All Forum Posts by: Brett Synicky

@Larry M Shepherd check with them to see if they’ll allow you to roll it into an ira.  Probably not but it’s worth a shot since worst they can say is no.  

Quote from @Larry M Shepherd:

Hello all and thanks for clicking on my very first post! I am super new to REI and excited to learn and expand my knowledge to build generational wealth for my family. I might be jumping the gun here but I am in the early stages of searching and placing my first offer on a property. My plan is buy and hold a long term rental first and then slowly evolve into short term rentals. I do not have a large down payment saved up but I have been considering making a large withdrawal from my 401k, about 35k worth. I know there will be taxes and fees I must pay to do this. Is this a very bad idea? My thinking is this...my 401k is there for my retirement but if I use that money now for REI wouldn't it be building my retirement savings anyways? Why let that money sit there with such a small return when I can use it to start my portfolio? I'm really interested in your thoughts on this. Thanks for your

 Is this a current or former employer 401k?  If you can roll it into a self directed ira or solo 401k (if you qualify) then you can make this investment without taxes and penalties.  

 @Ashish Acharya may have something to add. 

@Bradley Miller You're on the right track with your research.  Many people who choose to self direct their retirement funds choose to become a private lender and either go through brokers who pool money together and loan short term to fix and flippers as an example.  This is a generally safe way to invest since the loan is secured by real property.  Additionally you should be able to get 10-14% return.  

On the private lending there is no UBIT on SDIRA whereas @Rick Pozos is mistaken about financing not triggering UBIT. In an IRA the financed portion of the property triggers whats called UDFI (unrelated debt finance income) which triggers UBIT (unrelated business income tax).

Most of the time the syndication will issue a k1 which can also trigger ubit in both a Solo401(k) and SDIRA.   

If you have legitimate self employment activity then you may qualify for a Solo401k which has many benefits the SDIRA does not.  I encourage you to look at both since having self employment activity is not tough these days.  

As always check with your tax professional.  

Quote from @Josh Mahan:

I am looking for a few people that have partnered with Kris Khron on Single Family. Would love to hear how it went/is going. I know this has been discussed in other posts but they seem to be full of opinions and not many people that have actually partnered.

Current partnership for one Single Family is approx 50k down payment, 10k partnership/management fee, 10k put in bank account for operating expenses. They find and manage the property. Profit split is 70% you 30% them. Target return is 25-35%. The plan is to sell every 4/5 years and reinvest to double your portfolio at that time.

So if you are doing this how is it going for you?

Thanks!

 I agree with @Jay Hinrichs that private lending is an awesome way to make money in a retirement account.  Especially if you can do it in a Roth.  Additionally while it's true you cannot take advantage of the depreciation on real property investment when inside a retirement account, that is not the purpose of a retirement account.  The purpose of course, is to save for retirement in either a deferred or tax free account.  It's definitely not a terrible idea to own real estate outside of a retirement account so you can take advantage of all the tax benefits, especially using the depreciation to reduce your taxable income from a w-2 job. That has a very real, very tangible positive impact.  

Investing for your retirement is do be done with discretionary funds, not funds you need to live on.  Keep learning and asking questions.  

Quote from @Amy Biddle:

Hey, so I'm getting back into REI. I never did this right before. Lots of shooting from the hip. I want to do this right, finally.

Now I have a small amount of cash in a Roth IRA. Enough for a downpayment on a small multi-unit.

I think I understand I can roll this capital to a SDIRA, but for a buy and hold plan I won't get depreciation if property is held in SDIRA. So maybe SDIRA isn't right? Seems like I'll get killed with taxes if I invest outside of SDIRA. Also, I won't have access to my IRA funds to invest with in that case.

I also don't know about using entities for properties - liability protection, and tax savings.

Do you use entities inside of SDIRA?

I live in FL, so no state income tax. I don't know yet what state I'll be investing in, so there will be outstanding questions.

