Using 401k to invest

8 Replies

Hello all!! I recently left my employer and am looking for a way to roll my former employer match 401k into another avenue that I can use to invest into real estate. I’ve heard a lot of different takes on this so I thought I would take it to the forums to get more insight. Thanks in advance for any and all help!!

@DJ Dawson

In order to preserve the maximum amount of account value (no tax hit) and retain the tax-sheltered status of the funds, you would want to look into a self-directed IRA, or if you will be self-employed with no full-time employees, perhaps a Solo 401(k).

These self-directed retirement plans provide the flexibility to invest beyond the stock market into assets such as real estate.

Of course, it is not "you investing in real estate", or something where you can draw current income.  It will still be a tax-sheltered retirement plan and everything has to be done at arm's length and exclusively for the benefit of the retirement plan.  It is simply a means to diversify your savings into an asset that you may understand better and have more control over.

For you to have access to the funds personally, you would need to take a distribution, which will involve federal and state taxes, as well as a 10% penalty for early distribution if you are under age 59 1/2.  In California, that likely means giving up about 45-55% of the value to taxes, which likely does not make sense.

@DJ Dawson ,

You can also use Checkbook IRA if you wish to have direct access and control over your IRA funds. This setup would allow you to bypass the custodian and have check-writing ability for your IRA.

In your profile you mention "flipper". If you are flipping houses on regular basis, this activity would qualify you for a Truly self-directed Solo 401k plan, which has number of advantages over SDIRA, you then should investigate this route. 

You can use leverage when buying real estate in your retirement account. Since IRS rules do not allow you to provide personal guarantee - such loan must be non-recourse. Here is a list of lenders who specialize in loans like this:

Hope this helps! 

@DJ Dawson

I would recommend you do some research and read some forum posts on the self-directed IRA and the Solo 401k. The Solo 401k will likely be the better structure for you if you're eligible, which requires self-employment.

A few Solo 401k benefits:

Compared to an IRA, Solo 401k contributions limits are roughly ten times higher.

There is no custodial requirement for the 401k.

You can take participant loans from the plan.

You don't need the additional expense and administration of an LLC to have checkbook control.

There is a built in-Roth component whereas IRAs are either traditional or Roth, not both.

A spouse can also participate in the same Solo 401k plan.

The Solo 401k has additional tax benefits over an IRA when investing into real estate using leverage.


Thank you for your responses to the initial post. I have just started thinking about real estate investing. The initial post is what led me to this forum. I am glad I clicked on the link. Reading responses, it seems Self directed IRA + checkbook will be a best thing for me. Please I am very unfamiliar with the tax codes in general. so, i am say something completely wrong just correct me. please bear with.

Why did I think that?

1- I will still be employed by my current employment which eliminates Solo 401K.?

2- I would like the option of writing a check against my Self directed IRA if I find a good deal

3- How do I got about setting this Self Directed IRA? What did you use?

Any help will be greatly appreciated

@Alain T.

Welcome to BP and congratulations on your first forum post!

1. Having a job has now affect on qualifying for a Solo 401k. To be eligible you must have legitimate self-employment activity (regardless if you have a job or not). If you don't have any self-employment  - you will not qualify (regardless if you have a job or not).

2. If you want checkbook control and don't qualify for Solo 401k - then you can use Checkbook IRA (aka IRA owned LLC).

3. To setup a Checkbook IRA you will need to identify a facilitator (specialty company offering this service, there are several of us here on BP who can help). Do your due diligence, read previous discussions, review referenced, select two or three providers and talk to them on the phone, then you can make your selection.

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