SDIRA

40 Replies

I'm really interested in a Self Directed IRA. So far I'm just trying to understand it all being I'm new to real estate investing.

My question is, can I convert my 401A, 403B from my current employer that I'm fully vested in to a SDIRA?

Anybody in Southeast Michigan or surrounding area using an SDIRA that wouldn't mind talking with me about this?
Every plan is different. You need to contact the sponsor of the plan to see if you can move the money out of the account to a sdira

@Robert Farris

Most employer plans (401k etc) do not allow you to rollover funds to another IRA while you are still employed with the company sponsoring the plan - unless you are over age 59 1/2. There are some exceptions, so check with your plan administrator to see if the plan offers an "in-service distribution" option and if you are eligible.

Medium safeguard rgb stackedBrian Eastman, Safeguard Advisors | [email protected] | 855‑997‑2298 | http://www.ira123.com

@Robert F.

If you transferred any previous retirement plan funds or IRAs to your current employer plan, you should be able to transfer those amounts to an IRA. However, like others have said already, you will have to check with your current employer regarding transferring any funds that you or the employer has contributed to the current plan. For example, some will let you transfer the profit sharing contributions after 2 years of participation in the plan.

Medium mysolo 401k logoMark Nolan, My Solo 401k Financial | [email protected] | 800‑489‑7571 | https://www.mysolo401k.net/

Thanks for all the great advice. I'll be calling first thing this morning to check and see if I can move it. 

I never rolled over anything from a prior company so I'm hoping they'll just allow me to use my current account.

I'll post after I find out.

Thanks again everyone!

Well, I'm disappointed to say the least. I called my benefits plan admin and was told I'm unable to move my current plan unless I terminate employment or reach 591/2.

I asked about the "in-service distribution" and she didn't act like she knew what that meant and with me being new to this stuff, I really couldn't explain what that actually meant other than I want to move my money into a Self-Directed IRA.

Well, I'm going to have to rethink my options here. Any other suggestions other than quitting my job?

Depending on your level of disposable income, and whether or not you have an LLC (you are listed as an investor so you could start an LLC), you could start a solo-401k and begin contributing to it in addition to (or instead of) your 401k. There are some great advantages to doing it this way. Ping me if you want any details, I'm in the process of doing this myself and have spent a fair amount of time researching the right mechanisms to get it done.

Originally posted by @Michael Slockers :

Depending on your level of disposable income, and whether or not you have an LLC (you are listed as an investor so you could start an LLC), you could start a solo-401k and begin contributing to it in addition to (or instead of) your 401k. There are some great advantages to doing it this way. Ping me if you want any details, I'm in the process of doing this myself and have spent a fair amount of time researching the right mechanisms to get it done.

Michael, I agree with you that self-directed Solo 401k is a great investment vehicle. However, just being a real estate investor is not basis for opening one up. In order to qualify for this plan you need to have legitimate self-employment activity and only earned self-employment income can be used to contribute to the plan (rental or any other passive income would not work).

Medium logo 19 1Dmitriy Fomichenko, Sense Financial | [email protected] | (949) 228‑9393 | https://www.sensefinancial.com/free-consultation/ | CA Agent # 01876563

Originally posted by @Dmitriy Fomichenko :

...only earned self-employment income can be used to contribute to the plan (rental or any other passive income would not work).

 Thanks Dmitriy. Can you please expand on this thought? Why would rental income not count as self-employment income? 

Also I was unaware that only self-employment income can be used to contribute. I've been told that even if the business is not currently making a profit, it is still eligible for 401k contributions. Even Amazon.com does not make a profit, but does pay 401k I'm sure to it's employees.

Would really like to hear more information to clarify this matter. And thanks again!

@Michael Slockers

Rental income is passive investment earnings, and treated differently from a tax perspective than earned self-employment income.  You do not pay self employment taxes (social security, medicare, etc) on passive investment income.

