Hello Fellow Bigger Pockets Investors!! I am looking for a Financial Advisor or CPA in the Capital Region (Albany, NY) who can lead me down the best path for using my 401k to buy real estate. I no longer work for the company and will need to move my investment to access it. Suggestions for professionals would be greatly appreciated. Thanks in advance!
@Michelle Phelan does it need to be in person? I think you're looking for a financial advisor more than an accountant.
No, it doesn’t need to be in person. Thanks!
@Michelle Phelan It kind of depends on what you want to do. Are you looking to set up an self directed individual 401(k) or an IRA to invest in Real Estate? There are custodians here on BP that will assist with setting it up. Make sure you understand all of the implications before going the self directed route though. There are quite a few "gotcha's" you need to be aware of and you are giving up on most of real estate's tax benefits.
Financial Advisor is not what you need. Most of them have no experience with real estate, in fact some will even tell you that you can't invest in real estate with your IRA, which isn't true.
But you are in the right place! This topic is a frequent discussion here on the forum. Search using related keywords and you'll find many discussions. In order to invest in real estate with your retirement funds you need to establish self-directed IRA. Then rollover your 401k, and then you can start buying real estate in your IRA. Note that there are rules you must understand and follow. You are not the owner of the property, your IRA is. You are not allowed to gain any benefits from your IRA investment and you are not allowed to provide any services to your qualified retirement plan.
I work with folks in the same position all the time. Please PM me I’d be happy to discuss options how you could best deploy your capital in real estate.
Should I hire a financial advisor ?
I don’t know if he’s the right person for 401k advice, but Mike Lurie is a fantastic CPA. Super knowledgeable about real estate. We consult him before we make any changes to our financial picture or buy anything. He’s saved us from so many headaches.
I would recommend reading through Prohibited Transactions (linked below) as these are some of the gotcha's @Scott Jensen talked about above. A good advisor, whether financial advisor or CPA may be able to help you through this. One thing to note, I worked at a Trust company that was registered as a National Association bank (all big banks are in this category). We would have financial advisers and Registered Investment Advisors all the time send IRA and Transactions in an IRA that were prohibited transactions. They would argue, along with their own CPA and attorney that the transaction wasn't prohibited, even though it clearly was. The morale is to make sure you find someone who is experienced in doing this because there a lot of people who are registered with applicable agencies, but don't know everything. There were times were the bank I worked at would turn away the business because we didn't want to risk (with our regulator) performing a transactions we strongly felt was prohibited and us ending up getting in trouble as well.
The penalty if you get caught is that your entire IRA account (one account where the transaction occurred) is considered to be distributed and therefore a taxable event. So you can make a real estate purchase worth as little as $1 with an account balance of $10,000,000, if it is determined it is a prohibited transactions, your entire account is considered to be distributed and you will have to pay taxes on the entire $10,000,000 plus any penalties.
@Alina Trigub Appreciate the mention!
@Michelle Phelan Definitely a great strategy to consider, but as pointed out by @Scott Jensen there are many "gotchas," which come in the form of "unknown unknowns" and unintended consequences. Ideally, you're looking to work with someone that can appreciate all the potential implications, considering your tax and financial profile. A traditional financial advisor or CPA will see only certain dimensions, while someone with a strictly real estate investment angle will have another perspective. Both of those perspectives will have truth to them, but neither will represent the whole truth.