IRA /401k /SOLO401k/self directed?

Question

My husband is leaving his old job so we’re looking to rollover his retirement. Our CPA mentioned moving it to a Solo401k and using that money to buy properties (he has an LLC aside from his W-2 job). When I mentioned to Charles Schwab, they said they don’t allow solo401k to purchase individual properties, only real estate investment funds. But I’m also seeing “self directed 401k” on the forums. What’s the difference? How to best execute this? Thanks!

Dmitriy Fomichenko · Answer

@Angela Toy,You need a truly self-directed Solo 401k, and Schwab does not offer this option. This topic has been discussed on the forum at length, here is just one thread:https://www.biggerpockets.com/forums/51/topics/527877-self-d...

Dmitriy Fomichenko · Answer

@David M.You are correct; the self-directed 401k concept is the same as the self-directed IRA, but there are differences. You must have a custodian for an IRA, and while you can self-direct it, you do have a middleman between you and your IRA. 401k does not require a custodian and can be set up as a trust with you being the trustee. This means that you are in control; you can open a checking account for a trust and "checkbook control" over the 401k. While you can invest your 401k funds into virtually anything, you can't direct/spend funds "anywhere"; some restrictions exist. You can't invest in any transaction that involves an immediate family member, you and your family members can't benefit from the investment in any way (directly or indirectly), and you are not allowed to provide any services to the plan; all transactions must be "arm's length."Of course, having such freedom comes with responsibility. But this is not rocket science, and there are not "a lot of rules". Yes, there are rules that you must understand and follow, and most importantly, have a trusted advisor who can come for guidance. Hundreds of our clients have grown their retirement accounts into seven figures passively and almost anyone can do it too over time.

David M. · Answer

@Angela ToySo... A 401k is typically offered by a company, i.e. your employer. typically, they have funds from which you choose to invest.A self-employed 401k is basiclaly when you are ... self-employed... and you go to Schwab in your case to be the custodian of the account. Like a typical brokerage account, you can choose what public securities you'd like to invest..A self-directed 401k isn't something I've heard of... Normally, its with a IRA, or Roth IRA. But the idea is the same since your husband's 401k can be rolled over into a IRA as well... You need to find a custodian different from Schwab that will let you have "checkbook" control of your funds. Basically, you serve as your own custodian. Once you are able to do that, you can direct/spend/invest the funds "anywhere."This is what they mean by "self-directed" IRA / 401k / Roth IRA, etc... You need that extra level of "freedom/control."However, I will say that my accountant has told me that he basically doesn't touch this stuff since it gets messed up too easily. Even if somebody came to him for help, he'd turn it down because the significant time involved (even will billing for it) and the costs to the client are prohibitive.There are lots of rules, I don't bother to know them all since this is avenue is too extreme for me, around IRA's and 401k's (and the various other tax advantaged accounts). If you buy the wrong thing or move the money the wrong way, it creates a taxable situation and in the worse case, it "breaks" your account. In which case, you might as well have just withdrawn all the money and pay all the tax penalties.Hope this helps. Happy to chat if you like. I know you are consulting a professional already --- maybe mine is wacked out, but perhaps find some other ones. Good luck.

Lucas Thomas · Answer

Hello! The only Retirement Account that allows you to purchase Real Estate, Crypto, Businesses, or any Alternative Asset Class is going to be a Self-Directed IRA. Hence the "Self-Directed" part. Its actually a really great tool for retirement, but they have a lot of Nuances to them. You will be to consult with Self-Directed IRA custodian who can help you with those Nuances. The one issue is that you can only purchase real estate "Cash" in general as most lenders won't let IRA's take out loans, but I've seen it done if the deal is right. How much is in the retirement account?L. Thomas

Don Konipol · Answer

MySolo401k.com

Jeffrey Dixon · Answer

Each custodian decides what type of assets they are willing to hold. Brokerage firms limit their clients to stocks, bonds and mutual funds. You want to work with a company that allows real estate investments. You should always confirm with the custodian what investments they allow.