Looking for advice on Rollover IRA funds

[Nicholas Hamblen]

Hi Everyone,

My wife and I were looking to start flipping homes and/or buy rental properties. She recently rolled over her old 401K from past employer into rollover IRA with Fidelity. There is 46K in the account. We have been trying to look for ways to legally invest this money as a down payment or help with rehab costs and possibly fund the rest with HML or HELOC. We would like to do some of the work ourselves and it seems as if Solo 401K or SDIRA's do not allow this. Would this be a possible scenario for us? Is there any other options to use this money without penalties or heavy taxes? Thank you in advance!

[Carl Fischer]

@Nicholas Hamblen

Great your thinking about keeping your tax advantages money working hard. The short answer is probably no with all your “wants”. If you leave out working on it yourselves it would be possible. However your sweat equity would be a prohibited transaction. I understand your dilemma as I wanted to save money , do the work myself, and I am somewhat a control freak. However I learned I was good at finding and negotiating deals and that I could make more money doing extra deals than  swinging a hammer or pushing a broom. 

You want your money working as hard as you do. Maybe lend it to another rehabber to  start. We just had a client buy a house in Detroit for 30k that may be another option. 

Flipping houses is also considered a "business" and as such, may require your IRA pay unrelated business income tax UBIT. Others in the BP community frown upon partnering with your IRA but under certain conditions, I believe, it is possible but you must keep impeccable records and meet certain criteria.

Use your Heloc and borrow someone else's IRA and you can do exactly what you outlined and hopefully your IRA can be providing a good return doing something else. Continue to Focus on keeping tax advantaged money working- demand more from your money.