Should I roll my old 401k into a self-directed IRA?

[Robert Smith]

Hey BP,

I have $100k collecting dust in a 401k from a previous job. I'm considering either rolling this money into my current 401k (boring) or doing something more "real-estate-y" with it. I understand there are ways to put this money into a self-directed IRA/401k (thanks to a blurb in Anson Young's book on Finding and Funding Great Deals). And that this money can then be invested in real estate. I like the idea of hard/private money lending with this money for a couple of reasons:

1. Returns appear to be higher than the 1.5% this fund is getting YTD
2. Could provide experience about this process as a lender
3. Could help me foster relationships with players in this space to fuel my own real-estate goals (most important)

With those 3 goals in mind, what are some of the things I could do with this money? What are some of the pitfalls and gotchas involved? And is $100k even enough money to get in to this area?

Thanks

[Carl Fischer]

@Robert Smith

You can certainly roll your old 401(k) into a self directed IRA for lending. Many investors enjoy this method of investing. There are so many different options and structures for private lending, you can find a deal for $100K.

Are you familiar with the prohibited transactions of what you can not invest in, and who you can not invest in? The biggest "pitfalls or gotchas" is failure to know or fully understand the rules set by the IRS for self directed IRA's. One piece of advice, make sure to perform sound due diligence on who/what you invest in. Self-directed IRA's give you the control to pick your own investment, make sure you fully research into their reputation and credibility before lending to them.

[Sharon Steenbergen]

@Robert Smith

Yes you should roll your $100K into a self directed account to do something "real estatey" lol. I have a self directed account that I rolled my state pension into after quitting my W2 job. Best decision I have ever made! I recently used the IRA to put a downpayment on my latest rehab. So it definitely has its benefits. If you are looking to private lend - you can in most cases lend out 100% of the funds in the account at a great interest rate paid back to YOU.

[Robert Smith]

Wow! Thanks guys for the quick replies. @Carl Fischer's response sparked an hour long Googling rabbit hole. I definitely need to speak with an expert. 

The way you used your SDIRA, @Sharon Steenbergen, is interesting; that is using your SDIRA to fund the down payment for a property. But do I understand correctly that any cash flow gained from this property go directly back to the SDIRA? So, if your goal was to replace your monthly income from a W2 job with cash flow, is the SDIRA route appropriate?

[Taylor L.]

@Robert Smith that's correct, you cannot receive the cash flow. The SDIRA must receive the cash flow. You cannot mix funds, you can't lend your credit to the SDIRA, you can't do work on the properties yourself - on and on.

[Carl Fischer]

@Robert Smith don’t let it scare you as it is still a great tool. I’ve used it for decades and thousands of clients like it as well. 

[Dmitriy Fomichenko]

@Robert Smith

You are on the right path. Private lending is my preferred method of investing inside of my retirement account for 3 main reasons: passive, lower risk, decent returns. Yes, $100K is enough to put your funds to work. 

[Tracey G.]

@Robert Smith Even if you don't want to go SDIRA, I suggest you roll it into a Rollover IRA, not your new employer's 401(k). I set one up at Schwab years ago and as I left various jobs, I rolled each balance in there. Then I wasn't subject to the limited options in my new employer's plan and also not subject to their fees. I have now moved most of that to an SDIRA that is invested in RE. Had I moved it into my latest 401(k) I wouldn't have had the option unless I changed jobs again. And $100k is totally enough. I have three private loans in the $50k-$60k range.

[Joel Fine]

Originally posted by @Dmitriy Fomichenko:

@Robert Smith

You are on the right path. Private lending is my preferred method of investing inside of my retirement account for 3 main reasons: passive, lower risk, decent returns. Yes, $100K is enough to put your funds to work. 

If you don't mind sharing... what kind of returns do you get with private lending? 

[Dmitriy Fomichenko]

Originally posted by @Joel Fine:

Originally posted by @Dmitriy Fomichenko:

@Robert Smith

You are on the right path. Private lending is my preferred method of investing inside of my retirement account for 3 main reasons: passive, lower risk, decent returns. Yes, $100K is enough to put your funds to work. 

If you don't mind sharing... what kind of returns do you get with private lending? 

10-12% an average 

[Dan Handford]

@Robert Smith Another more passive option with potentially higher returns (15-18% annualized) is to use the SD-401k to invest in a large multifamily syndication. Just be sure to do your due diligence on the operators.