How to invest with an IRA

Question

Hello everyone. Looking for some guidance with a 401k. My wife is leaving her job and has about 50k in her 401k, but we're looking to start our re investing journey. After years of watching YouTube and listening to podcasts, we've figured out we're never going to know everything we think we need to know, and we need to just take action. We want to start building a rental portfolio using the BRRRR method. I've read different opinions about self directed Ira's, but not really sure how it works. Any help is appreciated

Benjamin Aaker · Answer

Hi Placeholder!

Don't do it if this is all you have in retirement. You don't want all your investment eggs in one basket. If you are determined to use this 401k to invest, you will rollover this into a self directed IRA with a custodian. I use IRAFinancial. Make sure you do a consultation with the custodian and your accountant first. You can't simply take the 50k and use it for anything.

Ashish Acharya · Answer

Hey @Placeholder Placeholder! It’s exciting that you’re ready to take the leap into real estate and have some potential funds to do it. The truth is, you may never feel 100% ready, so it’s great that you’re jumping in. That said, like others have mentioned, you’ll want to make sure it makes financial sense to use these 401(k) funds. If possible, it’s usually smarter to use cash you already have—or even equity—before tapping retirement accounts.

If you do decide to use the 401(k), you’ll want to do it as tax-efficiently as possible. From a tax perspective, leaving the money in a retirement account or rolling it into the right IRA lets it keep growing tax-deferred or even tax-free if it’s a Roth. Rolling it into a self-directed IRA (SDIRA) is one option that allows you to invest directly in real estate. But there are some important things to keep in mind: all income and expenses need to go through the IRA, you can’t personally benefit from the property, and IRS rules have to be followed carefully. It also requires a specialized custodian and a bit of extra paperwork.

If you do wind up using cash, other savings, or even a combination of cash and other funding sources, there are also creative financing options out there today. Some investment accounts or even certain life insurance policies let you borrow against them to invest, and there are loan types that can help you qualify in non-traditional ways, like DSCR loans, for example. I'd talk with a financial advisor and lender before pursuing these paths. And definitely get a plan with your CPA from the start to make sure you're being tax-efficient when making these transitions. You'll also want to make sure you're taking advantage of all the tax benefit rental real estate offers from the beginning to help you scale faster. Happy to connect.

Brett Synicky · Answer

@Placeholder Placeholder I agree with most of what's already said. Diversification is important for sure. That said you may consider a Solo 401k to contribute 10x more than an IRA annually if there's self employment robust enough and no employees. $50k might be enough to do some PMLs but probably not for the IRA/401k to actually own real estate. Here's some helpful BP links you can explore.

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

Rohullah Sharifi · Answer

rollover to Traditional IRA - Self Directed, which can allow you to invest in stock or buy a rental property and put the remaining income after deduction back to IRA.

Nicholas L. · Answer

@Placeholder Placeholder

Hi Mr. Placeholder.  Do you have some cash?  If all you have is a 401K I'd leave it alone and save up some cash.  Real estate just takes cash.

Hope this helps... happy to answer any specific questions you have.  I just finished up a BRRRR myself.

How to invest with an IRA

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