How to consolidate retirement funds for REI?

Question

Here's a scenario and I need some advice:

Say I (in my mid-30s) have an employer matched Roth 401k, a rollover IRA and a Roth IRA. Currently all of my retirement funds are vested either in mutual funds or in stocks. Now I want to consider moving as much of the investments from the stock market in to real estate without taking a tax penalty. I realize some of my funds will have to remain in the stock market (my current employer's 401k for example).

Now there are Self Directed IRAs and Solo 401k. Both of these options are interesting and I'd like to use one. So far I like the Solo 401k from an asset protection perspective as well as ease of use. What would be your (the reader's) recommendation when it comes to consolidating and investing in real estate? Are certain conversions or rollovers even possible? Any feedback will be appreciated.

Dmitriy Fomichenko · Answer

Reaz H.

Solo 401k is not for everyone, to be eligible for it you need to be self-employed or own a small business. An alternative to custodial SD IRA is Checkbook IRA, which allows you to have a checkbook control over your retirement funds just like Solo 401k does.

Steve Kontos · Answer

Reaz H.

That is exactly my main concern.  When I started out, I leveraged my credit instead (because the rate to borrow was so low) BUT the reason for this was in case something went wrong, I could handle the payments for a bit if need be.  I just felt as though that was better than slipping into my retirement accounts first.  Again just my personal opinion.

I honestly do not know a whole lot about the Solo 401k because it wasn't an option at the time when I did the Self-Directed IRA.

Steve Kontos · Answer

Reaz H.

What I did was roll some of my retirement accounts into a Self-Directed IRA.  By doing this I accomplished exactly what you are looking to do (moving as much of the investments without taking a tax penalty.

Keep in mind this is just one way you can leverage.  I actually would recommend that you not do this off the bat if your just starting out.  I didn't open and transfer into my Self-Directed IRA until I was a more seasoned investor.

Reaz H. · Answer

My gripe with the Self-Directed IRA is that I need to go through a custodian and I am very dependent on them to do the right thing. Hence I've been looking into a Solo 401k. But it's good to know others have considered and gone through with transferring assets to a Self Directed IRA for real estate investment.

Reaz H. · Answer

Other than the obvious reasons which are the risk of losing retirement funds due to bad real estate deals and losing tax protection due to errors with handling funds in Self-Directed IRA, are there reasons why I shouldn't do this?

I've read that Solo 401k are safer but I do not know whether I can convert my IRA funds to Solo 401k. It's a sizeable amount so there is some motivation to do it.