What to do with my 401K?

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What to do with my 401K?

Derek Tellier
Real Estate Agent · Sevierville TN · Member since 2018 · 305 posts · 224 votes

My situation is that I'm 45 years old and I have a 401K with my current employer. They match 100% up to 3% then 50% up to 5%. 

So I contribute 5% and get 4%, immediately vested. 

I've been contributing this for about 13 years. I've got a balance of about $135K and I still contribute my 5% each week. I'm putting in about $4K/year getting another $3100 from the company. Nothing groundbreaking and that leads me to my situation. 

I'm now about to get into REI and trying to figure out the best plans for this $. I don't intend to leave this employer real soon but I do plan to be able to leave the job in 3-5 years.
I know I'm being optimistic that I can go from zero REI experience to financial freedom in 3-5 years, but I'm not saying I'll be sitting on a beach in that timeline, I know I'll be working, just want to be working on my own wealth and business/investments rather than someone elses. 

Other than the Hardship options I can't access any of it as long as I work for this employer. I know if I were to buy a new property to actually live in that would allow me to access some with a 10% penalty for the down payment but moving is not in the short term plans due to family. 

My immediate question is should I continue to contribute or put that $ towards my reserves where I'll actually have access to it when I need it? Or have it to put towards a Marketing budget? 
I know can't roll it into a solo or IRA or anything while I'm employed there.

I've looked through the Blogs and forum posts and have found lots of information but trying to put it all together to figure out what my options are has been tough to filter out. I noticed most of the blogs I came across were written by @Jeff Brown and his comment that it takes 10 years of doing something to be an expert resonated with me and makes it obvious that all the reading I can do will not give me the advice I need in the short term. Hoping there are some experts out here that can point me in a direction. 

I feel like the answer to my question is obvious, keep contributing and getting that free money the employer puts in. We're not talking about a lot of $ on a weekly basis and it won't have an impact on my current expense structure, but I could also put it towards marketing or simply into reserves. 

I just want to hear some expert opinions on making better use of that $ as I'm starting my REI career.

Thanks in advance

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Most Popular Reply

Aaron K.
Specialist · Riverside, CA · Member since 2015 · 6k+ posts · 3k+ votes
8y

Keep contributing to your 401k in my opinion where else can you get a guaranteed 100% or 50% return? Use other savings to start REI

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  • Justin WindhamPro Member
    Banker · Nationwide · Member since 2015 · 4k+ posts · 1k+ votes
    8y

    @Derek Tellier

    If you become a licensed real estate agent, you'll like be eligible for a Solo 401k which will offer a lot of benefits compared to a self-directed IRA. Both are great structures, but the 401k is better if you're eligible.

    1Reply
  • Justin WindhamPro Member
    Banker · Nationwide · Member since 2015 · 4k+ posts · 1k+ votes
    8y

    @Ramesh Nyberg

    While there are some lenders who specialize in non-recourse loans, be careful with flips done inside a self-directed IRA. You've got prohibited transaction rules to navigate with regard to who is doing the work and/or getting paid by the IRA. There is also potential for Unrelated Business Income Tax (UBIT) depending on many factors, including how often and how numerous the flips are. Many with SDIRAs and Solo 401ks choose to perform flips outside of the retirement structures and stick to more passive investments with the IRA or 401k.

    0Reply
  • Derek Tellier
    OP
    Real Estate Agent · Sevierville TN · Member since 2018 · 305 posts · 224 votes
    8y

    thanks @Justin Windham I’ll reach out towards the end of the year once I’m set up and going. 

    1Reply
  • Ramesh Nyberg
    Investor · Miami, FL · Member since 2018 · 47 posts · 21 votes
    8y

    Thank you @Justin Windham - much appreciated

    1Reply
  • George Blower
    Retirement Accounts Attorney · Southfield, MI · Member since 2017 · 3k+ posts · 1k+ votes
    8y

    @Derek Tellier

    If you do become self-employed, the solo 401k would most likely be the best way to go if you plan to invest in real estate.

    Following are the similarities and differences between the solo 401k and the self-directed IRA.

