SDIRA questions for a newbie.

8 Replies

I have some money sitting in a 401k account from a job I left about a year ago, not much, about $20K. 

I can roll that over to an SDIRA, correct?

Does it matter what strategy you use (Fix & Flip, Buy & Hold, BRRRR, etc) within an SDIRA?

Since it's not a large amount of money, can I use it for a down payment and take a mortgage loan, within the SDIRA? 

Can the SDIRA get an HML or PML for rehab costs?

@Clay Sellers

Yes, that old 401k may be moved to a self-directed IRA.

Strategy matters a lot. All strategies must be entirely at arm's length, and exclusively for the benefit of the IRA - so no comingling IRA and personal funds, no services (such as swinging hammers) by you, etc.

Rental income and interest from loans made by the IRA to others are fully tax sheltered.

If debt-financing such as a mortgage is used, the debt must be non-recourse and the use of debt does create a small tax liability on the portion of the income attributed to the non-IRA (borrowed) money. No commercial lenders will talk to you at the $20K level (about $50-60K would be the bottom end), but private money and some hard money lenders might be an option.

Flipping of houses is considered a business and is therefore not entirely tax-sheltered in the IRA. A tax known as UBTI with federal rates of 37% may apply if this type of transaction is done with any frequency.

I would encourage you to look into crowdfunds or private lending from the IRA, as those are most suitable for your situation / capital amount. Trying to do flips would be very complex and difficult if not impossible within the IRA space with limited capital.

@Clay Sellers , I agree with Brian, your investment options will be limited because of the limited amount of capital you have at your disposal. If you decide to use non-recourse loan, one of these lenders might be able to help you:

https://www.biggerpockets.com/blogs/2810/50272-lis...

Another investment alternative you may want to consider is investing into a syndication or note fund. 

@Clay Sellers

To keep costs down, you may want to open the self-directed IRA with a custodian that charges reasonable fees but is still reputable. IRA Services Trust Company may be such a company. Once the self-directed IRA has been opened, it can obtain a non-recourse loan from an IRA lender

Also, the following IRS page is a good resource for the retirement plan rollover rules. 

https://www.irs.gov/retirement-plans/plan-particip...