All Forum Posts by: Brett Synicky

Quote from @Kingston Yi:

Self directed IRA's can be used for investing into homes...so I've heard. I have a 401(k) that I'm currently looking to use for my next property and would love to move that into a SDIRA towards an investment. How does this work and what are some key strategies for this?

You can roll that into an sdira or solo 401K and invest in real estate.  The solo has advantages the ira doesn’t but comes with the requirement of self employment and no w2 employees other than spouse or partners in that business.  
SDIRA can be owned by anybody.  You can learn more about each one here: 

https://www.biggerpockets.com/member-blogs/2810/blog_posts/2...

https://www.biggerpockets.com/member-blogs/2810/21298-solo-4...

Ira will have ubit on leveraged real estate where the 401K won’t.  Otherwise they’re essentially the same on owning real estate. 

Hope that helps. 

Sent you another DM

Quote from @Kevin S.:

Quote from @Brett Synicky:

@Edward Condon transferring a qualified account to another qualified retirement account is not considered a distribution and is therefore not subject to tax or penalty. I think it makes sense to real estate inside and outside of retirement accounts.   The purpose of investing in real estate with your self directed retirement account is to increase the value of the retirement account, there are no taxes of Roth or deferred if pre-tax.   So depreciation, 1031’s etc are not part of the conversation.  So buy inside and outside.   Inside a retirement account, you still get all the appreciation and rental income that adds up massively over years and the returns are usually well over double digits.   I think doing this in a Roth is the most powerful way to do it paying tax on the seed instead of the harvest.  

 If you believe in paying tax on the seed instead of harvest why buy real estate inside  retirement account?  Why not all outside?  That was my the basis of my original question, to move out of tax deferred account and into Roth.  

I don't understand your question:   "If you believe in paying tax on the seed instead of harvest why buy real estate inside retirement account? Why not all outside?"

I'm not sure we're in disagreement here. But just in case let's clarify pre tax vs. Roth. With a traditional IRA/401(k) the contributions are made with pre-taxed funds. With a Roth the contributions are made on already taxed funds. On the distributions after 59 1/2 or 59 1/2 plus 5 years after the date of the first contribution made to the Roth you will either pay taxes or you won't. Since the Roth allows the money to grow tax free, I believe it makes sense to maximize Roth contributions and gains as much as possible over and above pre tax retirement accounts.

If you sell an investment home outside a retirement account you're going to pay capital gains and depreciation recapture if you depreciated. This is not so in an IRA (income tax paid at distribution) or A Roth. All gains in the Roth are tax FREE. No 1031 needed to defer taxes.

As I said, I think it can make sense to buy and hold real estate personally AND inside retirement accounts.  The Roth puts the whole thing on steroids since no taxes (state or fed) on the withdrawal.  Furthermore there are no RMD's with a Roth.   So IF you can take the tax hit when you convert a pre tax account to a Roth, I say go for it.   I hope this is helpful.  

BTW, I'm not a CPA or CFP.  Do your own homework on this.  

@Edward Condon transferring a qualified account to another qualified retirement account is not considered a distribution and is therefore not subject to tax or penalty. I think it makes sense to real estate inside and outside of retirement accounts.   The purpose of investing in real estate with your self directed retirement account is to increase the value of the retirement account, there are no taxes of Roth or deferred if pre-tax.   So depreciation, 1031’s etc are not part of the conversation.  So buy inside and outside.   Inside a retirement account, you still get all the appreciation and rental income that adds up massively over years and the returns are usually well over double digits.   I think doing this in a Roth is the most powerful way to do it paying tax on the seed instead of the harvest.  

@Kevin S. I sent you a DM with more info.  I'm never going to dissuade somebody from doing their due diligence from talking with professionals but I would say you don't need a CFP.  Most CPA's will not set up the plan documents for you to self direct a retirement account.  There are full custodial plans and checkbook plans as I mentioned and either of these can be set up with companies that act as plan document provider.   Check the link I put in the first comment for more info.  

