401k withdrawal to invest

[Shannon Carter]

Hello Bp,

I would like some feedback on this creative financing I am trying to do. 

I have done 2 successful flips and also have one 1 buy and hold.

Now that I have a little skin in the game I’d like to ask my dad who is 62, with a 6 figure 401k to allow me to use $50,000 to invest in more real estate. I’d like to pay him as if he’s my private money lender after each deal. 

He’s funded my deals by taking out a loan from his 401k and I would make the biweekly loan payments , and pay him a fee once I sold my flips and refinanced my last property. That way we both made profit. 

But we can’t do another 401k loan for another 6 months . 

My question is , what steps would I need to take if he does the 50k withdrawal instead of the loan? Since he's 62 I know we can withdraw with no penalty, but is there a way to avoid taxes ? Like transferring the funds to a SDIRA or Roth IRA ?

Thanks for the feedback 

[Brett Synicky]

Quote from @Shannon Carter:

Hello Bp,

I would like some feedback on this creative financing I am trying to do. 

I have done 2 successful flips and also have one 1 buy and hold.

Now that I have a little skin in the game I’d like to ask my dad who is 62, with a 6 figure 401k to allow me to use $50,000 to invest in more real estate. I’d like to pay him as if he’s my private money lender after each deal. 

He’s funded my deals by taking out a loan from his 401k and I would make the biweekly loan payments , and pay him a fee once I sold my flips and refinanced my last property. That way we both made profit. 

But we can’t do another 401k loan for another 6 months . 

My question is , what steps would I need to take if he does the 50k withdrawal instead of the loan? Since he's 62 I know we can withdraw with no penalty, but is there a way to avoid taxes ? Like transferring the funds to a SDIRA or Roth IRA ?

Thanks for the feedback 

 Hi @Shannon Carter First off, both of you should probably talk to a qualified tax professional.   

Is the 401k your dad borrowed 50k from with a current employer?  If so, it's not likely they'll let him roll the funds into a solo 401k or SDIRA pre tax or post tax. Of course converting the funds into a Roth is a taxable event, so whether he takes a RMD or converts to Roth it's taxable. At this point I think you need to wait 6 months before asking him for money from his retirement account if the goal is to pay as little tax as possible.  Again, best to check with a CPA.