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ForumsArrowTax, Legal Issues, Contracts, Self-Directed IRAArrowSelf Directed 401K/IRA w/Checkbook.... Non-Custodial Programs?
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Self Directed 401K/IRA w/Checkbook.... Non-Custodial Programs?

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  • Posts 65
  • Votes 13

Camellia B.
from Orlando, Florida

posted over 3 years ago

Ok so, it's official! Per Drs. orders; after not working; due to an 'On-The-Job' injury, collecting Workers Comp for almost 3 yr I may need/be medically forced from trucking.

My question is: although I only have 118k in my 401K, what are the best programs out there to & for moving my money over and/or withdrawing it completely(Don't care about the fees & penalties, as REI is a better investment) without having a custodian(expense)? Don't want to be charged to use MY money!!!!

Looking to start new LLC and start & fund my new business account w/Navy FCU on January 1, 2018 to give myself a WHOLE year to get up and running before seeing/paying Uncle Sam!

Basically been retired for 2 1/2 years now...... OPINIONS NEEDED as to WHICH direction is BEST!

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Check Rosette Top Subjects:
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Dmitriy Fomichenko
Solo 401k Expert from Anaheim Hills, CA

replied over 3 years ago

Camellia,

you don't need to take distribution from your retirement account in order to invest in real estate. You can do so by using self-directed IRA (or Checkbook IRA if you wish to bypass the custodian and avoid transaction fees associated with one).

If you have any self-employment activity then a better option might be truly self-directed Solo 401k plan, with it you can completely eliminate the custodian, gain better protection from creditors, access your retirement funds tax-free via participant loan feature and more.

Income from any investments you make with your retirement account must be going back into the IRA or 401k, you personally can not use it.

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  • Posts 65
  • Votes 24

Kenneth Lowry
from Ronkonkoma, New York

replied over 3 years ago

@Dmitriy Fomichenko I have a question along the lines of this topic. I am looking to do my first real estate investment by way of flipping a house. I recently spoke to a lender and when we went over the numbers I am going to have to bring $60K of my own money to the deal. I have about $40K in an IRA from a previous employer. If I transferred that to a self directed IRA and used that $40K along with $20K of personal (non retirement money) Would all of the profit have to go back into the IRA or just a portion of it? This is not counting the original $40K that I am sure would have to go back in.

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Brian Eastman
Self Directed IRA & 401k Advisor from Boulder, Colorado

replied over 3 years ago

@Kenneth Lowry

What you propose is not a good idea for several reasons:

1) There can be no direct or indirect benefit between a plan and a disqualified party. While it is "possible" to joint venture between yourself and your IRA, it is very tricky and exposes significant tax risk if not executed exactly the right way. As situation such as you suggest where access to the IRA funds enables you personally to complete the transaction that might not be possible otherwise is just the kind of thing the IRS might look for as provision of benefit / self-dealing.

2) Debt-financed investments with an IRA create a minimal tax liability. The dollar cost in your case would not likely be significant, but the complexity of dealing with the tax would make such an arrangement less than desirable (not withstanding point 1 above).

3) Flipping is considered an active trade or business. As such, if a tax exempt entity like a self-directed IRA engages in such an activity on a regular or repeated basis, UBI taxation applies at pretty steep trust tax rates (max of 39.6%).

The bottom line is that a self-directed IRA is not a vehicle to solve a situation you are facing personally.

With $40K in an IRA, your best bet would be to act as a private lender to other investors. That type of arm's length, passive income investing is well suited to the IRS framework surrounding IRA plans.

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Check Rosette Top Subjects:
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  • Posts 2.1K
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Carl Fischer
Rental Property Investor from Ambler, PA

replied over 3 years ago

@Camellia B.

If you don't care about penalties and taxes then you don't need a 401k or IRA.

I personally don't agree with that approach and would run the numbers with your accountant and develop a plan. A checkbook IRA or 401k for the minimal fee per year of less than $1/day compared to tax savings is generally a good deal. If you are 59.5 years old you will have access to the funds immediately. If not take only the money you need and pay taxes and penalties on that amount only.

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Check Rosette Top Subjects:
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Dmitriy Fomichenko
Solo 401k Expert from Anaheim Hills, CA

replied over 3 years ago
Originally posted by @Kenneth Lowry :

@Dmitriy Fomichenko I have a question along the lines of this topic. I am looking to do my first real estate investment by way of flipping a house. I recently spoke to a lender and when we went over the numbers I am going to have to bring $60K of my own money to the deal. I have about $40K in an IRA from a previous employer. If I transferred that to a self directed IRA and used that $40K along with $20K of personal (non retirement money) Would all of the profit have to go back into the IRA or just a portion of it? This is not counting the original $40K that I am sure would have to go back in.

