Using retirement plan to fund buy and hold purchases.

[Susanne Rieth]

Hello.  I have an old 401k from a job I no longer work.  I found this in an old thread:

I have $500k from previous employer 401(k), I'm 52. I'd like to buy real estate, create cash flow via rental, pay myself, and benefit the 401(k).

Just wondering if this can be done? It seems like the self directed IRA will not allow you to pay yourself, and the ROBS may not be suitable for Passive income pursuits like buy and hold? Any advice about this greatly appreciated. its about 55k I have in the account.

[Brian Eastman]

@Susanne Rieth

An IRA is tax-sheltered. There is no tax on the income from rents, so there is no need for deductions against that income.

Many folks say, as @John Thedford does, that it therefore makes no sense to invest retirement money in real estate because you give up all the write offs.

While that is true, is is providing the correct answer to the wrong question, in our opinion.

One should not compare the performance of a particular asset class in an IRA with the same asset class outside an IRA. The tax situation is different. Period.

The better question to ask is, "where can I get the best return on my IRA dollars?" If you can grow your IRA more successfully investing in rental property than in stocks, or even in note investing, then you have put the IRA to its best possible use.