Rolling a 401K to a self-directed IRA to invest in real estate

[Peter Thielemann]

Hi Peter "newbie" here, I'm new to BP and looking for Pros and cons on rolling my company-sponsored 401k into a self-directed IRA to purchase rental properties. I understand you have to go to a Trust Company/custodian to convert a 401k to a self-directed IRA into an LLC to purchase rental properties. On top of the truss company I understand you need a CPA and a real estate lawyer. Looks like a lot and I'm knocking on the retirement door so I need to get started. Got referred to BP and here I go.

[Dennis Tierney]

@Peter Thielemann You have to decide if you want to own equity or debt. I personally want to own equity. I'm going to throw you a curve ball here. Since you are over 59 1/2 you can take a distribution without penalty. If you want to own the real estate and want the income in retirement you could line up a purchase and the financing of real estate at 75% LTV
( your stake is 25%). Then take a distribution from the 401k if allowed and purchase the entity outside of retirement account and use a cost segregation study to 100% depreciate your distribution. That allows you to get the $ out of the retirement account and not have to pay taxes on the distribution and no worries about RMD when you hit 72. I have used this strategy the last couple of years to move $ out of the retirement account, have income producing property and not have to pay taxes on the distribution. The door is closing on this strategy as the law starts to sunset in 2023.