Self directed 401K...anyone else doing this?

[billh1963]

Been looking at doing something different with the 401K. Studying up on 401K's I see that I can place it in a trust and self direct by buying real estate, gold, or other tangible assets.

I have enough to buy a very sizeable farm or multi-unit apartment complex. Part of me thinks that tangible assets are better in the long run....especially if we are faced with inflation or a big market reset.

Thoughts? Anyone doing this?

[911Freak]

Yep, been doing this since 2009. I have a lot of info I've researched and collected in word docs if you want it. PM me with your email.

Any specific questions?


I started by moving funds over to custodianship (Entrust) then started an LLC that owns the self-directed 401k (traditional and Roth) we have bought precious metals (storage fees are expensive as well as the 30k buy in for the best spot price +), also have Scottrade account with equities and MF. Next is buying more Real Estate!

Cheers
Jason

[jcunning]

My father has implemented the self-directed IRA as well. He is buying houses and renting / flipping them with the cash. The advantage is that the income is put back into the IRA, so taxes are deferred.

Personally, I would definitely walk cautiously with this option. While buying precious metals is one thing, real estate is another risk level all together. I've read about people losing more money in real estate than in stocks. I do not think I would risk my retirement savings. I would rather save / invest my regular cash outside of retirement.

In addition, I worry about the company that "owns" the self directed IRA. If a real estate deal goes bad and the business must go bankrupt, in most chapters you must liquidate the assets to pay back the debt. Please correct me if I'm wrong, but at this point your retirement savings is no longer protected in bankruptcy as it is part of a business asset and not a retirement account. I guess it wouldn't matter if you spent all of the money on houses that aren't returning income.

I worry that something will go bad with my father's business and have no retirement money left!

[911Freak]

Originally Posted by jcunning

My father has implemented the self-directed IRA as well. He is buying houses and renting / flipping them with the cash. The advantage is that the income is put back into the IRA, so taxes are deferred.

Personally, I would definitely walk cautiously with this option. While buying precious metals is one thing, real estate is another risk level all together. I've read about people losing more money in real estate than in stocks. I do not think I would risk my retirement savings. I would rather save / invest my regular cash outside of retirement.

In addition, I worry about the company that "owns" the self directed IRA. If a real estate deal goes bad and the business must go bankrupt, in most chapters you must liquidate the assets to pay back the debt. Please correct me if I'm wrong, but at this point your retirement savings is no longer protected in bankruptcy as it is part of a business asset and not a retirement account. I guess it wouldn't matter if you spent all of the money on houses that aren't returning income.

I worry that something will go bad with my father's business and have no retirement money left!

Good points, there is always risk involved, even with relative safety of bonds-mutual fund etc.

Knowledge and knowing your risk tolerance is vital when taking control of your retirement.

In our case our Self directed fund represents only 30% of our retirement package. We have several other separate 401k accounts as well as other long term investments.

I don't think I would be doing this with our entire nest egg, in fact I know I wouldn't.

re; R/E liabilities, we formed our LLC for an additional layer of protection and are only leveraged 50% on each property. Our custodian Entrust hasa been involved in this for a long time with a solid track record, they're the only company I would consider doing business with after plenty of research etc. ymmv

I agree over leveraging R/E and expecting to make a quick buck is unrealistic in my experience in the current market.

However, having equity in investment properties that support themselves entirely was key to our business plan. we aren't flipping or doing massive rehab projects either, so....

[boba]

Something to look at is the tax rate for Cap Gain vs. income rates which is how the money will be taxed when you take it out.

For some assets you may be better off to pay the tax now at a lower rate that to pay a higher rate later.

If you are doing long term planning you do need to look at trade off on todays tax code vs the unknown future schema.

Adjust as the world changes. Each situation is unique so do you due diligence.