Retirement rollover to Solo 401K to invest in multifamily

[Jon Saddler]

Hi All! Interested in the community's thoughts on one possible game plan for investing in my first multifamily:

I currently own two single family rentals, and my goal is to grow my portfolio to eventually replace my income with passive income. I believe multifamily investing is a better way to scale efficiently as opposed to continuing to purchase individual single family deals.

I have around $140K in my government TSP (I'm no longer a government employee and have a separate retirement account now). What advice (and pitfalls) do you have about rolling this over into a Solo 401K to then partner with more experienced multifamily investors to gain experience in multifamily in preparation for doing a deal of my own?

1) Goal would be to roll this over in the next month, and find a multifamily deal before the end of 2022. I'd like to then potentially do a subsequent multifamily deal sometime in 2023 using the lessons learned in this experience and other funding sources.

2) I do not currently have an LLC created for my current single family properties, and presume this would be a prerequisite to anything else before I can create the Solo 401K

3) Does anyone have any experience doing this or something similar? Any issues partnering with others from a Solo 401K?

I appreciate any thoughts you have!

-Jon

[Brian Eastman]

@Jon Saddler

A self-directed Solo 401k is a great way to diversify your retirement holdings, but is entirely separate from your personal goals of scaling your real estate portfolio.  When a Solo 401(k) invests in a syndication, all income goes tax-sheltered back into the Solo 401(k).

In order to sponsor a Solo 401(k), you would need to have some kind of self-employment that creates earned income, such as consulting, being a licensed realtor, etc.  Having a portfolio of rental properties as you describe does not qualify to sponsor a solo 401(k), because rental income is passive investment earnings, not the kind of compensation that can be used to fund a retirement plan.

So, while some of your goals are on-target, the pathway there may be different than you are envisioning or describing here.  Get together with your tax strategist and a self-directed retirement professional to further your education and get on the right path.