Who’s Unhappy with Their 401-k?

Multi-Family and Apartment Investing
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Who’s Unhappy with Their 401-k?

Danny RandazzoPro Member
Apartment Syndicator · Charleston, SC · Member since 2016 · 973 posts · 728 votes

What have you done to make the most of your retirement accounts (401k, IRA, 403B, ESA, etc.)?

I recently converted an old 401k that wasn’t doing much for me into a self direct individual retirement account (commonly referred to as a SDIRA). I was unhappy with the 401k because I had limited ability to invest in anything other than mutual funds and then the market just goes up and down and sometimes there is nothing to show for it from a return perspective. I liquidated the 401k and transferred the entire balance to a sdira managed by a custodian to ensure I stay compliant with IRS rules. Personally I use equity trust company but there are many companies out there. Using the sdira I’ve been able to passively invest in multi family syndication deals and get the great benefits of real estate like cash flow and value add appreciation. I can’t invest in deals that I’m personally a GP of so it’s a way to diversify. Overall, I’m happy with the setup and performance of my sdira since I have complete control of what to invest in.

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David BarnettPro Member
Rental Property Investor · Cambridge, MA · Member since 2016 · 634 posts · 415 votes
7y

@Jamie Burns I'm probably going to get vilified in this thread for this.  Why not just stack cash outside of the 401k and use that to invest in real estate?  You mentioned that you already reduced your contributions to be exactly the employer match.  Therefore, I'm assuming there's a spread between your previous percentage contributed to today's contribution percentage.  I think it's a good idea to have both real estate and 401k assets to be diversified.  I personally would never self direct to invest in real estate directly.  I keep the 401k and real estate separate.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Danny Randazzo:

    What have you done to make the most of your retirement accounts (401k, IRA, 403B, ESA, etc.)?

    I recently converted an old 401k that wasn’t doing much for me into a self direct individual retirement account (commonly referred to as a SDIRA). I was unhappy with the 401k because I had limited ability to invest in anything other than mutual funds and then the market just goes up and down and sometimes there is nothing to show for it from a return perspective. I liquidated the 401k and transferred the entire balance to a sdira managed by a custodian to ensure I stay compliant with IRS rules. Personally I use equity trust company but there are many companies out there. Using the sdira I’ve been able to passively invest in multi family syndication deals and get the great benefits of real estate like cash flow and value add appreciation. I can’t invest in deals that I’m personally a GP of so it’s a way to diversify. Overall, I’m happy with the setup and performance of my sdira since I have complete control of what to invest in. 

    We went to Solo K  check book control.. cost a grand or so to set up.. But then you only pay one small fee to the custodian a year.. When I had my entrust sidra and I was an early adopter one of the first 500 of clients of theirs.. but they just fee you to death.. its free to open but then every transaction has a fee.. with the solo K  its one time set up and a yearly modest fee to kingdom trust.. 

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    8Reply
  • Lee Johnson
    Rental Property Investor · Sterling, VA · Member since 2017 · 13 posts · 15 votes
    7y

    Went with the Checkbook IRA from Broad Financial & Madison Trust and the annual fee is very modest compared to all of the fees of my Fidelity 401K. Can you believe that Fidelity charges a Recordkeeping Fee for each mutual fund that you own, not to mention the other fees. Highway Robbery!

    I love the convenience of being able to transact quickly using the Checkbook IRA.

    Thanks for posting @Danny Randazzo

    3Reply
  • Justin WindhamPro Member
    Banker · Nationwide · Member since 2015 · 4k+ posts · 1k+ votes
    7y

    @Danny Randazzo

    The Self-directed IRA and Solo 401k are the common solutions for those who like real estate. While the Solo 401k has eligibility requirements, it also has some unique benefits compared to the IRA. An IRA can have checkbook control just like the Solo 401k if an LLC is added. Setup fees for either structure often range from about $500 to $1,000. Annual fees are often $100 to $200.