401k Contributions must come from self employment income. Either a 1099 if you are an independent contractor, W-2 from a corporation you own, or schedule C self employment income if your are a sole proprietor or have a pass-through LLC. It is generally not beneficial to re-characterize passive income as self employment income simply for the purposes of establishing a Solo 401k plan.

A company does not have to be profitable to establish a 401k plan, but does have to generate the right kind of income.  With a large employer, it does not need to be profitable, as contributions are linked to employee compensation and are viewed as an expense to the business.  In the Solo 401k format, you could have a plan in a business that is not profitable - so long as it is engaged in producing the right kind of income.  But, if the business is not profitable, you would not have personal compensation on which to base 401k contributions.

The plan format is what it is.  If you wish to more fully evaluate how income is generated and treated specific to your situation, you should consult with your licensed tax professional.

Medium safeguard rgb stackedBrian Eastman, Safeguard Advisors | [email protected] | 855‑997‑2298 | http://www.ira123.com

@Michael Slockers

here is the link to the IRS website which explains the contributions to the Solo 401k plan:

http://www.irs.gov/Retirement-Plans/One-Participan...

Whoever told you that you can contribute to the Solo 401k plan even if you do not make profit is incorrect, the contributions are based on the earned income. 

Updated almost 2 years ago

Just noticed the the link I provided is not working, here is the complete url: https://www.irs.gov/Retirement-Plans/One-Participant-401(k)-Plans

Medium logo 19 1Dmitriy Fomichenko, Sense Financial | [email protected] | (949) 228‑9393 | https://www.sensefinancial.com/free-consultation/ | CA Agent # 01876563

Originally posted by @Michael Slockers :

Depending on your level of disposable income, and whether or not you have an LLC (you are listed as an investor so you could start an LLC), you could start a solo-401k and begin contributing to it in addition to (or instead of) your 401k.

I took out the "investor" from my profile. Even though I own one modest rental property, I'm very new to this and don't consider myself as a "real" investor yet.

My goal is to own 50+ rentals and get experience doing other real estate deals such as liens, options, flips, etc. It will happen, but I need to be patient and may have to get more creative.

Feel free to keep discussing details of a solo401, I'm learning alot. 

@Brian Eastman @Dmitriy Fomichenko

I talked to my plan sponsor. I was mistaken. Thank you guys very much for the clarification.

To add to the discussion, this is where I was confused:

I do have an LLC with an intention of turning a profit. Right now I'm operating at a loss. Having an LLC with the intention of turning a profit (hopefully Q1 or Q2 2016), I CAN start a 401k plan. I cannot make contributions to the plan until I am making money in the LLC. You guys are correct about that.

The point I was confused on, is that I CAN roll money from a traditional IRA or another 401k into this solo-k. Please validate this is correct, but again, that was my confusion, and I am pressing on to continue with this rollover, now understanding I cannot contribute additional funds until I am making money in the LLC. (note to clarify: my LLC is not a rental holding company. It is active income, not passive.)

@Robert Farris : I would suggest you add the "investor" back to your profile; anyone with the intention of owning 50 rentals is clearly an investor. And the first step is to consider yourself an investor along with making your goals. Good job!

@Michael Slockers

If you are eligible to establish a SoloK, which looks to be the case, then yes, you can rollover funds from a prior tax-deferred retirement plan in your name at any time. New contributions would require having documented income through your LLC as you stated.

Medium safeguard rgb stackedBrian Eastman, Safeguard Advisors | [email protected] | 855‑997‑2298 | http://www.ira123.com

Thank you @Brian Eastman and others. I gotta say, I love learning. I especially love learning the easy way (BP) and not the hard way (IRS)!

@Michael Slockers I will add that I've seen some CPAs working with Solo 401k participants who have determined that there is at least some earned income from their activities related to their rental properties. I'm sure it depends on the CPA and the actual activities performed, which is going to vary on a case by case basis. Though I thought it was worth mentioning.