The goals:

- grow my little nest egg over the next 20 years (I'm 56 now). I'm still learning about what's realistic and possible, so I don't have this number yet

- minimize taxes

- protect liability exposure

- if SDIRA is the right answer, the fees for custodians looked high - but moving the money will means saving my capital against market loss in my current Roth at the next downturn, so maybe the fees pay for the added security and additional benefits of REI.

It's helpful to write this out. I'm not sure how to weigh the value of tax savings compared to depreciation if I go with a SDIRA (if I understand the depreciation issue right).

TIA,

Amy

Hi Amy, smart move getting back into real estate.  It is true you can self direct your Roth into real estate investments.  While it’s true you have to have a custodian for any ira the fees vary and if you utilize the checkbook control offer - essentially a special purpose trust or LLC is created and all the investments go into and out of that account owned by the trust or LLC.  The trust/LLC gives you checkbook control allowing you to bypass the additional transaction fees and time delay when making investments.   

You said a “little” money, so bear in mind if you transfer that into a self directed account the annual contribution limits are $7k plus $1000 catch up over 50 so it may take a while to get it to a point where you have enough to invest in real estate.  You can get financing but it must be non-recourse and requires 30-50% down with 10-15% in reserves.  Also in an ira the income on the financed portion of the real estate is subject to ubit tax.  It still can make sense.  Just be sure you have enough money. 

An alternative option is a solo 401k if you’re self employed with no w2 employees other than a spouse.  The contribution limits are much higher.   Up to $69k plus $7500 over 50 catch up.  And no ubit tax on finances real estate.  

Anyways keep doing what you’re doing.  Educating yourself.  

@Kelley Joyce be sure to check reviews on any company you consider and I also recommend you educate yourself on the difference between custodial and checkbook control, which really isn't the proper term since all IRA's have to have a custodian per IRS guidelines but there's a way to avoid the delays and additional fees by setting up an LLC or a Trust giving you checkbook control. A better term might be "full-custodial vs. checkbook control. Additionally if you have legitimate self employment activity and are eligible for a solo-401k it's a far superior product than an SDIRA.

Happy Hunting.    

@Dave Hagen I can't speak to the CPA side of things, maybe @Michael Plaks can speak to this.  What I can tell you is that there are many people who have a Roth Solo 401(k) or Roth SDIRA who's retirement accounts hold real estate.  You definitely cannot co-mingle funds with pre-tax or after tax accounts...

@Michael Moreno When it comes to self directed accounts that allow for alternative asset investing (not all do) it is important to be aware of prohibited transactions and disqualified persons.  It's really not that complicated though unless you try and get super creative.  Collectables and life insurance is a no go and in a nutshell you and your spouse can't personally benefit from any investments owned by the retirement account. In addition your family in a vertical line cannot benefit either.  Brother, sister aunt uncle friends etc are fine.  Not mom, dad son/daughter and son/daughter in-laws.  So any transactions where somebody I mentioned would be involved is usually prohibited.  Of course there are nuances like everything regulated by the IRS but like I said it's basically not that hard to stay in compliance.  If you make a mistake with an SDIRA it's a mess and really can't be undone.  Mistakes in a Solo 401k (have to be self employed and no w2 employees other than spouse) can usually be fixed.  

Of course if you choose to go down this road be sure to choose a company that will be there to bounce investment ideas off of to insure they're compliant. Additionally all IRA's have to, per IRS guidelines have a custodian but there are ways to avoid having to go through them for all transactions and subsequent fees by using plan documents that give you checkbook control. Some people like the custodial style and some people like the speed and ease of checkbook control.

Sorry for the long reply, hope it's helpful.   

 There are many good companies that offer this type of service.   When deciding, obviously check online reviews and also understand the difference between custodial solo 401k and checkbook solo 401k.  Another major factor is...what do you want to invest in?  You can have a "solo 401k" at one of the major financial firms like Vanguard or Fidelity but they only allow you to invest in their portfolio of stocks, bonds and mutual funds.  If you're looking to take advantage of the tax benefits as a self employed individual AND invest in alternative assets be sure the company you go with also offers that ability.