I am not self-employed but want a Self-Directed 401(k) - ??

[Account Closed]

I am interested in transferring my 401(k) from my previous company into a Self-Directed 401(k) - NOT a Self-Directed IRA - for the purpose of investing in cash flowing rental properties. However, I don not have a business. Do I simply need to start a random business and, if so, is there a minimum I need to earn each year to keep my sole proprietor status?

Also, I know that - with a Self-Directed IRA - there are a lot of disqualification scenarios. With a Self-Directed 401(k), are those still there? For example, can my business simply be a property management company and I manage the properties in the

Self-Directed 401(k) for a small fee or is this not allowed?

Finally, I have had a sole proprietorship before and the taxes for one are relatively easy to incorporate into personal tax returns. However, I am not sure how owning rental property inside a Self-Directed 401(k) will affect it. Anyone have 1st hand experience? Also, how does the depreciation tax benefit roll into taxes - or does it not?

*If you have a Self-Directed 401(k) and are happy with the entity that helped you set it up, please PM me! I am also in Austin so if you happen to know anyone local, I would appreciate their contact information too. Thanks!

[Brian Eastman]

@Uwe G.

I am familiar with the argument you are referring to.  Frankly, it misses the point.

Comparing investing in real estate with retirement funds to investing in real estate with non-qualified funds is apples and oranges. The tax treatment is entirely different, just as it is different investing in stocks with taxable and non-taxable funds.

The real question to ask as an investor is this: "If I understand real estate as an asset class, can I generate better results for my tax-sheltered retirement savings than if I left it in the stock market?"

To take a 40-60% cut in value of your investment capital by taking an early distribution of an IRA or 401(k) is a fool's bargain. Keep the full amount available to invest, invest in solid assets that you know and understand, and you will create a large sum of wealth to draw on in your golden years. It is not rocket science.