Updated over 6 years ago on . Most recent reply
Utilizing funds from my 401K and/or Roth IRA?
Hello, I am trying to understand whether or not it's possible the use funds from a 401K and/or Roth IRA to invest in a local multifamily unit? If yes, how does it work, and what are the key considerations in deciding whether it's advisable to do that?
Thank you for your help,
Matt
Most Popular Reply
Hi @Matt F. -- you'll need to convert your account into a Self-Directed 401k/IRA. From there you can specify real estate as your asset class. If you were to invest in a MFH, all of the expenses and income will need to flow into/out of your retirement account. You can think of it like index funds, where you get a dividend (monthly cash flow from rent) and also get an appreciating asset (e.g.. the stock value/home value increases). When you decide to sell, the profits would need to also go into your retirement account.
There are some restrictions on the actions you can take when you have a property in a self-directed account. For example, you can't sell the property to yourself or family member (I'm simplifying this rule, so reach out to a self-directed custodian to find out more details) and I think you cannot perform certain maintenance on the property.
A reasonable strategy (imo) that I've seen local investors do is get a property to flip in a self-directed account and then access the money from their retirement account after they sell it. Yes they will incur a penalty plus taxes, but this strategy is helpful if they really need capital and then want to deploy that capital via their personal account (not thru their retirement account).