All Forum Posts by: Brian Eastman

@Cory Adams 

Most 401k plans do not allow you to take a distribution unless you leave the employer - which for a Solo 410k would mean terminating your plan.  The exception would be if you are over 59 1/2.

Check with your plan provider.

@Marion K. 

Yes, a SEP IRA may be self directed.

You may also want to consider a Solo 401k if your C Corp has no full time employees other than you and potentially your spouse.  The contrilbution capacity of the Solo 401k can be superior to a SEP, and you would have the ability to make Roth contributions to the Solo 401k with no income limit restrictions.  You can participate in more than one employer 401k plan, but just cannot double-up on your employee deferral portion of contributions.

@Kyle D. 

The key advantage of the 401k is the tax benefits it provides.  You are contributing pre-tax dollars, so you are effectively getting a match from the government in the amount of your combined federal and state income tax rates.  This allows you to amass more investment capital, which can produce more returns.  If you have an employer match, that is a bonus.

Comparing real estate investing to stock investing has been done many times on BP and for the most part if you execute well on your real estate strategy, you will amass more long term wealth.  Stocks - if well played - can sometimes have more aggressive returns, but the consistency is not there. Real estate provides that consistency, and an asset that is secured by something real, not digital.

Where you can really maximize both angles is with a self directed IRA or 401k. If you are engaging in real estate in an active fashion and generating earned income as opposed to passive capital gains, then you can set aside some of this income into your own IRA or 401k and reduce your taxes on that income (that government match I mentioned above). With a self directed plan, you then have the ability to put that tax-sheltered savings to work in real estate and invest in what you know.

Of course, diversification is always a good thing, so having a mix of real estate and other investments, as well as a mix of investments inside and outside of a tax-sheltered retirement plan is the best overall strategy.  Sometimes it takes a while to get there, so you need to start with a focus in one or two areas, and then build forward for the long haul.

@James Sanchez 

Whoever you were listening to on the webinar is entirely wrong.  No if's and's or but's.  There is a lot of that kind of misinformation out there about SDIRA's out there, mostly from people trying to sell real estate or real estate "education".

While the strategy you propose is "possible", it is not something we typically recommend and certainly do not go out and aggressively market as some folks do.  We take a conservative approach to navigating the IRS rules.

Without going too much into detail, you have to treat the project as a joint venture from the get go, not start with one party and then bring in funds from the other party when you run out of funds.  You would capitalize the project and fund the purchase transaction as tenants in common, and establish the equity based on cash provided, i.e. 80/20.  You then need to handle all future expense and income transactions on that 80/20 basis.  There is more to it than that, but hopefully that will prepare you for your conversation with your legal counsel.

@Tim Hitchens 

The other leading provider of non-recourse loans on a national basis is:

First Western Federal Savings Bank
www.myiralender.com
Roger St. Pierre
800-908-8845

Being in the IRA business where non-recourse loans are a requirement, we refer many folks to both First Western and NASB when they have borrowing needs. Jason, Roger and their respective teams are real professionals.

As disclosure (or non-disclosure), we have no financial or ownership relationship and do not receive commissions from either institution. We do have 10 years of experience sending clients their way and seeing them treated well.

@John Pianta 

Yes. The debt financing will expose the IRA to Unrelated Debt Financed Income (UDFI) taxation. Definitely consult with a CPA or Tax Attorney familiar with this concept. May not need to be an IRA specialist, as this tax applies to any tax-exempt entity.

The UDFI exposure may not poison the deal entirely, but it will take a bite out of your return depending on what amount of leverage is used.

You also need to ensure that you are not in any way putting a guarantee on the debt personally.

@James Sanchez 

You must speak with a qualified attorney if you are considering something like this.

It can (generally) be done, but must be established and operated properly.  

You would not want to partner the LLC, but rather have the IRA LLC wholly owned by the IRA and then JV with you personally into the underlying investment transaction.

There can also be concerns if either party is receiving a benefit from access to the other parties funds - including the ability to engage in a transaction it could not have otherwise.

Just a start on what you need to consider if you want to look into this further.

@John Pianta 

Disclosure. My company offers IRA and Solo 401k plans providing checkbook control.

Private placements are by nature very simple from a transaction standpoint, and do not typically require the flexibility and control that these more sophisticated plans offer.  

Investors wanting to transact directly into real estate, flips, notes, tax liens and the like will benefit from our plan formats and accompanying advisory services.

There are, or course other reasons you may want to consider such as other investment goals you may have, potential for contributions and the like, so I would not dismiss the concept entirely. But, for your stated purpose I would recommend an IRA Custodian (they all have the word "trust" in their names since they are depository trust institutions).

I can recommend IRA Services Trust Co as being reliable and having reasonable fees. We have used them as our back-end reporting layer for 10 years.

You would also be wise to confer with a tax attorney.  Even a private placement can get complex if there is debt in use or the underlying activity is considered a trade or business subject to UBTI taxation.

@Eddie Werner 

There are a lot of different takes on this topic, with varying application to specific situations.  A person's age, income, tax bracket and goals all fall into play and there is no one set answer.

It seems from this thread that we are comparing a conventional market based 401k to investing in real estate, and that is like comparing a Yugo to a Porsche.

If you are stuck in an employer plan, then you do not have much in the way of investment options. If however, you already have significant tax deferred savings in a former employer 401k or an IRA, then you can have the best of both worlds - a tax sheltered retirement plan that can invest in real estate. That would be a self directed IRA or Solo 401k, perhaps with a Roth focus.

For those who are actively investing in real estate - flipping, wholesaling, etc - and creating earned income as a result, there can be benefits to establishing a self directed Solo 401k that allows you to take the earned income from those activities and shelter some into a plan to reduce your tax profile.  This does not apply to passive rental earnings, however.

So, lots of ways to look at these topics, and lots of ways where a careful planning of investment and tax strategies can put more money in your pocket.

@Khalisah Callam 

If you take a distribution from an IRA, you have 60 days to put that back into another qualified retirement plan and not have any tax implications. You can go back to the same plan or a different plan.

You can only do one such "indirect" or "60-day rollover" transaction per year.

You can, however, have IRA custodians do a direct institution-to-institution transfer as frequently as you like.

So, just get that $30K back into any IRA ASAP. You can make a determination whether to do something different like a self directed IRA and move the money at some point in the future.