Rental Property Investor · Snohomish, WA · Member since 2016 · 15 posts · 3 votes
We are interested in self directed 401K information and we have questions about cashing out a pension or rolling it over. Has anyone dealt with a custodial account in the Seattle area? We would like to find someone that we can trust to help us make decisions.
Self-directed Solo 401k is great investment vehicle (in addition to being awesome tax-shelter), however it is not for everyone. To be eligible for it you must be self-employed or have legitimate business with earned income.
If you quality, this would be great fit. You can rollover any other retirement plans you may have into it, with one exception: Roth IRA.
It has been discussed at length many times here on the forum, here is a link to one of those discussions for you to learn:
There are several experienced professionals including myself that you can find who are active forum contributors, check out responses and see whom you wish to contact to discuss your situation in details.
Self-directed Solo 401k is great investment vehicle (in addition to being awesome tax-shelter), however it is not for everyone. To be eligible for it you must be self-employed or have legitimate business with earned income.
If you quality, this would be great fit. You can rollover any other retirement plans you may have into it, with one exception: Roth IRA.
It has been discussed at length many times here on the forum, here is a link to one of those discussions for you to learn:
There are several experienced professionals including myself that you can find who are active forum contributors, check out responses and see whom you wish to contact to discuss your situation in details.
@Colleen Ferrari talk to @Brian Eastman he is the main person in setting up self directed retirement investing accounts and how to free up that money for investing legally.
Most self directed custodians /administrators do not give any investment, tax, or legal advice. You should get professional help from a cpa, attorney, financial advisor, real estate agent, etc We help many clients in the northwest with the options and strategies that the self directed qualified plans can provide but usually they have a professional join the call that can help them make decisions that fit their particular situation and goals.
Ok-- so I may have hosed up my question. We are wondering about how to use our 401K for real estate investments without being taxed for taking the money out. So I guess not a self directed 401K but a way to use the funds to invest. y husband is 59.5 if that matters. We do not own a business.
Unless you rollover your 401k into another qualified plan (such as an IRA), you will have to pay taxes on a distribution. There is no way to avoid paying taxes, unless it is Roth IRA or Roth 401k.
If YOU wish to invest in real estate, a 401(k) will not get you there. In order to have personal access to and use of that currently tax-sheltered retirement plan you must take a taxable distribution.
A self-directed IRA is simply a means to diversify retirement savings and have broader investment choices. As a tax-sheltered vehicle, however, there are strict rules against self-dealing or personal benefit. You could establish an IRA and the IRA could invest in real estate. The only reason to do that would be if you feel that the IRA would grow more effectively in real estate investments you choose than in the current investments.
Because your husband is of retirement age, he can choose to take distributions from the IRA. So, if the IRA were to invest in real estate, there would be a solid asset held as the principal of the account, and that asset can spin off positive cash flow. Your husband could choose to take distributions of the cash flow, which would be taxable. That may be a better strategy than wiping out the 401k and paying a large amount of taxes to have a smaller post-tax fraction of that savings available for personal investing.
The two common choices for investing retirement funds into real estate (without paying taxes and possibly penalties on pulling funds out of the retirement account) are the self-directed IRA and the Solo 401k. The Solo 401k is generally considered the better structure, but it requires self-employment activity, so it sounds like you wouldn't be eligible. A self-directed IRA (or IRA LLC for checkbook control) would allow you to invest your retirement money into real estate.
If you want to use your retirement funds as your own, you're going to be taxed on the withdrawal if they are pre-tax funds. You cannot continue to have the tax benefits of the 401k once you take the funds out of the 401k. Since your husband is 59.5, early distribution penalties wouldn't apply, but taxation still would. You might want to consider a self-directed IRA to avoid that taxation. To generate income outside of the retirement account, you'll need to invest your own (non-retirement) funds, possibly using financing and/or partnering with others to get started if funds are limited.
If you need 50k and your 401k is large enough, you can get a 401k loan. Never done it myself but it doesn't require rolling over or taking a distribution.
I'm not positive, but I think you need to pay back a 401(k) loan within three months.
When I got started, I made some investments in my IRA. I then cashed out the profit from that one deal, paid the tax, early withdrawal penalty,and used that to start my business.
I'm trying to sort out all of the SDIRA and 401k loan stuff too.....
My wife and I both have lots of our net worth in employers 401k plans....and have a smaller amount in an IRA that I inherited when my Aunt passed
I'm trying o figure the best way to leverage that $$ to generate cash flow that I have access to NOW.
My understanding with a SDIRA is that you can use the $$ to buy RE but all the cash flow has to stay in the IRA unless you want to pay tax and withdrawal penalties etc...so it s great way to invest in RE, but you are still restricted on getting to that $$ until you are much older....
I'm looking to leverage that $$ to use the cash flow now, not when I'm 59 1/2.......
Retirement accounts (self-directed or not) are designed to provide you benefits at retirement, they are not for your current benefits. While there are some strategies you can utilize to tap into your retirement accounts prior to retirement, you must plan for it very carefully. You can learn more here:
IRS regulations allow participant loan terms of up to 5 years. If the loan is taken for the purchase of a principle residence, the term can be even longer.