How did you first start using your Self-directed IRA?
I'm in the process of converting a 401k into a SDIRA and was wondering if any fellow BPer's would care to share what has worked or not worked for them using this investment approach. Is it best to purchase individual notes on a case-by-case basis, work with a group of private investors pooling money together or ????
Did your initial approach work or not? How did you tweak it to suit your business goals?
I've read the other posts on finding a good company to manage the SDIRA and have found some valuable information, but am more interested in individual opinions on the best places to start, with the intention of increasing the amount of cash available to put towards purchases and rehabs.
Thanks for the update. I hope you will keep us all posted on what you eventually put together. In the mean-time, I will check out uDirect IRA services as we have not been 100% thrilled with Equity Trust. We have been able to accomplish everything we hoped to do but the red tape and delays have been a little annoying. Do you personally know anyone who has used uDirect?
We have many clients who invest with us using self-directed IRAs. Many are with the more well-known SDIRA administrators, and express frustrations similar to @Douglas Larson. One of my favorite IRA administrators is First Trust of Onega. I find them to be very pleasant and very efficient when processing the paperwork from our investors. I highly suggest investors consider them when selecting an IRA administrator.
@Douglas Larson I neglected to mention that when I was frustrated to find I couldn't control the money locked up in our retirement accounts, I decided to get a HELOC for investing purposes.
This advice is AMAZING. Thanks everyone : ) I think I will do Solo 401Ks too!!
I eventually went with mysolo401k.net
Mark Nolan was very helpful in setting up my self-directed 401k. They are not paying me for this post. Just a satisfied customer.
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#1 New Member Introductions Contributor
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Originally posted by @Page Huyette:
@Douglas Larson thanks for asking. I've not moved any money to date, having discovered that both my retirement money with TIAA-Cref and my spouse's with Mass Mutual can't be rolled or touched until our employment is terminated. I moved some of the allocatations into real estate funds as a (poor) consolation but eventually switched that money back out due to lower performances than other options.
I will say that I've done quite a bit of research on the SDIRA option and have attended several webinars, and have found Kaaren Hall with uDirect IRA Services to be a great option. If we move our money into a SDIRA it will be with them.
I am both self-employed and work for an employer, so am also eligible for a solo 401k but am holding off on that route for now.
Page I agree with you, I know Kaaren personally and she is the expert when it comes to SD IRA! Her company offers great customer service, I referred several of my clients to her and they are happy.
- Sense Financial Services LLC
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- https://www.sensefinancial.com
If anyone is looking for a IRA servicer that is reputable, competent and easy to work with, I would recommend First Trust of Onaga (www.ftconaga.com). They are based in Kansas. and may be unknown to many. But they are getting quite well known, and have a great reputation in the industry. I work with many IRA servicers that my investors utilize, and they are by far the easiest to work with. I refer many of my clients to them when they get frustrated with their servicer. I have nothing to gain from this referral, only wish to spread the news about this servicer.
Since your question originally was about using my retirement plan and how I did it, I'll answer that. I'll do it in as much of a step by step basis as I can.
1. In May '12, a friend of mine offered to sell me a duplex in Milwaukee, WI for $27,000. It generates $600 / door or $1,200 per month. I wanted it my Roth 401K, as all the income from it would come to me tax free someday. I had no funds available at that time, so I offered the project to my friend, Josh.
2. Josh lives by Redmond, WA where land values are through the roof. He couldn't believe you could buy a good house with good income for $27,000 (Good house - horrible neighborhood). He didn't want to buy something long distance from an unknown person, so he suggested this: "You form an LLC in Wisconsin where your Roth 401K and my Roth 401K are the sole members. If your friend brings you a house you like, I'll fund it." We decided that a 50/50 split was equitable, so I formed the inter-401K LLC.
3. Josh's funds were all tied up at the time, so he approached a friend of his that was looking for better returns than he had been getting in the market. After hearing our proposal, he decided to fund anything we did. At a rate of 10%, he lent our 401K partnership enough to buy four duplexes and a three-unit. In May of 2012, I had NO houses in my 401K, by August 2012 I had FIVE properties.
4. By July of 2013, I had earned over $38,000 from these properties. I owed $0 tax. If I had done exactly the same thing in a Roth IRA I would have owe $13,800 in Unrelated Business Income Tax (UBIT).
5. The profit from these houses allowed me to buy another duplex for $9,500, which needed work. I've put $11,000 into it so far and it produces $1,150 per month.
In essence, this is what I did. I contributed $130 to my Roth 401K to cover the cost of forming the LLC in the state of Wisconsin. My Roth 401K formed a partnership with another Roth 401K, then that partnership borrowed money from someone I never heard of and didn't know. Using this person's money, my Roth 401K partnership has bought 6 properties and is ready to buy more. I will never pay short term capital gains, long term capital gains, UBIT, or income tax on any of this EVER.
So that's it. That's what I did. If this sounds like something you'd like to do, then I suggest you keep reading about 401Ks and their applications. Good luck!
Originally posted by @Will Barnard:
Originally posted by Page Huyette:
I'm now leaning towards the solo 401k, thanks to the great responses on this thread.I have an established business, and am wondering if I should set up the solo 401k in my name or a new LLC. Anyone know of any advantages/disadvantanges to one method over the other?.
There is only one method, you must form your solok plan from your business. So if yr current business is ABC basket weaving, then your 401k plan must be from/for that business. Example, ABC basket weaving 401k plan.
You can't have one business, then set up a new entity just for the 401k.
Some clarifications if I may:
You can title a property in the name of an LLC that is owned by your SDIRA or Solo k; however, it must be an LLC that is newly formed for the purpose of your SD account funding it. It can't be an LLC you already own and are using for any other purpose. This is very important.
In addition, you don't incur any penalties when you rollover from a 401k into a SD account as long as it is done correctly.
@Jaime Raskulinecz
I was hoping for a confusion clear up in the 2 above contradictory statements.
There are two entities, at two different points, thus the confusion.
A Solo 401k needs an employer to sponsor the plan. Think Ford Motor Company establishing the Ford Employees 401k plan. This can be any form of self employment activity, including sole proprietorship, LLC, S Corp, C Corp... The first question you reference above appears to be related to "which entity should I use as my plan sponsor/employer".
The Solo 401k is a trust, and that trust may invest into real estate and other non-traditional assets. Some folks choose to implement a LLC between the 401k trust and real estate investments. This can be beneficial with a large portfolio, where one might wish to create liability segregation between various plan assets. Any LLC of that nature would need to be a newly created entity specifically created for that purpose, in which the Solo 401k (or self directed IRA in that format) is the sole member. In this case, such an LLC would be an investment of the plan.
Hope that helps.
@Page Huyette
Yes I have a self-directed IRA that I invest in real estate as well as promissory notes and I'm very happy with it.
