Where do you put money that you use to invest?

[Kevin Hurney]

My father has over $100k in 401k account with a local broker and is not happy with the performance. He wants to use the money to do fix and flips. What kind of account would be ideal for this money to be used for the purchase of real estate and purchases during the rehab project?

Thanks

[Brian Eastman]

@Kevin,

The right type of account will depend on your father's situation.

If his goal is simply to boost the ROI of his retirement portfolio, but keep very much within the realm of a tax-sheltered plan, then a checkbook IRA LLC - or Solo 401k if he is self-employed - would be the right vehicle.

Flipping houses with a self directed plan can be financially rewarding, but all of that reward goes into the plan, and there are significant concerns about keeping all plan activities at arm's length. Your dad could essentially be a fund manager and deploy his IRA into flip transactions, but he could not be hand's on involved in the flipping or receive any compensation.

Further, there are potential tax implications if his self directed IRA or Solo 401k flips houses on a regular or repeated basis and therefore is considered to be conducting a trade or business. Hard money lending with the plan might be a good alternative.

If your father wants to be hands on and create spendable income a Rollover as Business Startup program would be an option to consider.

I like what @Trevor Ewen noted about being careful to understand the risk/reward component of any decision involving retirement funds.  Do some good homework and speak with both professionals who offer these services and your father's licensed tax advisor before moving forward with any plan.