Clarification of Self-Directed IRAs/401(k)s

8 Replies

There's a lot of vague information out there...I'd like to post this in an attempt to generate some answers that everyone can ultimately reference.

(Assuming you're under 50 years of age)

Roth IRA
Income (AGI) limit: $101,000 (Single)
Contribution limit: $5000
Funded with AFTER-TAX dollars (therefore, no tax deduction)
No UBIT liability.

Traditional IRA
No income limit
Contribution limit: $5000
Funded with PRE-TAX dollars (tax deduction allowed)
If Self-Directed, you are still eligible for UBIT.
If Self-Directed, no UBIT liability.

Solo 401(k)
No income limit.
Contribution limit: $15,500 plus 20% of your AGI (25% if you're incorporated) up to $46,000
Tax deduction allowed
If Self-Directed, you can rollover you (non-Roth) IRAs and Solo 401(k)s into one giant SD-401(k)
Like the SD-Roth IRA, no UBIT liability.

Solo Roth 401(k)
No income limit.
Contribution limit: $15,500
No tax deduction
(Not sure about UBIT liability when Self-Directed)

Originally posted by SolidReturns:
There's a lot of vague information out there...I'd like to post this in an attempt to generate some answers that everyone can ultimately reference.


Traditional IRA
No income limit
Contribution limit: $5000
Funded with PRE-TAX dollars (tax deduction allowed)
If Self-Directed, you are still eligible for UBIT.
If Self-Directed, no UBIT liability.

Not sure which you're saying here. A traditional IRA is certainly subject to UBIT, whether "self directed" or not. Most brokerage or bank IRAs are going to limit your investment choices to the point where you'll never have UBIT. But, if you're using a "truly self directed IRA" and investing in real estate, you can pretty easily incur UBIT. Fix-and-flips, wholesaling, and developing would all be subject to UBIT. Rental property with debt financing would also be subject to UBIT.

I switched companies and have $13k in my old 401k. If I cash it out i'll receive roughly $8k. If I roll it over to an IRA, which company is the best? I'd like to be able to pick my own stocks and buy/sell when I please.

If you just want to buy and sell stocks, any of the big brokerages will be fine. They're all more or less the same, so just look for which one will charge you lower fees. If you call and tell them what you want to do, they will do all the leg work for you. I still have a Fidelity account for a chunk of my money.

You do not need to cash out. You can roll the entire $13K into an IRA with no penalties or taxes. If you can swing the taxes out of other funds, and you are under the AGI limits, pay the taxes and convert to a Roth.

I know cashing out is a dumb idea but I was possibly thinking of using that money to pay of debt.

There is that.

I don't know what is best? lol I'm still young so I could play catch up if I decide to cash out and pay off debt. I may look into a self directed ira where I can use that money for hard money loans or buying a rental property through my LLC.

Well, $13K isn't enough to get into real estate. I've been in your shoes, and did end up cashing out a small lump like this. Don't know how old you are, but if you're 25, and hold this $13K until you're 65, and make 7% on it all that time, it will be worth $195K. If you take it now, and don't get around to replacing it until you're 35 (something will ALWAYS come up), it will be worth only $99K.

Is the $8K you would get after taxes worth $96,000?

Save at least 10% of your gross monthly income. Adjust your spending to allow this.

I am 29. I think I may do a SDI so I can atleast have control of my investments. Maybe day trade until I can build up enough to to buy real estate with it.

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