Use Your Self-Directed 401k Services | IRA LLC

BACKGROUND: I do want to use your services to roll over my  95 k past employer 401 K account to a self-directed 401k with funds held in a Etrade brokerage account. I had an account with them years ago so I am somewhat familiar with their tool/site etcetera. If you feel there is a better brokerage firm to use, please let me know.

ANSWER: While E-Trade’s brokerage account services can be utilized for the self-directed 401k brokerage account with checkbook feature, I prefer Fidelity as they understand the process really well and make it easy to access the funds, especially if you want to process a solo 401k loan and or invest in alternative investments such as real estate. Simply put, Fidelity has less red tape than E-Trade.

BACKGROUND: In our phone call last week I mentioned the 6,800 Roth held in a state farm annuity composed on $45,800 contributions, $1000 earnings.  Outside of you guys I was thinking of moving to a separate E*TRADE self-directed account…does that seem possible, and do you think there are any conflicts of having the solo 401 k account and the Roth account held that the same broker?  

ANSWER: Assuming you are talking about a Roth IRA, if you are only seeking to invest in stocks and mutual funds, then E-Trade can handle the Roth IRA opening directly. On the other hand, if you want to invest the Roth IRA in alternative investments such as real estate, promissory notes, tax liens and private stock, to name a few, then E-Trade will not be able to support the brokerage account. Instead, you may want to consider opening a self-directed IRA LLC, which we can assist you with. 

I would like to setup the solo 401 k first.

Let me know the next step, your suggestions are appreciated.

ANSWER: To get started with opening solo 401k click here, and, as always, if you have any questions, please give us a call including on Saturdays.

Thanks,

Roger in ID

Specific questions on buying real estate with a solo 401k plan

I'd like to ask a specific questions on buying real estate with a solo 401kplan.

Example:

I buy a for-rehab property, say, for $5,000 with the intention of flipping it "as is" or
selling it with owner-financing for x number of months.

QUESTION 1:  How many days does it take between letting you/custodian of the solo 401k plan know and getting approval to enable me to make a formal offer to the realtor/bank?

ANSWER: Since we are the solo 401k provider, not the custodian (i.e., the company holding your solo 401k plan deposits), it will depend on the bank that your decide to use for holding your solo 401k funds. From our experience, because as trustee of the solo 401k you will be able to write a check for the real-estate property investment purchase, for example, the check should clear within 2 to 3 business days.

To read our procedure surrounding investing a solo 401k plan in real estate click here.

QUESTION 2: What proof of payment can I show rather how is proof of payment shown with my 401K?  Can I just print out the page showing my funds when I check them online?

ANSWER: I don’t quite understand this question; however, presumably you will be able to view your solo 401k bank account online via the bank’s website that you choose to open the solo 401k bank account at, which will reflect all of the transactions.

QUESTION 3: Selling the property may happen soon or can take a number of months, is this an issue if I bought the property with my 401K?

ANSWER:  Because the solo 401k will own the real-estate property, it can be held for the long-term or short-term, as capital gains do not apply but rather income taxes once distributions commence from the solo 401k, usually at retirement. As such, when the property is sold, the proceeds from the sale mus  flow back to the solo 401k bank account, which can then be reinvested in additional real estate or other investments such as promissory notes, tax liens and private company shares, to name a few.   


ANOTHER SCENARIO AND QUESTIONS

I buy a rehab property for $5,000, sell it for $30,000 with $yyyy down payment and
$400 per month for 120 months at 11% seller financing...


QUESTION 1: If I'm out $5,000, is my 401K plan expecting me to return that $5,000 in cash anytime soon?

ANSWER: I don’t quite understand this question. However, if a non-recourse loan is used when investing a solo 401k in real estate, the loan must be to the solo 401k, not to you personally. Further, the non-recourse loan payments must be made with solo 401k funds, not the solo 401k owner’s personal funds.

QUESTION 2: If I'm out $5000 and the mortgage comes in monthly, is my plan expecting me to turn over the monthly mortgage to pay the investment of $5,000?

ANSWER:  Again, I don’t quite understand this question. It is important to note, however, that before you decide to have your solo 401k incorporate a non-recourse loan that you have enough funds left in the solo 401k to cover the non-recourse loan payments as well as any other expenses associated with the real estate property, expenses such as minor and major repairs to property insurance.

QUESTION 3: Is the plan expecting me to put back the monthly mortgage of $400, say after the $5,000 is paid off?

ANSWER:  Of course. Reason being, the property would be owned by the solo 401k plan; therefore, all profits and expenses must flow through the solo 401k.

QUESTION 4: If I don't put the monthly mortgage of $400 back for cash flow reasons, what penalty is accrued?

ANSWER:  As mentioned above, all income from the property is required to flow back to the solo 401k bank account. Subsequently, expenses--including the non-recourse loan payment--are required to be made directly from the solo 401k bank account.

QUESTION 5: There is always the chance of a buyer defaulting on the monthly mortgage that may force me to foreclose on the property and resell it again under the same plan of owner
financing, is this going to be a problem since I used my solo 401K funds?

ANSWER: Since the solo 401k would be the buyer and the one obtaining the non-recourse loan, in the event the solo 401k cannot make good on its promise to pay the non-recourse loan, the lender’s only recourse would be against the solo 401k owned real estate not any other asset of the solo 401k nor the solo 401k owner’s personal assets.

That was quite a few...  I apologize if some of the questions seem confused
as not only am I new to real estate but new to a solo 401K.

Thnx,

Rodrigo in Florida