What to do with my 401k?

Question

I've recently left my long time W2 job after my leave of absence expired when caring for my husband. I have a decent 401k that I do not want to leave in the stock market. Is an SDIRA my only option if I want to use the funds for investing in real estate? I know there are restrictions on how you can use the proceeds from your SDIRA investments and I do need the flexibility to pay myself out of the cash flow from real estate investments. Doing a total cash out is not an option. I don't want the tax hit. I just turned 55 and know I'm eligible to take advantage of the Rule of 55 but also know that will only get me so far relative to the tax liability. If you have an excellent financial advisor who understands real estate investing I'd be interested in talking to him/her.

Bonnie Low · Answer

I disagree. These are not separate goals at all. These ARE the goals, my 401k funds (however I end up using them) ARE the source of capital, I already invest in real estate and intend to do so in the most tax advantaged way possible and, like everyone, I want to minimize taxes. Ultimately, my question was asking for referrals to an excellent financial advisor who I can go into more depth with. Thankfully, I have gotten some referrals from other investors and professionals here who understood the question.

Basit Siddiqi · Answer

If you don't plan to work anymore, you may want to consider the rule of 55.The distributions from the retirement account will be taxable in one way or another(now or later).You want to plan it in a way so the overall tax burden is less. Taking a bit over a long period of time is better than taking it out all out at once.Furthermore, you can have 80% LTV if you purchase property in your personal in your own name.LTV inside of a SDIRA is somewhere around 50%

Dmitriy Fomichenko · Answer

@Bonnie Low,

Conventional custodians (Vanguard, Fidelity, Schwab, Merryl Lynch, and the like) will not allow real estate investments in an IRA. So, if your goal is to invest in real estate using your IRA funds - you will have to find a custodian who will allow that (aka SDIRA).

When your IRA buys investment property - the IRA is the owner, not you. All income belongs to the IRA and must flow back to the IRA. As the IRA account owner, you can take distribution from the IRA, subject to applicable taxes and penalties.

Dmitriy Fomichenko · Answer

Yes, real estate property can be purchased using a self-directed IRA only.

Michael Plaks · Answer

@Bonnie Low

You threw at least four separate (albeit related) issues into one pot, which makes decision making very confusing.

1. You want to preserve your retirement safety net.2. You want to invest in real estate.3. You want to generate currently spendable income.4. You want to minimize taxes.

Not only these are separate goals, they can pull you in opposite directions, so you will have to prioritize.

Bonnie Low · Answer

Yes, I'm aware of the Rule of 55, but not sure exactly how to execute on it. When you say LTV inside an SDIRA is somewhere around 50% are you speaking from an IRS rule perspective? I'm not aware of any lenders requiring 50% down.

Bonnie Low · Answer

When you say "when your IRA buys investment property....you can take distribution..." I assume you mean the SDIRA, correct?

What to do with my 401k?

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