    2Reply
  • Jeff Cichocki
    Lender · All 50 States · Member since 2015 · 401 posts · 250 votes
    7y

    @Justin Windham love my solo 401k. Can't say enough good things about them. Way better benefits in a solo than an IRA. More people should learn about and use them.

    There's a great book I recommend about it. It was written by two extremely savvy investors and one of the top attorneys in the country in this space.

    I don't get anything for recommending it, but it can be found here...

    https://assets101.com/shop/solo-401k/

    It's $28 and worth ever penny.

    6Reply
  • Justin WindhamPro Member
    Banker · Nationwide · Member since 2015 · 4k+ posts · 1k+ votes
    7y

    @Jeff Cichocki

    Nice. I'll have to check the book out. I agree, it's a fantastic structure. It's a great thing when people can have more control and flexibility with their funds and use that to improve their financial future.

    0Reply
  • Jamie Burns
    Investor · Orlando, FL · Member since 2012 · 30 posts · 26 votes
    7y

    Question for all the experienced investors here. I have a 401k with my current employer. I’m limited to only investing in certain funds and this roller coaster ride is wearing on me. I do have an employer match, which I’ve lowered my contribution to meet the max employer match %. 

    I’ve already set up a SDIRA to begin contributing to, however, I would love to transfer my entire 401k into this sdira. Is there any way to do so without penalty or ways to reduce the penalty? Is it the penalty worth it to get it out of stocks and start using it for apartment syndications? 

    I’ve also looked into taking a loan from it to invest into my own apartment buildings, but the interest is about 6% and the paycheck deduction is a large chuck bi-weekly. 

    Any suggestions/recommendations would be much appreciated!!

    Thanks so much!

    0Reply
  • Justin WindhamPro Member
    Banker · Nationwide · Member since 2015 · 4k+ posts · 1k+ votes
    7y

    @Jamie Burns

    There is no penalty at all for transferring a 401k to a self-directed IRA. The obstacle you're likely facing is that your employer's plan document may not allow for in-service distributions. If this is the case, you'll need to wait until you leave that job before you have full access to move the funds to a more flexible arrangement such as your self-directed IRA.

    6Reply
  • Jeff Cichocki
    Lender · All 50 States · Member since 2015 · 401 posts · 250 votes
    7y

    @Jamie Burns its extremely rare for an employer plan to allow you to roll/transfer funds out before you leave them. I think you should ask them, but be prepared to hear no. Once you switch jobs, the world will open up for those funds.

    0Reply
  • Danny RandazzoPro Member
    OP
    Apartment Syndicator · Charleston, SC · Member since 2016 · 973 posts · 728 votes
    7y

    @Jamie Burns @Justin Windham and @Jeff Cichocki are right that your current employer won’t allow you to transfer without penalty. The only option you’d have would be to liquidate the 401k to cash. Your current policy should give you the fees to do it so you need to weigh the cost of fees versus opportunity cost you’d miss by not investing in what you want versus paying the fees then investing to make your own returns

    0Reply
  • David BarnettPro Member
    Rental Property Investor · Cambridge, MA · Member since 2016 · 634 posts · 415 votes
    7y

    @Jamie Burns I'm probably going to get vilified in this thread for this.  Why not just stack cash outside of the 401k and use that to invest in real estate?  You mentioned that you already reduced your contributions to be exactly the employer match.  Therefore, I'm assuming there's a spread between your previous percentage contributed to today's contribution percentage.  I think it's a good idea to have both real estate and 401k assets to be diversified.  I personally would never self direct to invest in real estate directly.  I keep the 401k and real estate separate.

    10Reply
  • Jeff Cichocki
    Lender · All 50 States · Member since 2015 · 401 posts · 250 votes
    7y

    @David Barnett no need to be vilified. We all have our different perspectives and goals. Neither is necessarily right or wrong. It's more about what you need and what makes you the most comfortable. Most people have the majority of their funds in their retirement accounts which is why it's such a big topic.

    3Reply
  • Jeff Cichocki
    Lender · All 50 States · Member since 2015 · 401 posts · 250 votes
    7y

    @Danny Randazzo I've never heard of an employer let anyone cash out before leaving the company. Most companies don't allow such moves because the Custodian sets the rules (employers don't typically know what to ask or offer and unwittingly let them control stuff like that; and letting someone take the money hurts their profits and commissions).

