Buy Real Estate with Pre-tax (401K/SIDRA), Roth IRA or after tax dollars?

[Kevin S.]

Hi members,

I recently met my CFP and he concluded that after all these years of accumulation in 401k it's time to take steps to minimize taxes and reduce/eliminate RMD.  As expected, he recommends Roth conversion and invest in stocks.  I have doubts about his experience in RE, which I believe may be common among CFP.  I am new to RE and would like to hear from seasoned members who have either been in this shoe or who are well versed with this situation.  With limited experience in RE investing my inclination is towards RE, not stocks.  I may be wrong and my CFP's may be right but I am thinking...

Is it better to (1) leave the money in 401k and let it keep ballooning and invest in RE with pre-tax money? 

(2) Does it make sense to buy RE within Roth IRA?

(3)  Since I am already paying tax to cash out 401K, is it better to just invest with after-tax dollars?                                                                                 

I am about 5-7 yrs away from retirement.  I think most successful members here started with RE early on.  Anyone here made the 'switch' from stocks (pre-tax investment/401K) to RE midway or later in life?  I realize there is probably no simple answers but I am all ears from all sources.  Thanks.  

[Brett Synicky]

@Kevin S. It can make sense to buy real estate within your IRA using a Checkbook IRA.  If you use debt to buy the real estate the IRA will incur UBIT so educate yourself on that.  Some opt for private lending to avoid this tax and still have investments secured by RE.   A Solo 401k which is exempt from UBIT on leveraged real estate may be a better option if you have legitimate self employment activity.  Additionally, educate yourself on disqualified persons and prohibited transactions.  

As far as Roth Conversion, it's the question of do you want to pay taxes on the seed or the harvest.  The answer is usually obvious if you can take the tax hit, but in your case assuming 5-7 years away from needing/wanting to distribute money to yourself, this is a decision you need to make with your tax advisor. There are certainly investments you can make to increase the principal in the net 5-7 years.  

You should consider investing in RE outside your retirement account as well since there are different tax benefits available.