Taking property out of Sol 401k
I have purchased property with funds from my Sol 401k. I own 4 properties out right in my Sol-k. Is there a way to take the property out of the Sol 401k. I understand that there will be taxes that have to be paid. But there should not be any penalties because I am over sixty. For example I paid cash for a condo, would like to take out of Sol-k and own as personal to take tax advantages. Is this something that would be possible? Are is there a better way to increase ROI. Also thought about taking out a non-recourse loan and using that loan money to purchase partial mortage notes with that money. Trying to think outside the box anyone with any ideas?
Taking the property out of the Solo 401k probably does not help financially. You will have the property appraised, and then distribute the property in-kind to yourself. You will then owe taxes on the distribution. Taking a large value from your 401k all at once could impact your tax rate for the year severely. The cost of doing this likely far outweighs the tax benefits of personally owning rental property that you would gain.
Leveraging the properties in the Solo 401k to create some liquidity for additional investments would likely be a better strategy, so long as the spread between what you are paying in interest on the non-recourse mortgage and the interest you can earn lending the money is sufficient. This becomes a risk-reward evaluation that you will want to take a close look at.
Thanks Brian for getting back to me so quickly. I am looking at selling properties with owner financing. This should free up some cash for other investments and still have a return with out loan payment. If you have anyother suggests they would greatly be appreciated. Trying to great create the greatest cash flow I can. Looking to retire in 1.5 years
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#1 New Member Introductions Contributor
- Solo 401k Expert
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Charles, you can do that as what's known "in-kind distribution". Contact your 401k provider firm for assistance and guidance on this process.
In light of Brian's comments above, if you are willing to take the tax hit on the distribution - you may want to consider converting portion of your 401k into a Roth (you would have to pay the same tax rate), however from this point on all the income from the property will be tax-free for the rest of your life.
I am not a CPA so be sure to consult with a qualified tax professional.
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Thanks Dmitriy,
I have already converted some of an IRA I have to a Roth to purchase mortgage notes. But I understand that you cannot take distributions from the Roth for 5 years with out paying a 10% penalty. I like the "Tax Free for Life"
The Flipnerd podcast #299 talks about a way to get property out of your 401K without a tax penalty.
@Charles Wilson
The following IRS link covers the Roth IRA distribution rules.
https://www.irs.gov/publications/p590b/ch02.html
See also the following comparison chart.
