Taking money out of IRA

16 Replies

Anyone ever took money out of your 401K, or had investors take funds out of their 401K to invest in your LLC. What was the process like? Multifamily syndication is the goal.

@Justin G. while unpopular amongst the conventional community - I have borrowed against my 401k many times. 

I have never made a withdrawal but have borrowed at 4-6% rates. 

I used it to fund rehabs or bring money to the table for my private money guys early on and would have the loan paid off in 2-3 months. 

I would be careful of withdrawals and going all in on your LLC/real estate. It's comforting knowing that I have a stock portfolio that needs very little oversight while I actively work with my rentals. It's good diversification.

But to each their own. Good luck!

I really just meant for investors taking money out of their 401k to invest in my LLC for a multifamily syndication. I know that is an option and didn't know if anyone has ever had experience with this.

@Justin G.

As it was pointed out above, 401k allows people to be borrowed against.  

I think what you may be asking about is self-directed retirement accounts. One of the ways to fund them is by transferring funds from regular or Roth IRA or 401k from your past employment to a self directed account (solo 401k, checkbook IRA or SDIRA with custodian - depending on what you're eligible for). A lot of people on this site have gone through it. I have done at least one of these options. Happy to chat offline if you'd like more details.

@Justin G.

Yes I have experience from both sides; investing in a Syndication using my SDIRA funds, and using investor capital that came from an SDIRA. 

I utilized what's called a checkbook controlled IRA that @Brian Eastman helped setup for me.  My investors for my note deals have utilized a company called Quest Trust IRA to fund the deal. 

Each have their advantages. 

I also put together a small eBook on this topic. PM me if you’re interested. 

@Justin G.

Taking money out of a 401k as an early distribution is usually advised against because of the taxes and penalties involved. If an investor was to do that to invest into your syndication, the investment income would be taxable since it is done outside of retirement funds. Another alternative is for your investor to setup a self-directed IRA or Solo 401k and invest the funds that way. This option avoids the taxable distribution and preserves the tax benefits of the IRA or 401k when earnings are paid from the syndication.

@Logan Hassinger is correct about SDIRA being popular investment vehicles individuals use to invest in syndication deals. 

@Justin G. SDIRA are used all the time are legal with the proper control and oversight with a custodian. Equity Trust Company is one we see a lot of investors use to setup and oversee their SDIRA 

Let me take the opposite opinion.  Say you want to invest $100K in a MF syndication (that is leveraged with a non-recourse loan).  Do some math.

Take $150 out of your IRA (not sure how you talk your employer into taking money out of a 401K unless you leave or are age 59.5.) You will need $15K for penalty and $35K for taxes (approx). Say you make 20% compounded and double your money in about 4 years. Now you owe CapGain on $100K (you can delay by buying another and using the bonus depreciation (if that remains available). You walk away with about $80K that is yours. But you had to pay that $15K penalty (the taxes would have hit you if you had not put it in the IRA anyway). So call it $65K.

Use a self directed IRA, put in the $100K in the MF syndications. 4 years later, the IRA doubled its money, but it owes UBIT (about 40% on most of it). So your IRA gets about $75K or $80K. If your are successful, you get to take this at 59.5 or later at say 35%. If you fail, you get it at no tax... Note that tax rates are at an all time low, I think it is a bad time to put money into traditional IRAs or 401Ks, just my opinion!

Say you have it in a Roth IRA, similar to above in that there is still a UBIT, but tax free if you succeed.

The borrow from the 401K plan is not too bad.  Better if a Roth 401K!   You pay yourself 5% interest into the Roth 401K for later and make 15% compounded on the 4 years.  As you did the investment, NO UBIT.  Cap gains on the $100K; I don't think you can take the interest off the gain, but that is worth checking on.  Seems you walk away about $60K.  One hazard on this one is losing your job, you have to pay back the loan THEN.

Clearly this is based on the hypothetical 20% annual return (which you get mostly at the end. I think there is a slight advantage having the funds in your pocket rather than in an IRA or 401K. But in all it is up to the individual as different folks have different goals and criteria.


Charles LeMaire - serial MF syndication passive investor...

I've never had anyone take money out of their IRA, but we have many that invest through their IRA/solo 401k. The process is very simple. Use a qualified company and make sure you give yourself enough time.

I took money out of my SDIRA to avoid UBIT because of leverage obtained on a JV partnership. Of course I consulted with my CPA and tax accountant. I will be continuing to invest that capital in future syndication deals and have a dedicated account just for it and the proceeds it returns.

There are many that advise against it but ultimately, its a personal decision that you should consult with your financial team. Personally, I would never advise for anyone to withdraw for the sole purpose of investing in an opportunity. It was a personal decision with a lot of pros and cons from professionals at the end of the day.


@Jerel Ehlert -- Interested in the fiduciary duty related to ERISA you mentioned in the post above. I have noticed a few MF syndications recently that limit IRA to 25%. I assume this is the reason. I note that most, probably all, of the PPMs I have seen state there is no fiduciary responsibility.

I am not an attorney, but checked with one.  I was told that if the company is more than 50% real estate, this does not apply.  All of the syndications I have dealt with are 100% real estate.  

I always like to understand the rules, do you concur or have a differing opinion?


Charles LeMaire