Account Manager · Cypress, TX · Member since 2015 · 23 posts · 2 votes
Please allow me to show my ignorance, and my desire to learn. Currently, I have a respectable amount of savings in a managed IRA (not self managed), and I am putting 15% of my salary into a 401K every month. It is my understanding that, keeping this, depending on the stock market, bonds, etc., is not a good practice or the best practice to build wealth. So, in order to get into RE investment and grow what I have now, to be able to retire between the next 5-10 years, I'll appreciate your guidance.
Here are my questions/concerns, considering I am 61:
If I take out X-amount from my IRA, I'll get taxed and lose a big chunk of the money. What is the best practice or recommendation to avoid losing a lot of money?
Are there better options than a 401K, but still be able to save 15% every month to build savings for investments in RE?
If you decide to go self-directed route for your IRA, consider investing in real estate notes. Generally it is better to own real estate in your name personally because of the tax benefits and passively invest in notes with your IRA because all interest income will be sheltered from taxes.
You can have a custodian for a self-directed IRA (SDIRA) roll your traditional IRA right over and you will avoid any tax implications. They will work directly with your traditional custodian. Once you have it moved over you can use it however you'd like (within the guidelines of Uncle Sam). As for the 401k, if you are still employed with the sponsor then there's not much you can do with it now. If you are no longer employed, the SDIRA custodian can roll that over for you as well. There are limits to how much you can invest in your SDIRA per year, but if you are making money in your REI and have a business structure setup you can sponsor your own company SDIRA plan and contribute some of your own income from your company into the new plan and even provide a company match (benefits of business ownership!).
Does that help get you started? Let me know if you have more questions, I'm happy to help if I can or point you in the right direction if I can't.
Therefore, it is a matter of finding a custodian that will serve as custodian of your self-directed IRA, and there are a few in your state as well as across the nation.
If you decide to go self-directed route for your IRA, consider investing in real estate notes. Generally it is better to own real estate in your name personally because of the tax benefits and passively invest in notes with your IRA because all interest income will be sheltered from taxes.
Oscar Freiman Oscar, I think you're on the right track with investing in real estate in a SDIRA. I have done this myself and truly believe it's a great way to build wealth over time. That being said you can continue to contribute to your 401k plan and over time transfer funds to your SDIRA but ONLY if the plan allows "In Service Distributions". You should check your plan's Summary Plan Description" (SPD) before proceeding and if it's not allowed it would be deemed to be a loan which will have to be paid back before you retire or leave the plan. My SDIRA is a SEP IRA since I'm self employed and I can contribute up to $53,000 this year. You max out your 401k plan at $24,000 which is still a healthy amount to put away.
Secondly, my own opinion is to diversify. Yes, real estate gives you more control over your own financial destiny, but I never tell my clients to put all their eggs in one basket. Put a smaller percentage of your savings in stocks, ETFs or mutual funds. You will have a bit more liquidity and growth potential over the long run or just in case you need it for emergencies so you can get your hands on it. Real estate investing is fun and can be very profitable but, in many cases, is less liquid than any other bucket of money you may have. Hope this helps.