Self-directed 401k strategies

3 Replies

Hello everyone,

Any investors out there who can explain how they used or can use this investment strategy? I'll be retiring soon from the military and civil service. Thank you.

Hi David, 

First off, thank you for your service!

As for your question, it really depends on what you are trying to accomplish. Can you elaborate a little on what your goals are?

A self directed 401k, also called a solo 401k, is really just another version of a qualified retirement plan. The benefit is that you can choose pretty much anything to invest in as long as you follow the IRS rules. 

Right now, your retirement plan most likely has minimal choices to invest in (some stock funds, bonds, ETFs if you are lucky) so you are rather limited in choosing an investment vehicle that will help you reach your goals.

From first hand experience, I can tell you that getting a solo 401k was rather easy and I have checks that I write to pay for properties free and clear or to put a down payment if I want to get a loan. You have to find lenders (and there are plenty of them in Arizona to choose from) that offer non-recourse loans where the solo 401k account is listed as the buyer (not you as an individual). The best part is that the gains, if you done correctly are tax free just like a traditional 401k (non-Roth). I set mine up through and they helped me along the way to open a fidelity account with checkwriting capability.

A good resource I used before doing this was as follows:

If you can provide a little more context, I’ll do my best to help out. We can chat on the phone if you’d like as well. 

Apologies in advance for the lengthy post but I hope it helps. 

@David M.

As @Chris Tabanico indicated, a self-directed 401(k) is still a 401(k) style retirement plan, just with broader investment choices.

When you retire from service, you will have the ability to rollover all or part of your TSP. If you are self-employed with no full time employees your business can sponsor a Solo 401(k), which has higher contributions tools and a few other 401(k) associated plan level advantages in addition to being a very flexible investing tool. If you are not self-employed, then a self-directed IRA is a great option.

Either way, the plan is all about diversification for retirement savings.  Such plans are not a means for you to gain access to the funds for your own purposes.  All investments must be made via the plan.  All expenses are paid by the plan and all income flows back into the plan... of course tax-sheltered just as if the income were from gains in the stock market.

So if you have expertise and a good network in an asset class such as real estate, private lending, etc., you can use such a plan to invest in what you know.  The entire concept is that by investing differently and into something you understand, you can get better results than by leaving 100% of the savings in a handful of mutual funds.

There is a lot of good information here on the forums, as well as several providers of such plans who actively participate.

Hi David,

The main reasons people have parked retirement funds with me:

1. They understand local/Flagstaff real estate

2. Concerned stocks could lose more value and quicker than performing rentals

3. Returns tend to be higher than most retail investments

4. I've actually found that some people want a relationship with the people who are putting their hard earned retirement money to work, rather then sending it off to large institutions they hope values it the way they do.

I use retirement money for building new multi-family, new SFR, and flips. But I know people who run hard money funds and loan it back out at a higher rate, earning the difference. The lender in mind has done over 200 loans without a single default. There are some very impressive people/projects that are willing to use IRA money you just need to look and never be shy about requiring/requesting and exhaustive history of how well they've done.

As a borrower, my self-directed investors a slightly more expensive than institutional money for construction, but infinitely less headaches.  They provide money and keep me focused on building buildings rather than spending my days jumping through hoops to qualify for loans.  Its a win/win.

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here