I have 401k from my previous employer and instead of maintaining a SDIRA I wish to invest in real estate perhaps on a owner occupied multi family if that's feasible( if not at least on an investment property,) I also currently own a rental income property and also planning to start an LLC for software consulting with one or more employees.i would like to know what would be the best way for me to strategize so I can invest in real estate using 401k from my past employer.
You could transfer the 401k to a self-directed IRA or Solo 401k. The Solo 401k would require self-employment activity (such as your software consulting) and that you do not have any full-time, non-owner employees. Part-time employees or independent contractors are ok.
With either structure, there are prohibited transaction rules that will generally require you to keep your retirement account activities completely separate from your own activities. For example, you could not live in a property that is owned by your self-directed IRA or Solo 401k.
You should chat with my business partner, @Michael Wardwell , he is great at diving in, determining your goals, and creating a game plan for you. I cannot stress enough how important a conversation like this is.
Thank you this is helpful.
Ok I will get in touch ,thank you.
Hi Justin can I live in a property(owned by solo 401k) but as a tenant paying monthly rent to my own LLC?
If you have full time employees other than your spouse working for you - that would make you ineligible for Solo 401k.
You can never live in the property owned by your 401k (or receive any other personal benefits from your 401k).
Interesting, I am now wondering why solo 401k is considered as an efficacious tool for RE investment,any other means of investing 401k in RE?will I be at least eligible to collect the monthly rental income from solo 401k re investment from other tenants? Thanks for your input
Solo 401k IS an efficacious tool giving account holder a lot of freedom and flexibility. But there are few limitations and IRS rules you must understand follow:
Thanks.I get the idea now, it appears like inspite of the ability to invest in RE right away you can reap the benefits only after retirement in future ,it is not a 'right here,right now' vehicle like other RE investments funded through other financial channels.
Correct Kumar, it is a retirement account first and foremost, with the ability to invest in real estate.
1. First, I presume that (i) you are self-employed; and (ii) you do not have any full-time w-2 employees (i.e. working 1000 hours or more per year) working for your self-employed business or otherwise working for you. Given this understanding, you would be eligible to establish a self-directed Solo 401k which allows for investing in real estate.
2. If you are self-employed with no full-time employees, you can set up a Solo 401k through a 401k provider which allows for investing in real estate. In that case, you can simply have the account at a bank or brokerage where you will have direct checkbook control.
3. All of the income and expenses will need to flow in and out of the retirement account.
4. If you will you debt to acquire the real estate, it must be non-recourse financing. See more at the following link: https://www.biggerpockets.com/blogs/9552/70408-ira...
5. You can't live on the property or otherwise use it for personal use.
6. You can't work on the property as it must be a passive investment (e.g. you must hire someone to fix the toilet and can't pay the expense with non-retirement funds).
7. You must purchase/sell real estate from/to an unrelated person and the real estate can't be titled in your name personally (e.g. in the case of the 401k, it would be titled in the name of the 401k and you would sign as trustee of the 401k).
8. You should verify that you are eligible to transfer the funds from your existing retirement account (e.g. if the funds are in your current employer 401k, you will likely not be able to transfer until you quit your job).