Kenneth, if you were to use your 401k as partnership in an investment, the profits would have to be split according to the original ownership percentage. However, if the partner is yourself this might create a problem because you are considered to be a "disqualified person" to your 401k by the IRS.  Find another source of money and partner with someone who is not "disqualified". 

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George Blower
Retirement Accounts Attorney from Southfield, Michigan

replied over 3 years ago

@Camellia B.

It sounds like you may want to finance your own business. What types of goods or services will your new business provide?

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George Blower
Retirement Accounts Attorney from Southfield, Michigan

replied over 3 years ago

@Kenneth Lowry

There is a way where you can pool your personal funds alongside your IRA to invest in real estate, but specific rules apply and no debt financing can be used. You will want to work with a qualified attorney or CPA.

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  • Posts 65
  • Votes 13

Camellia B.
from Orlando, Florida

replied over 3 years ago
Originally posted by @Dmitriy Fomichenko :

Camellia,

you don't need to take distribution from your retirement account in order to invest in real estate. You can do so by using self-directed IRA (or Checkbook IRA if you wish to bypass the custodian and avoid transaction fees associated with one).

If you have any self-employment activity then a better option might be truly self-directed Solo 401k plan, with it you can completely eliminate the custodian, gain better protection from creditors, access your retirement funds tax-free via participant loan feature and more.

Income from any investments you make with your retirement account must be going back into the IRA or 401k, you personally can not use it.

Thanx, After much weekend research..... checkbook IRA is how I plan to go. Now I'm Vetting reputable companies.

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  • Posts 65
  • Votes 13

Camellia B.
from Orlando, Florida

replied over 3 years ago

Thanx all!

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  • Posts 65
  • Votes 13

Camellia B.
from Orlando, Florida

replied over 3 years ago
Originally posted by @Carl Fischer :

@CAMELLIA B.

If you don't care about penalties and taxes then you don't need a 401k or IRA.

I personally don't agree with that approach and would run the numbers with your accountant and develop a plan. A checkbook IRA or 401k for the minimal fee per year of less than $1/day compared to tax savings is generally a good deal. If you are 59.5 years old you will have access to the funds immediately. If not take only the money you need and pay taxes and penalties on that amount only.

Thanx.... I'm only 49 in 1 week! I'd have to agree with you, therefore, I am now vetting reputable "checkbook IRA" companies.

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  • Posts 65
  • Votes 13

Camellia B.
from Orlando, Florida

replied over 3 years ago

Thanx

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  • Posts 65
  • Votes 13

Camellia B.
from Orlando, Florida

replied over 3 years ago
Originally posted by @George Blower :

@CAMELLIA B.

It sounds like you may want to finance your own business. What types of goods or services will your new business provide?

REI 'IS' the business I'm creating as of 1/1/2018!

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  • Posts 65
  • Votes 24

Kenneth Lowry
from Ronkonkoma, New York

replied over 3 years ago

Thanks everyone.  It sounds like going this route will complicate things for my situation.  I will have to come up with an alternate plan to fund my investments.

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Check Rosette Top Subjects:
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Todd Dexheimer
Rental Property Investor from St. Paul, MN

replied over 3 years ago

Check out PGI Self Directed. John did a great job setting up one of my investors with a 401k checkbook control account. 

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Scott Smith
Attorney from Austin, TX

replied over 3 years ago

Kingdom Trust has the best rates for the Custodian work for the IRA (if you need more info on the IRA LLC or IRA Business Trust I'm happy to talk to you offline). I know @Dmitriy Fomichenko does great work with setting up the solo 401k's. 

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George Blower
Retirement Accounts Attorney from Southfield, Michigan

replied over 3 years ago

@Camellia B.

Then you may want to look at the business financing 401k. See the following:

https://www.biggerpockets.com/blogs/3441/52232-starting-a-real-estate-investment-business-with-a-robs-401k

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  • Posts 2.9K
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Justin Windham
Solo 401k provider from Denver, Colorado

replied over 3 years ago
Originally posted by @Scott Smith :

Kingdom Trust has the best rates for the Custodian work for the IRA (if you need more info on the IRA LLC or IRA Business Trust I'm happy to talk to you offline). I know @Dmitriy Fomichenko does great work with setting up the solo 401k's. 

A custodian is necessary if you are setting up an IRA. If you are eligible for a Solo 401k, many additional benefits can be picked up, including being able to bypass the custodian altogether and directly control your assets.

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