Here is my situation: I currently have a decent chunk of money in a few accounts from a former employer's retirement program. They are 401a and 403b's. The current custodian is TIAA. I have not worked for this employer for one year, and could roll these accounts out to other custodian(s) if I wanted to.
Here's the kicker: I am thinking about going back to work for that employer. If I do, that money will be locked up at TIAA again. So, I want to roll it out *before* I return to work for them. Obviously, any money that I contribute in the future to the employer's plans will have to stay at TIAA, but I want to liberate the existing accounts before they get locked there again.
I want to transfer to a custodian that allows self-directed IRA or Solo-K. Solo-K would be my preference since this will allow me to avoid tripping the pro-rata rule when I make my backdoor Roth contribution/conversion every year.
My question is, which self-directed provider to use?? BP has a nice article at https://www.biggerpockets.com/rei/self-directed-ir... which lists 58 (!) providers. I don't have time to investigate that many companies and would like to pare down the list to no more than a dozen before I start doing my due diligence on each one. I would like a custodian that allows checkbook control which would make real estate investing from the account much easier. Other than that, lower fees are better than higher ones, of course, and....what else should I look for in making comparisons??
Thanks in advance! :)
i *don't* have a self-directed IRA right now, but there are 2 companies that RE investors use locally. an important way to narrow down one over the other is how fast you will need the money for a closing. if you need to close fast (a few days), check with fellow investors how quickly the money can be moved.
Wayne Kerr is an attorney in NJ and is very familiar with the 401k and checkbook IRA. I would consult with him with your goals. If you want contact info google him or PM me.
@Dmitriy Fomichenko : I earned a small amount of self-employment income this year (about $5000). Not enough to make a huge SoloK contribution, but enough to open one and roll my old 457b into it. Problem is, I used TD Ameritrade as the custodian on the advice of a financial advisor, and TDA offers only stock, mutual funds, ETFs, and the like.
I may or may not have any 1099 income next year; it is hard to say - sometimes opportunities come along, sometimes not.
But there is still time to open another SoloK this year and roll my 403b's and/or 401a's into it. I am anxious to do this before Dec 31 both because I don't know if I'll be able to generate any 1099 income next year, and because, as I said earlier, I may return to my previous employer and re-lock that money at TIAA if I do.
Jim, you should not have any problems moving funds from TD Ameritrade IRA into another IRA or Solo 401k. As long as it is a "direct rollover" trustee to trustee or custodian to custodian, you can do that as many times as you wish.
Regarding your Solo 401k eligibility - there might be an issue because you need to have a legitimate self-employment activity to sponsor the plan.
My 2 sisters and i have rental properties under an LLC. We each have 33% ownership. We split up the profits (monthly payout) and file our own taxes, separately. Can this qualify me as having a small business for the Solo 401K?
I also have a nice chunk of money from an old employer rolled into an IRA when i left. And also have TSP money i currently contibute to.
Thank you, Caroline
What is the best way to make these grow? Is borrowing from my retirement funds to invest in real estate a good idea, say a fix and flip, where the profits are available right now and not when I'm 59 1/2. I'm assuming i can borrow instead of converting them into SDIRAor S410K, and would this be wise.?
Open to opinions.
I'm curious about borrowing from 401k vs rolling over to SDIRA.
@Caroline S. are you looking for deals at the moment? We have often have over flow of deals coming in and wholesale these fix and flip deals.
The Solo 401k requires that you have an active business or self-employment activity as opposed to passive investments. Rental income is typically passive, so what you have described may not work for Solo 401k eligibility. Activities such as flipping would qualify, however.
Borrowing from a retirement plan to fund activities such as flipping outside of the plan may or may not be a good idea for you. It depends on a number of factors including the rate of return of the funds in the plan and the rate of return you can generate with the flipping activity. You will essentially be trading the former for the latter, so the difference is a key factor. Creating cash flow with borrowed funds may be beneficial if you are looking to utilize the income for yourself sooner rather than later. The Solo 401k would generate returns for use later on (presumably in retirement) when you decide to take distributions.
If you need the income generated from your investments now, the loan may be a good option for you. If you do not need the income now and your main focus is growing your retirement assets and receiving the tax benefits, then rolling the funds to a self-directed IRA or Solo 401k (if eligible) may be a better option for you.
Equity Trust is responsive but fees are high.
Originally posted by @Caroline S. :
Hi Dmitriy, my 2 sisters and i have rental properties under an LLC. We each have 33% ownership. Can this qualify me as having a small business for the Solo 401K?
Caroline, owning rental property does not make you a business owner. You are investor, rental income is passive in it's nature. This article explains it further:
If you are trying to not trip the pro-rate rule, then you will want to make the after-tax contributions to the solo 401k and then immediately convert them to a ROTH IRA.
What tax return do you file for your LLC?
The pro-rata rule does not apply to 401k's, Solo or otherwise, only to IRA's. I actually mis-spoke in my original post. The backdoor Roth is achieved by making nondeductible contributions to a TIRA, then immediately (or soon thereafter) converting to a Roth IRA.
401k plans have pro rata rules as well.
Some people will make after-tax (non-Roth) contributions to a 401k with the intent to do an in-plan Roth conversion or move the funds to a Roth IRA. This is sometimes called the Mega Backdoor Roth.
Originally posted by @Justin Windham :
I'm aware of the mega 401k; in fact I even tried to get my employer's provider to implement it. Unfortunately my employer is are far too conservative and doesn't want to make any changes to the plan.
The pro-rata rule I was referring to states that, when converting a TIRA to a Roth IRA, all monies in all TIRAs, SEP-IRAs, and SIMPLE IRAs must be considered in the calculation of how much tax is due on the conversion. 401k's, 403b's, 457b's, and the like, are excluded from these calculations. Thus, many people roll IRAs into those other entities before converting a TIRA to a Roth IRA, to avoid paying extra on the conversions. This is especially true when converting a TIRA which comprises only nondeductible contributions (and minimal if any earnings). When converting such an IRA, no tax is due UNLESS you have no-basis money in another TIRA, SEP, or SIMPLE IRA. Again, 4xx entities are excluded from those calculations. Hope that clarifies.
Oh, ok. So you were referring to the IRA aggregation rule. Correct, that doesn't apply to 401ks, but pro rata rules do. They're just applied differently in part due to the lack of aggregation rule.
I was not aware of this; can you get into that a little deeper? I have a chunk of money in a former employer's 401a, 403b, and 457 plans that I wanted to roll into self-directed accounts for real estate investing purposes, and would like some advice on the best way to proceed.
If you want to PM me, I can link you to some info that may be helpful.
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