    Has anyone ever seen this allowed before? I'd love to learn under what circumstances this would happen.

    1Reply
  • Taylor L.
    Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes
    7y

    Mine is a regular SDIRA. It's just fine. However I learned about Checkbook Control through a podcast interview I recorded, and I will be switching over to that very soon.

    2Reply
  • Justin WindhamPro Member
    Banker · Nationwide · Member since 2015 · 4k+ posts · 1k+ votes
    7y

    @Jeff Cichocki

    While our documents do allow for in-service distributions, this is much more rare outside of the self-directed sector of the industry. That said, some employer's plans do allow for in-service distributions and I have seen it before. We've even had clients who were able to convince their (smaller) employer to have the plan documents updated to allow for in-service distributions. In general, however, most people must wait until they leave their employer before gaining access to the funds.

    1Reply
  • Jeff Cichocki
    Lender · All 50 States · Member since 2015 · 401 posts · 250 votes
    7y

    @Justin Windham I've heard they're out there. Never seen it myself. For those that have the ability, they should definitely take advantage of it.

    0Reply
  • Justin WindhamPro Member
    Banker · Nationwide · Member since 2015 · 4k+ posts · 1k+ votes
    7y
    Originally posted by @Jeff Cichocki:

    @Justin Windham I've heard they're out there. Never seen it myself. For those that have the ability, they should definitely take advantage of it.

     Agreed.

    0Reply
  • Jamie Burns
    Investor · Orlando, FL · Member since 2012 · 30 posts · 26 votes
    7y

    Thank you @Danny Randazzo @Jeff Cichocki @David Barnett and everyone else. The answer if pretty much what I expected but it never hurts to ask. Just gonna continue working hard to build that financial freedom to leave the job then really put that money to work!

    1Reply
  • Jeff Cichocki
    Lender · All 50 States · Member since 2015 · 401 posts · 250 votes
    7y

    @Jamie Burns in the mean time, find some financial friends and other lenders to work with who can help you get to where your going sooner than later. Good luck.

    1Reply
  • Jamie Burns
    Investor · Orlando, FL · Member since 2012 · 30 posts · 26 votes
    7y

    Thank you @Jeff Cichocki, that is exactly what I’m doing.  

    0Reply
  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    7y

    Equity Trust is miserable to deal with.

    Separately, I highly recommend checkbook control...lower cost, more control.

    3Reply
  • Justin WindhamPro Member
    Banker · Nationwide · Member since 2015 · 4k+ posts · 1k+ votes
    7y
    Originally posted by @Mike Dymski:

    Equity Trust is miserable to deal with.

    Separately, I highly recommend checkbook control...lower cost, more control.

    I've heard similar feedback quite a bit. Checkbook control is definitely nice, and for many investment strategies, almost a necessity.

    2Reply
  • Franklin Romine
    Visalia-Fresno, CA · Member since 2009 · 1k+ posts · 863 votes
    7y

    @Danny Randazzo

    I’m using Madison Trust for my SDIRA with Checkbook control. Broad Financial is the company that creates the entity.

    0Reply
  • Franklin Romine
    Visalia-Fresno, CA · Member since 2009 · 1k+ posts · 863 votes
    7y

    @Lee Johnson

    How are you liking Madison Trust? I’m waiting for my llc documents to be mailed to me. I had been using pensco previously.

    0Reply
  • Danny RandazzoPro Member
    OP
    Apartment Syndicator · Charleston, SC · Member since 2016 · 973 posts · 728 votes
    7y

    @Frank Romine thank you for the input on your selected setup

    0Reply
  • Danny RandazzoPro Member
    OP
    Apartment Syndicator · Charleston, SC · Member since 2016 · 973 posts · 728 votes
    7y

    @Jamie Burns @Jeff Cichocki @Justin Windham @David Barnett great discussion and input on this topic, thank you!

    3Reply
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