401K Loans and Refinancing

10 Replies

I am considering taking a loan from a 401k for my first REI. I will be joint venturing with an experienced partner if I do so. My question right now is: Should I keep my 401k with Edward Jones or move it to somewhere like Fidelity? Any opinions on Edward Jones? Are all 401k different depending on who holds it? And does Ed Jones charge different fees than say... Fidelity or another institution? I ask because I'll be only taking a loan on some of it and leaving some untouched. I am aware of the shorter length terms that these loans typically are. Also.. I've been self employed for years and report losses on taxes. This has been a road block for me when wanting to purchase a primary residence. So.... Another question I have is: If I want to refi the investment property to pay back my 401k (with interest)... is a bank going to refi based on the property or based on my personal income. I don't want to bank on a refi, and then not be able to get it. If the property is a buy and hold and I buy right so that it's cash flowing, will a bank or loan institution base their refi approval on that or on my (seemingly low) personal income. Thanks!!

@Nick Peraino

It is my understanding that Edward Jones no longer offers a 401k plan that allows for loans. Is the existing 401k through your employer?

The account was rolled over to Ed Jones after my wife became a stay at home mom and left the work force.  I am meeting with EJ next week so I'll find out if they allow it. Thanks for the reply.

If you are self-employed already, depending on your investment plans, I would recommend looking into self-directed IRAs, Solo401ks, and ROBS (Roll-Over Business Start-ups). 

If you plan to keep all the money in the retirement plan, then a SD-IRA or Solo401k may fit your needs. If you want to create a business and get paid on an ongoing basis for your investments, a ROBS could be the answer. I am personally getting my business started through a ROBS so I can eventually draw a paycheck and realize my independence from the corporate world. Contact me if you have questions on my process and thinking.

Originally posted by @John-David Herlihy :

If you are self-employed already, depending on your investment plans, I would recommend looking into self-directed IRAs, Solo401ks, and ROBS (Roll-Over Business Start-ups). 

If you plan to keep all the money in the retirement plan, then a SD-IRA or Solo401k may fit your needs. If you want to create a business and get paid on an ongoing basis for your investments, a ROBS could be the answer. I am personally getting my business started through a ROBS so I can eventually draw a paycheck and realize my independence from the corporate world. Contact me if you have questions on my process and thinking.

@john-david Herlihy (again for some reason I can't tag anyone in my posts, on my android phone or computer)

Well... Ed Jones just got back to me and informed me that it's a traditional IRA and cannot be rolled into a 401k. My response was asking if a traditional IRA can loan. Waiting to hear back. I just want to find a way, any way, to use this money for REI. Even if it requires jumping through some hoops.

I don't plan to keep all the money in retirement. The whole point here is for me to be able to use the retirement funds to launch an investment career, and keep all profits. I'll then recycle the profits back into a REI. I'd like to keep it out of the retirement so as it grows I can eventually pocket some cash, if need be. I don't want it to be LOCKED away like it is.

I found this concerning a ROBS: (web address is https://fitsmallbusiness.com/rollover-business-sta...)

(First you must form a C Corp)

You must be a full time employee of the new C corporation. You must work full time (35+ hours per week) in the business. This means that ROBS are not a good fit for absentee owners or for passive income businesses like real estate investing.


  1. Upfront Setup Fee = Approx. $5,000 (This fee must be paid out of your own pocket before the ROBS is set up. The funds being rolled over can’t be used to pay the setup fee)
  2. Ongoing Monitoring Fee = $120 – $140 per month plus you may be charged a per employee fee if you have more than 10 plan eligible employees. (Some providers may charge you an annual fee instead of a monthly fee.)

@Nick Peraino

I am sorry to hear that Edward Jones will not allow you to rollover to a 401(k). One thing you could consider is transfering your IRA to a self-directed IRA. This will give you the oportunity to invest in "alternative' or "non-traditional" assets. One of these assets is making loans from your SDIRA. Other ways to refer to this is "private lending" or "Notes".

It it not a difficult porcess to open a self-directed IRA. You will want to chose a custodian first. Bigger Pockets has a list of self-directed custodians, and many posts about them. Aside from fees, you should consider these 3 things when selecting a custodian to hold your IRA.

1. Knowledge (They actually know what they are talking about)

2. Customer service (can you reach a person, how quickly?)

3. Ease of transactions

The only place that causes difficulty when setting up a new SDIRA is transfering funds from your existing financial institution. Please be aware this process take about 2 weeks on average.

If you have any additional questions, I would be happy to help.

Thank you

Carl

@Carl Fischer Thanks for your reply. I've considered the SD IRA. Problem is... I can't have an active roll in the management of the flip or rental. And all profits generated have to go back to the IRA. Yes it's an option, although less than I hoped for in terms of short term benefit.

@Nick Peraino

Another option with a SDIRA would be to have a Checkbook LLC IRA. This is a structure where an investor have more control over paying vendors and record keeping for the assets in the LLC. However the same rules apply for prohibited transactions. You as a prohibited person can not physically work on a piece of real estate (sweat equity) however you can manage the property in the sense that you can pick the color of the paint, you just cant paint the walls. The profits will still belong to the IRA, as the LLC is held within the IRA.

There is also alot of information regarding this type of SDIRA on bigger pockets.

Originally posted by @Nick Peraino :
Originally posted by @John-David Herlihy:

If you are self-employed already, depending on your investment plans, I would recommend looking into self-directed IRAs, Solo401ks, and ROBS (Roll-Over Business Start-ups). 

If you plan to keep all the money in the retirement plan, then a SD-IRA or Solo401k may fit your needs. If you want to create a business and get paid on an ongoing basis for your investments, a ROBS could be the answer. I am personally getting my business started through a ROBS so I can eventually draw a paycheck and realize my independence from the corporate world. Contact me if you have questions on my process and thinking.

@john-david Herlihy (again for some reason I can't tag anyone in my posts, on my android phone or computer)

Well... Ed Jones just got back to me and informed me that it's a traditional IRA and cannot be rolled into a 401k. My response was asking if a traditional IRA can loan. Waiting to hear back. I just want to find a way, any way, to use this money for REI. Even if it requires jumping through some hoops.

I don't plan to keep all the money in retirement. The whole point here is for me to be able to use the retirement funds to launch an investment career, and keep all profits. I'll then recycle the profits back into a REI. I'd like to keep it out of the retirement so as it grows I can eventually pocket some cash, if need be. I don't want it to be LOCKED away like it is.

I found this concerning a ROBS: (web address is https://fitsmallbusiness.com/rollover-business-sta...)

(First you must form a C Corp)

You must be a full time employee of the new C corporation. You must work full time (35+ hours per week) in the business. This means that ROBS are not a good fit for absentee owners or for passive income businesses like real estate investing.


  1. Upfront Setup Fee = Approx. $5,000 (This fee must be paid out of your own pocket before the ROBS is set up. The funds being rolled over can’t be used to pay the setup fee)
  2. Ongoing Monitoring Fee = $120 – $140 per month plus you may be charged a per employee fee if you have more than 10 plan eligible employees. (Some providers may charge you an annual fee instead of a monthly fee.)

This is similar to what I have found and my path forward in REI. Note in my case all of my former IRAs and 401ks are able to roll into the new C Corp 401k, and subsequently the company itself.

You said that you have negative income due to self employment. You may want to consider converting your IRA to a self directed Roth with checkbook control. Fix up the properties and after a few years you will be able to withdraw conversions (not appreciation) to Roth without any penalty. Any appreciation from the Roth is tax free too.

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