Quote from @Kevin S.:

Hi BP members,

I want to use my 401K for REI. I looked into SDIRA but prefer to do a Roth conversion (pay taxes) and then invest in RE within the Roth. I am able to withdraw without penalty.

Has any BP members done that?  Can use advise as to how it was done.  

I assume I need a CFP first to figure out the Roth conversion part and once converted then in comes CPA?  Do I just need CPA?

Appreciate all help.  Thanks.

 Hi Kevin this is not an uncommon method of investing.  Many people have invested in RE within a pre-tax and Roth account.  You can do this with a Solo 401(k) or SDIRA.  Both have the Roth option.  401k has Roth built in, SDIRA is either pre-tax or Roth.   Or both but either way, separate plans. It's a good idea to work with a CPA who understands self Directed Retirement accounts and I definitely recommend you check with a CPA before you do a Roth Conversion so you know the tax implications.  It's definitely not a terrible idea to pay taxes on the seed versus the harvest, assuming you can afford that.  You can do all at once or chunk it over several years or whatever amounts and timeline makes sense for you.  Additionally there are plans that give you checkbook control and plans where you need to go through the custodian for all transactions.   

You can learn more about Checkbook IRA here: https://www.biggerpockets.com/member-blogs/2810/blog_posts/2...

@Tina Swanson Here's a list of non-recourse lenders you can start with.   

https://www.biggerpockets.com/member-blogs/2810/50272-list-of-non-recourse-lenders-for-self-directged-ira-and-401k

Quote from @Kevin S.:

@Jeff S.

I am considering using my 401K for REI.

Who/what company are you using as custodian?  How did you vet them?

Reason for choosing lending vs buying actual RE in your SD 401K.

Thanks.  

 There are companies that offer different levels of service.   You can have custodial self directed account or checkbook control.  Mostly look at online reviews and maybe search the BP forums for others experiences with the same company. 

Quote from @Nicole Tuffarelli:

hello friends, I have an old traditional IRA from my first job that is sitting in a local bank since early 2000s. it has about 40k

I now have a W2 salaried job for 20yrs where I've participated in a employer run 401k i think with John Hancock. Id love to roll the old IRA into real estate. Any suggestions on how to get the old 40k IRA available to use as a down payment into real estate?

Ive been reading about SEP IRS self directed IRA and 401 k but seems to be for self employed people. any idea how to re-allocate my ira into real estate investments???

my accountant doesn't seem to think its possible

You can certainly move this money into a self directed ira. No self employment required.  All Ira’s are custodial but there are plans that have a checkbook control feature allowing you to essentially bypass the custodian and save time and fees.  

That isn’t a lot of money to buy real estate with, but it might be enough to do some private lending with and grow the principal that way.  If you did want to see what getting a loan looks like to have the ira buy real estate then you can talk with these lenders. https://www.biggerpockets.com/member-blogs/2810/50272-list-o...

@Corey G.Sorry I mistakenly left the r off employer.  

Sole Prop/single Member LLC example: If your net profit on the business (PM) that adopts the 401k is $100k then you can contribute $20k to the 401k. This is the employer side. On top of that you could contribute up to $23k on the employee side. For a total of $43k. Obviously there has to be enough revenue and profit to do this.

 S-Corp example: You're on payroll and you pay yourself $100k.  On the employer side you could contribute $25k and $23k on the employee side for a total of $48k.  

Either of these set ups would be eligible as long as no w2 except you and a spouse.  

What I meant by the 100% is that if you only paid yourself $23k through payroll you can contribute 100% of that to the 401k assuming you don't need that money to live on.  In that scenario the employer contribution would be $5750.  

The employer contributions are a tax write off for the business.  

Hope that clears it up, sorry I wasn't clear.  

For the proper set up of the PM biz and QBI and any other tax/legal questions you'll want to consult a CPA.  @Michael Plaks may be able to assist.