Real Estate Investor · Malvern, PA · Member since 2011 · 72 posts · 8 votes
I'm looking to take out a loan from my self-directed 401k, but I'm curious as to what interest rate to charge myself. I actually want to charge myself as much interest as possible since I'm not planning on contributing anything to the 401k this year. Anyone know if there is a maximum allowable interest rate and, if so, what it is?
Also, I have several different investments in my 401k in addition to cash. My plan documents state that I can borrow $50k or 1/2 of the vested balance, whichever is less. Does the vested balance include the value of my investments. Or, is it simply the amount of all of my contributions to the plan since its inception?
I was trying to find a way to loan myself from my SD IRA or a solo 401K a lot more than 50K.
These transactions can be made with yourself but with the use of LLC's and your Self-Directed IRA cannot under any circumstance become more than a 49% owner of any LLC, or business you invest in.
Here is an example of how this works.
If you own the current rental properties in an LLC and you are the 100% owner of the LLC you can legally sell 49% of the LLC company to your SD IRA and raise funds that way.
Since the SD IRA is set up FBO Bruce M. and the LLC is in place than the transaction that takes place is between the SD IRA and the LLC. However when you do this all costs of the rental properties and profits must be split accordingly between the SD IRA and the LLC.
Lastly a SD IRA is far superior than a Solo 401k because of the tax advantages on the back end being Tax Free.
Let me know if you have any other questions.
All of the above is completely inaccurate. Your SDIRA or solo 401k plan can not buy ANY property, or portion thereof, from yourself as YOU are a disqualified party to the plan.
You can "partner" with your plan, but the rules and steps are complicated and if not done exactly right, you risk executing a prohibited transaction.
Lastly, a SDIRA is NOT far superior to a 401k plan "because the tax advantages on the back end being Tax Free." - as this statement is false. ONLY in a ROTH IRA are the back-end profits tax free and you can certainly set up a ROTh 401k. So, to be clear, there is no tax free profits in a self directed or traditional IRA UNLESS it is a Roth and 401k plans are far superior to IRA plans (both traditional and Roth) because the 401k offers borrowing provisions, offers larger contribution limits, and in some cases, avoids UBIT where the IRA would not. Clearly, the 401k option is the better of the two so if you have the ability to have a business without any employees other than your spouse, go for the roll over into a new solo 401k plan.
Thanks guys! I will make some phone calls and try to find out if I can/should transfer it to a solo 401K. Does it have to be a C corp or can it be an LLC if we report income on a schedule C? We have some buy and hold properties but we also flip houses and do construction, but none of those are our W2 job. I'm also in the process of getting my RE license so if nothing else I should be able to go ahead with it at that time?
Who transfers the current funds the company managing the 403(b) or the school district I work for?
Jodi, if you are still currently employed with the school district where you have a current 401b plan, odds are you can not roll it over to a self directed plan of any variety. Only when you quit or retire can most plans be rolled over to another qualified plan.
Your 401b plan likely does have borrowing provisions so utilize that, record a deed of trust against your personal property for the borrowed amount and the loan then becomes a home loan. This does two things for you. 1 you get a tax deduction for the mortgage interest you pay to yourself! ( your 403b plan).
2. The loan can be a term of 15 years because it is for your residence keeping your monthly payments lower and the funds available longer to use over and over.