Advice needed on investing Roth IRA money

2 Replies

Hi everyone,

My wife and I have been contributing toward our Roth IRAs for a past few years. The money has been sitting in a savings account at a local bank not doing much, and we would like to invest the funds in real estate going forward to get a higher return. We wanted to get some advice on how to best invest the Roth IRA funds.

How are folks on the board investing Roth IRA money in real estate? The money is not large enough to be able to buy real estate in SoCal. But it could be used as down payment for flipping properties, or as a private money loan, etc. Any suggestions on what we could do are appreciated.

Also, what can be the best type of account to move these Roth IRA funds into to begin investing?

1. One option could be to move the money into a Self directed Roth IRA with a custodian like Entrust. The downside is that I see there are a number of fees charged by the custodian, like for every check that needs to be made out, etc, in addition to the annual maintenance fees for the account.

2. Another option is to convert this to a Solo Roth 401K. But I read on the IRS website that Roth IRA cannot be converted to a Solo Roth 401K. Is that correct, or am I mis-understanding it?

As always, thanks a lot for your advice and suggestions.

- Andy.

@Andy K  

in order for you to start using your Roth IRA you will need self-directed Roth IRA with a custodian who allows alternative investments. Keep in mind that if you use those funds for flipping properties directly out of your IRA - the profits will be subject to UBIT since you will be running active business out of your IRA (please consult with competent tax expert on this before doing anything). Buying rental property is also not as advantageous since you will not be able to claim depreciation. But it all depends on the deal so if the numbers make sense then do it. But better option will be using your IRA as the bank and lend those funds to others either to fund the flip or invest in a trust deed for longer term. There are number of investment opportunities available that are relatively low risk that offer nice returns.

You are correct in your research, Roth IRA can not be transferred into Roth Solo 401k.

Hey @Andy K  

As far as accounts go, you'll really be limited to a Roth IRA.

As far as investments go, there are really three primary ways to get involved in real estate. I actually just wrote a BiggerPockets blog on this exact idea about a month ago. Check it out here: 3 Ways to Invest in Real Estate with IRA/410k Funds.

Be sure to determine if UBIT will apply to your investments before getting started. If you're leveraging funds with your Roth IRA or investing into an operating business, you may want to do additional calculations to estimate your overall ROI projections.

Fees are typically the first thing that people look at when checking out different SDIRA providers. While that's certainly an important thing to pay attention to, look closely at the technology and infrastructure on which they operate. Some providers are much slower than others.

Feel free to ask additional questions. SDIRAs have been covered in depth on BP.

Good luck to you and your wife!

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