When to move funds to self directed?

Question

Right now I am making an investment in a home I currently rent, then I will flip or rent by the first quarter of next year while living in a majority of the time. At some point after/during this I will be working become an active real estate investor. I have an old 401K with near 40K that I believe I want to use for investments.  One fact to consider in my final question it that the current company who has my money will be making changes and my money will not be available between October and November. Also Lost 2.2K in 401K account since June 2015.

Question: Should I consider moving my money now because the market is likely to "bear" more losses? Or should I hold out and only move when I am absolutely ready to start active investment. So essentially will I lose more by leaving in current funds or by having in a self directed I am not active with yet?

I am not sure what factors to evaluate on my own, and the buzz about the market (which I don't fully understand) makes me worry I should move now since I am not long term in the current old employer account.

Thanks!

Ryan McCallister · Answer

@ Brian Eastman

I have read several things on the differences and thought the same, but since I do not have the business part planned or making income yet I felt that it was not the ideal option now. On the other hand I will have to look more into the difference between the standard and Self Directed as I do not understand this well. I guess I narrowed in on the self directed as being the best solution if I wanted to access my money for real estate. The "interim" is the real consideration here though.

Mark Nolan · Answer

@Ryan McCallister

It is best to diversify your retirement account.  Also, a retirement account is a long-term savings vehicle. As such, by diversifying and having time on your side, the retirement account can sustain market volatility (both the equity and the real estate market).

Brian Eastman · Answer

@Ryan McCallister

Glad I could help, at least a little bit.

Before you make a decision to move, you should spend a bit of time understanding the difference between a self directed IRA and Solo 401k. The latter may be the better play for you, but could be something you need to wait for.  As such, you might just move funds to a standard IRA you control for the interim, rather than into a self directed IRA.

Ryan McCallister · Answer

Thanks @ Brian Eastman

I think what I have learned from what you say is that I do not have to look at the transfer as long term or stuck to only a single investment category.  Moving forward now with a SD IRA will give me freedom to do more and it does not have to be inactive while moving slowly towards real estate. Full time investing will be several years away and I can make necessary changes to my IRA when that time comes.

I am on information overload as I dedicate time daily to educating myself. This subject I keep leaving lower on the priority list, but want to make sure timing is not my immediate enemy. I see now that I can make smaller changes than my ignorance fabricated in my mind.

Brian Eastman · Answer

@Ryan McCallister

Well, nobody has a crystal ball that can tell you what the market may do.  That said, here are a few tips that may help with your decision.

You can typically cash out your investments at any time, and lock in the current value, even in an existing plan.

You could rollover the existing plan to either a plain old IRA (E*trade, a bank, etc) or a self directed IRA while you have access and consider your options with non-traditional assets in a self directed plan in the future.

Within a self directed IRA, you have the ability to invest in traditional assets, so money does not need to remain idle.

The type of self directed plan you would pursue is the big question.  You could clearly establish a self directed IRA or IRA LLC.  If you intend to become a full time real estate investor and will be generated earned, self employment income as a result (not just passive rents), then a Solo 401k might be a better option.  Establishing such a plan would require that you start in the self-employment mode first.