optimize money in different accounts to buy different properties?

Question

Hi BPers,

I am interested in apt investments. The question I have right now is that how to best utilize my money in different accounts (bank account, current 401k account, former 401k account, Roth IRA account) to buy different properties (cash flow property, property mainly for appreciation). The goal here is to maximize the tax benefit and also meet my liquidity needs.

My thought process is as follows, please let me know whether this is the right way to look at it:

1. current 401k: can't rolled over to self-directed IRA, therefore only used to buy financial assets (stocks, bonds etc)

2. Roth IRA is tax exempted，so I should roll the money in this account to self-directed IRA and invest in assets that are mainly bet on appreciation. Of course, it can be real estate investments and financial assets(then I don't have to roll into self-directed IRA)

3. For cash flow properties, it's better I use the money from my bank accounts, the reason being: 1) I need the cash flow to support my daily life; 2) get the depreciation benefit

4.  401k from former employer is tax deferred，I still don't have a good idea what's the best use for this money.

Any advice?

Thank you for your inputs!

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Yan Yan · Answer

thank you all for answering my questions. I guess I should do a better job to explain my question.

this is a hypothetical example: I have all the accounts I mentioned above: old 401k, current 401k, Roth IRA, personal trading account. let's assume the money parked in these accounts are roughly the same. if I want to use self-directed IRA to invest in real estate, I can roll money from my old 401k and Roth IRA.

now let's assume I find two properties, one is cash flow property, the other one is appreciation bet. I like both, I want both to be in my portfolio, so I am diversified. my question is: given that I have multiple properties I want to buy, and given that I have money from multiple accounts, how do I best match the money and the properties so that I can maximize the tax benefit, as well as cash flow needs?

thru self-education, I think it's better to use SDIRA(rolled from my ROTH IRA) to buy value-add property, and buy cash flow property using my bank account(as I need to have stable cash flow that I can use on daily basis). but I don't know whether my answers are correct or not.

Alina Trigub · Answer

@Yan Y.

Prior to deciding what to invest in and where to transfer your funds, I suggest you take a deeper dive into how SDIRA accounts work, the type of accounts (f.e., checkbook IRA versus self-directed IRA with custodian versus solo401k {if eligible}) and then decide for yourself as to which account type works best for your needs. You should also keep in mind the potential tax consequences  - which are in some cases dependent on the type of real estate deals/niche you will be investing in. So talk to several providers of such options for pension accounts to learn the pros and cons of it. If you need recommendations, feel free to PM me.

Here's some information on investing via pension accounts: https://www.biggerpockets.com/member-blogs/10850/74478-a-little-known-secret-called-self-directed-ira

Todd Dexheimer · Answer

Solid ideas. As for the 401k, that can also go into Real estate.

As for what to put the money in, that depends on what you're comfortable with. For me cash flowing real estate with value add appreciation makes a lot of sense. I like the stability of the cash flow and the opportunity of the appreciation.

Greg Dickerson · Answer

You should look into rolling the old 401k into your Roth IRA and use that to invest in properties or passively invest a syndication, do private lending or partner with an operator.

You can charge a fee to manage your Roth IRA if structured correctly.

Best to speak with an account or tax attorney well versed in these options.

Carl Fischer · Answer

@Yan Y.

Your thoughts are good and if it works to meet your goals do it.

The old 401k can be used for real estate or stocks etc. I prefer real estate.

Your age, cash flow, tax status, net worth, goals etc are needed to best design your strategy and plan.