Funny thing is that in January is started looking at maybe real estate (flip or rental property) as a way to diversify my retirement funding. Now that the corona virus put a dent in my 401k, I am more motivated than ever. I’m not going to sell my 401k shares not when they are low, but am considering not putting any new money in the 401k (I’m no Rockefeller, but should be ok as long as the 401k comes back).
So, anyone have experience with as an account owner or as an investment pro?
I have not done it yet, but understand them a bit due to some real estate dabbling as you are currently doing. What questions do you have?
In a nutshell, an IRA, a 401k, etc are simply tax laws - nothing more, nothing less - that govern how income and capital gains are taxed. Any asset can be managed under a tax-shelter of these laws (ie securities, precious metals, real estate, etc).
It just so happens that there are tons of securities management firms around and securities provide an easy way to incrementally invest every month or at will, so it's the most common and most people only associate securities with these instruments.
Agree on a couple things others have said.
-If your employer does 401k matching, you'd be a fool not to put that much in.
-investing in a 401k lowers your taxable income for the year. Make sure you are not giving that up if it matters to you. Talk to an accountant (or perhaps a self-directed IRA mgr can offer direction). If you are not contributing to a 401k, I think you can get the same tax deduction for contributions to an IRA.
When I do it, I will likely shift $$ from my current 401K to a self-directed IRA. They are generally managed by a lawyer who will disperse funds at your direction, in accordance with the tax law. It's a great way to invest in real estate, whether it be to buy and hold of properties, or investing in short-term rehab projects. So for example, you decide to buy a rental property. You buy it with funds from your IRA, monthly rent checks go to your IRA, I assume expenses(RE taxes, insurance, repairs) are paid from your IRA. When you sell it, the proceeds go back to your IRA.
You may have also heard radio commercials about "Bank on yourself" or around making your mortgage payment to yourself. I'm 99% sure this is done through a self-directed IRA. Effectively, you can leverage a self-directed IRA to fund a note you have on your residence(or any RE for that matter). You can set the interest rate you pay yourself back at. Instead of paying the bank the interest, it goes into your IRA. I think, you still get the same annual federal tax deduction for interest paid to the bank, which, in this case, is yourself. I assume your self-directed IRA manager would issue you the 1098 at tax time.
Not 100% certain on some of the finer points, but hope this helps. Happy to discuss more.