    The Self-Directed IRA and Solo 401k Similarities

    • Both were created by congress for individuals to save for retirement;
    • Both may be invested in alternative investments such as real estate, precious metals tax liens, promissory notes, private company shares, and stocks and mutual funds, to name a few;
    • Both allow for Roth contributions;
    • Both are subject to prohibited transaction rules;
    • Both are subject to federal taxes at time of distribution;
    • Both allow for checkbook control for placing alternative investments;
    • Both may be invested in annuities;
    • Both are protected from creditors;
    • Both allow for nondeductible contributions; and
    • Both are prohibited from investing in assets listed under I.R.C. 408(m).
    0Reply
  • George Blower
    Retirement Accounts Attorney · Southfield, MI · Member since 2017 · 3k+ posts · 1k+ votes
    8y

    The Self-Directed IRA and Solo 401k Differences


    • In order to open a solo 401k, self-employment, whether on a part-time or full-time basis, is required;
    • To open a self-directed IRA, self-employment income is not required;
    • In order to gain IRA checkbook control over the self-directed IRA funds, a limited liability company (IRA LLC) must be utilized;
    • The solo 401k allows for checkbook control from the onset;
    • The solo 401k allows for personal loan known as a solo 401k loan;
    • It is prohibited to borrow from your IRA;
    • The Solo 401k may be invested in life insurance;
    • The self-directed IRA may not be invested in life insurance;
    • The solo 401k allow for high contribution amounts (for 2018, the solo 401k contribution limit is $55,000, whereas the self-directed IRA contribution limit is $5,500);
    • The solo 401k business owner can serve as trustee of the solo 401k;
    • The self-directed IRA participant/owner may not serve as trustee or custodian of her IRA; instead, a trust company or bank institution is required;
    • When distributions commence from the solo 401k a mandatory 20% of federal taxes must be withheld from each distribution and submitted electronically to the IRS by the 15th of the month following the date of each distribution;
    • Rollovers and/or transfers from IRAs or qualified plans (e.g., former employer 401k) to a solo 401k are not reported on Form 5498, but rather on Form 5500-EZ, but only if the air market value of the solo 401k exceeds $250K as of the end of the plan year (generally 12/31);
    • When funds are rolled over or transferred from an IRA or 401k to a self-directed IRA, the amount deposited into the self-directed IRA is reported on Form 5498 by the receiving self-directed IRA custodian by May of the year following the rollover/transfer.
    • Rollovers (provided the 60 day rollover window is satisfied) from an IRA to a Solo 401k or self-directed IRA are reported on lines 15a and 15b of Form 1040;
    • Pre-tax IRA contributions on reported on line 32 of Form 1040;
    • Pre-tax solo 401k contributions are reported on line 28 of Form 1040;
    • Roth solo 401k funds are subject to RMDs;
    • A Roth 401k may be transferred to a Roth IRA (Note that from a planning perspective, it may be advantageous to transfer Roth Solo 401k funds to a Roth IRA before turning age 70 ½ in order to escape the Roth RMD requirement applicable to Roth 401k contributions including Roth Solo 401k contributions and earnings.);
    • Roth IRA funds are not subject to requirement minimum distributions (RMDs);
    • The fair market value (FMV) of assets held in a self-directed IRA is reported on form 5498;
    • The fair market value of assets held in a solo 401k are reported on Form 5500-EZ;
    • At termination, the solo 401k is required to file a final Form 5500-EZ and 1099-R; and
    • At termination, the self-directed IRA is only required to file a form 1099-R.
    0Reply
  • Derek Tellier
    OP
    Real Estate Agent · Sevierville TN · Member since 2018 · 305 posts · 224 votes
    8y

    Thanks @George Blower, lots of great detailed information there. 

    I’ve also come across Damien Lupo and QRP, I’ve got his free QRP book coming. I haven’t looked too deep into it but I understand it’s tied to Solo 401k. I want to be as educated as possible and since I plan to be at least part time self employed by early next year I’ll want to get something started at that time. 

    0Reply
  • Justin WindhamPro Member
    Banker · Nationwide · Member since 2015 · 4k+ posts · 1k+ votes
    8y

    @Derek Tellier

    QRP stands for Qualified Retirement Plan and is another name some promoters use for the Solo 401k product. A Solo 401k is a type of qualified plan under IRS guidelines.

    1Reply
  • Derek Tellier
    OP
    Real Estate Agent · Sevierville TN · Member since 2018 · 305 posts · 224 votes
    8y

    Thanks @Justin Windham I figured it was something simple like that. 

    I’ll reach out to you in a few months when I’m ready to start one up. 

    1Reply
  • Mark F.
    Investor · Orange County, CA · Member since 2009 · 230 posts · 138 votes
    8y

    @Derek Tellier I agree with so many others to at least contribute enough to get the match. Free money! Also, it might be worth seeing if your employer offers a Roth option. You wouldn't get the tax deferral for contributions now, but withdrawals are tax free in the future.

    0Reply
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