Medium project 6 discount solo 401k logo update 3 dnJustin Windham, Discount Solo 401k | [email protected] | 800‑716‑1970 | http://www.discountsolo401k.com

This post has been removed.

Mr Eastman ,

You state that ,

"is generally not beneficial to re-characterize passive income as self employment income simply for the purposes of establishing a Solo 401k plan." But is it possible? Specially if you are actively managing it and treating it like a business?

Thank you

@Glenn N.

The answer to that question will be very much based on the specifics of your situation and are something you should discuss with your licensed tax advisor.

Medium safeguard rgb stackedBrian Eastman, Safeguard Advisors | [email protected] | 855‑997‑2298 | http://www.ira123.com

Has anyone heard of or used CamaPlan as a SDIRA? http://camaplan.com/ (For note investing.)

I am speaking with PPR Note Co. (Dave Van Horn) and that is one they said they recommend at least from a customer service standpoint, but of course it's up to me to make the decision of which custodian. I don't see any search results for Camaplan on BP so I'm wondering. 

Search "self directed IRA " and "solo 401k" on BP. you will find a wealth of info on the subject. An LLC with the IRA being the member and IRA Services as the custodian is very inexpensive. Even better is a Solo 401K . I am no expert to expound too much but the Solo 401K has even better benefits. Good Luck!

This is NOT geared towards Robert specifically, just saying in general...

I'm not an accountant but I've never been a fan of putting real estate in IRA or anything similar. Yes the income will grow tax free but doing so creates other risks and a loss of tax benefits.

The risks; if you get nailed for fraud, negligence or lead paint, guess what happens to your IRA? Or the IRS audits and decides you were self dealing, such as paying yourself a management fee, or co-mingling funds, etc.

In addition; you don't get the one real tax benefit of owning real estate, depreciation, but the flip side is you won't need to pay depreciation recapture upon sale. If you don't know what this is, maybe you shouldn't be doing it.

Unless you run your numbers correctly, there is a strong reasonable chance your going to put in a lot of time, effort and work and not get paid for it (at least you'd better not - just ask the IRS). The returns are not going to be what you thought and you've worked your butt off. Why??

A better way is to lend your IRA to someone that knows what they are doing and getting 6-12% and watching the progress so it feels like its your deal.

How do you trust that someone knows what they are doing? Do you? If not, why on earth would you be putting real estate in your IRA?

I'm just sayin'

Don Miller Jr, Don Miller Realty | 410‑737‑1500 | http://www.DonMillerRealty.com | MD Agent # 5676

I agree with Don Miller. Owning actual real estate in your IRA is not best way to go.

Lending and holding notes makes a lot more sense. 

@Scott Mclaren and @Don Miller Jr

While Don certainly makes some fine points, the argument is not entirely as cut and dry as it seems. Comparing investing in real property with an IRA vs doing the same outside of an IRA is comparing apples and oranges. The tax treatment of the IRA is what it is, regardless of what the IRA is invested in, and the tax sheltering provided by the IRA can have significant long term wealth accumulation benefits.

The better comparison is how will the IRA perform when invested in a choice of different assets? The answer will differ for different investors with different situations. Holding notes in an IRA is a great avenue, but may not produce the same overall growth as investing in leveraged income property with the potential of both cash flow and appreciation. Both will probably perform better than the stock market over time, though.

Yes, there are restrictions when investing an IRA in any kind of non-traditional asset, but if you educate yourself properly and enlist professionals to guide you, it is very easy to generate solid returns in a self-directed IRA without putting yourself at risk of IRS penalties.

At the end of the day, the decision to create a self-directed IRA or Solo 401k comes down to being able to invest in what you know, and hopefully generate better returns while investing in more secure assets. There are many paths to this goal.

Medium safeguard rgb stackedBrian Eastman, Safeguard Advisors | [email protected] | 855‑997‑2298 | http://www.ira123.com