplex on our front five acres. We know that after expenses and setting up a LLC all income would have to go back into the 401(k), but we also have about $5,000 to put up of our own money so we could get a small percentage of cash flow back to us as well.

Has anyone done something like this before and have advice? 

[Brian Eastman]

@Lisa Tanner

What you propose is not possible. You are a disqualified person to your IRA or 401(k). You may not transact personally in any way with your plan. So, you cannot sell, transfer, gift or otherwise provide land you own to your 401(k) so that the 401(K) could be the developer - in which case the 401k would have to pay for the project in its entirety. You are also prohibited from using the 401k funds in your own personal development project.

Self-Directed IRA and 401(k) plans are a means to diversify your retirement savings, but everything needs to be done exclusively via the plan and for the benefit of the plan. Such plans are not a way for you to get access to the funds for personal benefit in any way.