Escaping a self directed investment account

[Account Closed]

I am in the process of moving several 401k and IRA accounts into a Solo 401k. This is a bitter sweet for me because it means I can begin investing in flips but also mean I cannot be materially involved in the improvement. This is tough for me because I'm a hard core DIYer who cringes at the thought of paying someone to do the same work I can do. Solo 401k investing also means all revenue needs to go back into the account.

This is fine if I'm only interested in long term growth on that account. Not so good if I want to liquidate some of that money or start participating in the flips in a hands on way.

I'm looking for creative ways to transition from my Solo 401k to a less restrictive investment platform. Aside from cashing out a portion or all of that account and taking the tax hit, does anyone have any strategic/alternative suggestions?

[Dmitriy Fomichenko]

Originally posted by @Account Closed:

I am in the process of moving several 401k and IRA accounts into a Solo 401k. This is a bitter sweet for me because it means I can begin investing in flips but also mean I cannot be materially involved in the improvement. This is tough for me because I'm a hard core DIYer who cringes at the thought of paying someone to do the same work I can do. Solo 401k investing also means all revenue needs to go back into the account.

This is fine if I'm only interested in long term growth on that account. Not so good if I want to liquidate some of that money or start participating in the flips in a hands on way.

I'm looking for creative ways to transition from my Solo 401k to a less restrictive investment platform. Aside from cashing out a portion or all of that account and taking the tax hit, does anyone have any strategic/alternative suggestions?

Craig, I have couple comments for you:

1. You can use a Participant Loan feature of the Solo 401k to borrow up to $50K from your account. This is a loan which has to be paid back over 5 years using amortized payments. But the proceeds are yours to be used as you wish. Invest in a flip, do the work yourself, keep all the gains and profits to yourself (pay taxes on it) and just pay back the principal on the loan plus interest.

2. I understand that you are 'hard core DIYer', but maybe it's the time for you to look at using other people's skills and resources to do the work. If you continue doing it all yourself - you are really limiting your growth potential. There is limit to how much work you can do in a day, but not so when you outsource. That is what I did too when I got started in REI 15 years ago. I did almost 100% of the work on several of my first fixers. But I can't imagine doing is myself now. My time is way more valuable than what I can pay someone to put new flooring or replace an appliance or install new door, etc. Consider shifting your mentality and valuing your time at say $100/hour then you will not have reservations paying someone $15/h to do some work for you.

3. Flipping properties in your retirement account is most likely will be considering as running active business and will subject all gains and profits to Unrelated Business Income Tax (UBIT) at about 40%. Be sure to take this into consideration and talk to a qualified expert before you proceed.