Confused on Using a 401K

8 Replies

I read this article on this forum:

From everything else I have read it is my understanding that you can't get a loan against a 401K larger than $50K.   According to this article this may not be correct ?

Am I misinterpreting the article ie. Is it implying rolling over the 401K into an IRA ? I don't see the details spelled out.

I am self employed. I have a self directed 401K. I also have a self directed IRA from the past.

To roll over my 401K into my IRA I would have to shut down my S-Corp and start a new S-Corp I thought.

@Bruce Harding ,

The $50K limit applies to participant loan you personally can take from your 401k. This is not an investment of the 401k, it is a loan from your 401k. The loan is not against, the loan is taken from your 401k. 

You can use self-directed IRA or 401k to invest in a property, the investment would not be limited to $50K, you can buy $1MM property if you wish and can afford. Are you sure you have self-directed 401k? Can you buy real estate inside of your plan? If not then you don't have a self-directed 401k.

You don't have to shut down you S-corp to rollover into self-directed. I think you might be getting it confused with Rollover as Business Start Up (or ROBS), which is something completely different. 

This would be a good discussion to follow where you can learn more about truly self-directed 401k:

Originally posted by @Dmitriy Fomichenko :

@Bruce Harding,

 Are you sure you have self-directed 401k? Can you buy real estate inside of your plan?

Yes I definitely have a Solo 401K.  Its says Solo 401K on the forms I have to fill out every year listing my investments.

I will have to check my plan documents regarding real estate as this is a separate question.   I have recently decided to use my  401K after much reading so I have not reviewed what other investment options I have available to me.   I am going to read my plan tonight however.

@Bruce Harding ,

the question whether or not your plan is self-directed depends on who the custodian of your plan is. If you have one of the major financial institutions (Fidelity, Schwab, Merryl Lynch, Wells Fargo, etc.) setup your plan then they as custodian will limit your investment choices to that of their offerings, usually stocks, mutual funds and bonds. That is how they make money by selling you those investments. They might even call it "self-directed" which means that you can direct or pick the investments but only within their boundaries of investment options. Truly self-directed means that your plan does not have any limitations on the investments and you can invest in anything that is legal. 

Ah ha.... Think I have it figured out.    My plan allows it but the box for real property is checked "no."  

They are checking but I think this can be changed with a simple ammendment to the plan.

I am with a small company.

Not a ROBS.   I am referring to using 401K and setting up a Trust with a checkbook account.

Lenders will require more down I realize.  35 - 40% and I will be working with portfolio lenders and non-recourse loans.

So my plan is to work syndicated commercial deals where you get your money back out in 6 - 12 months.  Buy under market when possible and/or add value.   Another component I am looking for is good cash flow.  This way I can progress to larger and larger deals.

This will be my strategy.