Converting to a Solo 401k ...maybe?

[TJ P.]

Here's the sitch-

I have a traditional 401k from a previous employer that I haven't touched since starting a new job with a new 401k. Instead of rolling it over to my new employer, I was hoping to convert it to a solo 401k and purchase notes- My new RE weapon of choice.

Here's the Q's-

1. Does the fact that I would be using it to purchase notes change rules/applicability/restrictions compared to other RE uses (mortgages, HML, etc)?

2. What would I be able/allowed to do with the cash flow generated from the notes? Does it have to stay separate or can I reinvest it into the 401k?

3. My goal is to replace my W2 income. I am well below 59.5 years old, and would like to be able to use the funds much sooner. What are my options?

4. I plan to use W2 funds as well to invest. Can these be co-mingled with anything related to the 401k?

Ideally, this is how I envisioned this playing out-

Convert the old 401K to a solo. Purchase note/s. Reinvest cash flow along with W2 contributions. Withdrawal well before age 59.5.

Tell me where I'm wrong, right, or misguided.

[Brian Eastman]

@TJ P. Firstly, you have to be self-employed with no full time employees to establish a Solo 401(k). You can be both W-2 employed and self-employed separately, but there needs to be a "business" that sponsors your Solo 401(k). Otherwise a self-directed IRA is your option for deploying tax-sheltered retirement money.

With a Solo 401(k) or IRA, it is a tax-sheltered retirement plan entirely separate from you. All investments are made via the plan, the plan is on title, the plan pays expenses, and the plan receives the income. You may not access the funds prior to age 59 1/2 without penalty, and may not co-mingle plan funds and personal funds.

Self-directed retirement plans are simply a means to invest that tax-sheltered retirement savings in a broader array of assets with more control.  It is not a way for you to get your hands on the money.

Using a self-directed plan to invest in notes can certainly produce better results than leaving those funds in the stock market.

Get on the phone with someone who specializes in this field.  They can help you understand your options.