Is it possible to pull money from my 401K, without incurring the huge penalties, to reinvest it in Real Estate? If so, how is this done??
If you draw on your 401K you will incure penalties. But, on the plus side your 401K is an asset that can be used to help you accquire 100% financing for you deals.
you may be able to use your 401k as collateral to borrow money.
You can’t use 401K for REI. However, if you ever left that job or if you currently have an IRA, you can roll it over into a self-directed IRA. With a self-directed IRA, you can invest properties or even loan out money.
Before you do this, there are laws that you need to know and certain things you shouldn’t do.
I have personally used Equity Trust for the past few years and they seemed to be the best in self-directed IRA’s. Visit them at http://www.trustetc.com
Regards,
Patti Porter
If lyou can convince your 401k plan administrator that you want to move it to an ira(they dont need to know what kind) they may tell you yes or no. Self directed IRAs can invest in real estate. Iras with brokergage firms noramlly do not. I am using entrust admin, for the conveinence that I live in in florida.
steve
Do you think you can move the money into a self-directed IRA? If so, read on.
I have a wealth group that I belong to and this is how they do it. Move the 401K into a self-directed IRA. Find someone else that is interested in also investing in real estate with the same $$ to play with. They become your “financial buddy” and you both swap funds without the tax penalties. You must have the contracts in place that explain what return you will both be paid on the money and provisions that protect both parties legally. But they have used that method to avoid the tax penalties and use the money to invest in real estate.
For example, I have 50K in a self-directed IRA and so do you. I agree to use your money with a 5% return paid quarterly. You in turn use my money with the same return. Since I am not using my own money, I don’t get taxed. I am not sure what forms will need to be provided for the IRS, probably something like a 1099-INT or similiar. I haven’t done it personally but I know of quite a few folks that have. I don’t know much more than that about it but I hope that helps.
Good luck,
Bethanie
Thanks bethanie,
I will consider that as I get more seasonsed. Just starting out using self directed iras.
thanks
steve
Hola Bethanie,
Thanks for the info. I checked out the site mentioned and I’m interested going with a self-directed IRA. Here’s my situation; I’m currently employed with a Fortune 500 company that has Smith-Barney running our 401k plan. (non-self directed) If there’s a way to transfer, say, 90% of my current holdings there into a self-run 401k then I’m all set. But I’m not quite ready to leave the company yet so I’m wondering if I’m allowed to have (2) 401k’s at the same time, one with S-Barney and the other self-directed. ???
I do have a friend, my real estate partner, who also has a 401k with S-Barney… so if we could both get into a self-run 401k we could loan each other money at say 1% for our individual RE projects.
Anyone know if there’s a way to move just a PORTION of my existing 401k plan into a self-directed 401k??
It is up to the 401K administrator, but usually they won’t. Companies have a responsibility to their employees to “protect” them from losing all of their retirement funds.
The only way to transfer/rollover funds from a 401K to any IRA (self-directed, Roth or regular) is to leave the company.
You can set-up a self-directed IRA (but not with your 401K funds) and still have a 401K. It is all dependent on your income.
Patti Porter
Here’s what I understand so far, from reading at a Self-Run 401k trust company…
There is a specific 401k for investing in REstate, however there has to be enough $$ in the account to cover the full price of the transaction. The IRS reasoning is that a person cannot mingle non-retirement $$ with retirement $$ from this sort of account since it muddies up where the gains go. Instead, any rents recieved or gains from sale have to go back to the 401k. Also the entire transaction is done in the name of the 401k Trust… not in the name of the person directly.
There is another sort of self-directed 401k, which allows for a person to invest in ventures that are not on the ‘prohibited’ list, such as art, wines, coins, etc. Another limitation is the person cannot use these funds to purchase any RE in their own name or direct, linear family’s name. Basically, the money can only be used in someone else’s investment such as publicly traded stocks, loan notes or… Real Estate loans. But it has to be someone else’s project, not anything with your name on it. So, as others have already said, if you have a buddy with the same kind of self-directed 401k… you can loan each other $$ at say, 1%, to fund your own projects.
What I’m still wondering is how to transfer my cash from my existing 401k to the self-directed one. There’s a cash value to it, but some of it is tied up in large-cap stocks, some in my own company stock, etc. I was told I’d save time by cashing out those stocks with my current Administrator and then moving the cash value. I just don’t want to trigger any IRS gains accidentally… I only want to convert everything to cash, but still leave it within the 401k… not as a non-qualified withdrawal.
Anybody done this before?
As long as you don’t transfer the 401K into your personal name, you won’t trigger any IRS penalties.
I rolled over my 401K into a self-directed IRA (you can later convert your IRA into a Roth but it will have tax consequences, so consult your accountant).
Once I had my self-directed IRA set-up, the IRA used the funds to loan money to other investors on a note, secured by the property.
Patti Porter
You can borrow from your 401k then pay yourself back the money at whatever interest rate is required. I think it is 10%. The only downfall is if you leave the company the full amount of the 401k loan is due immediately. However, you get access to your funds without penalty. You’d have to look into the details on minimum payments too.
The answer is yes.
Broker Zettie
You can do many types of investments with a self directed IRA. One of the other members posted one company she uses. GET THE BEST ADVICE AVAILABLE, from Lawyers, CPAs, companies that do this everyday. One website I found to have useful and seemingly educational information, including a free CD with many of the details: www.trulysdira.com
Also, there was an article in the October 15, 2005 Wall Street Journal: “You Did What With Your IRA?”
If you’d like a copy, email me and I’ll send it to you.
Happy Investing and Take Control of YOUR FINANCIAL FUTURE!!!