Self- Direct IRA investments- Real Estate

[Christopher Costea]

Hello, I am 34, with W2 job in health care. I am also doing my MBA while taking care of my first born. Living in NY. Tri state area very hard to invest in. I think passive is the way to go for me. I have always maxed out my retirements. I have a 401k, Roth and Regular IRA. I have been teaching myself as I go. Does anyone have any advice on thoughts about investing locally vs away? Also does anyone regret tapping into their 401K, IRA early?

[Brett Synicky]

Quote from @Christopher Costea:

@Brett Synicky the ladder. Converting to a SDIRA. I read the SDIRA investing book from bigger pockets and it seems like it defeats the whole purpose of what investing in real estate is about. It seems like a lot of the tax benefits get negated. I am interested non the less. 

Thanks for the clarification. It's important to note that converting a retirement account to a self directed account is a tax neutral event. A few things. Self Directing is not about one or the other regarding real estate. The point of investing in RE inside a retirement account is that the gains are either tax deferred or tax free in a Roth. If you own a few homes inside an IRA and later sell them and the money goes back into the plan then is yours at 59.5 you won't care about the tax benefits "missed". Again that's not the point. The point is that you can invest in non-public assets like RE and others that you know and control (unlike wall street) and therefore presumably build your retirement account up much higher. Nothing wrong with wall street btw. Also I'm not advocating real estate as an investment for your IRA. I actually prefer private lending but that's the beauty. You choose. When I said it's not an all or nothing, I meant: If you know and understand rental real estate it's likely something you'd want to do inside of AND outside a retirement account. Also the Solo 401k (if you qualify) is exempt from UDFI tax on leveraged real estate. However with an IRA, if the plan has a mortgage, before the tax is calculated you subtract the first $1000, deduct expenses, and depreciate, with all of this being proportionate with the LTV. Talk with a CPA or figure out how to calculate this on a potential deal before moving forward with it. Sorry for the long message.

Here's a few helpful links to read through:

Non-recourse lenders

https://www.biggerpockets.com/member-blogs/2810/50272-list-of-non-recourse-lenders-for-self-directged-ira-and-401k

Solo 401k

https://www.biggerpockets.com/member-blogs/2810/21298-solo-401k-advantages

Sdira self directed ira

https://www.biggerpockets.com/member-blogs/2810/blog_posts/28450-real-estate-ira

Prohibited Transactions

https://www.biggerpockets.com/member-blogs/2810/44738-prohibited-transactions-for-a-self-directed-solo-401k-or-checkbook-ira

Disqualified Person

https://www.biggerpockets.com/member-blogs/2810/47960-disqualified-person-in-a-self-directed-ira-or-401k