Real Estate IRA’s: Getting Started Right (Part 4 of 5)

September 21, 2017  --  Episode #275

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How, exactly, do you get the capital into your real estate IRA or 401k to fund that next great deal?  That’s the topic of part 4 of 5 Steps to Getting Started Right with Real Estate IRA’s, and it’s what I’ll tell you right now.  I’m Bryan Ellis.  This is episode #275 of Self-Directed Investor Talk.



Welcome back, my friends, to 5 Steps to Getting Started Right with Real Estate IRA’s.  If you missed any of the previous steps, you definitely should go back and catch up, and the links for those episodes will be available to you on today’s show page.  I’ll give you that link in a minute.  In fact…

Today’s show page can be found at SelfDirected.org/275.

So today, we answer the question of how, exactly, do you get the money into your IRA or 401k in order to do that great new deal you’ve found.

This, my friends, is a conceptually simple answer.

There are 4 options you have for funding your deal in your IRA or 401k.

Option 1:  Make new contributions to your account.  Now depending on the size of your deal and the contribution limits of your specific account, it could take several years to fund a deal this way, so this may not be the most efficient approach.  But still, it’s an option, and it’s an option that you likely should take advantage of every single year, one way or the other.

Option 2:  Transfers or Rollovers.  These two things – transfers and rollovers – are technically different things, but both of them ultimately mean that you’re moving money from an existing account to a new account, most likely from a captive – aka conventional – IRA or 401k to a self-directed type of account.

This is a great option many times because many accounts qualify for transfer.  Just about any type of IRA can be transferred into the same type of IRA at a different company.  401k’s can be a great option too, though they’re a bit more complicated.  Usually, you can transfer money held in 401k’s of past employers without a lot of trouble.  As for 401k’s held by your current employer, that’s totally up to the employer.  Transferring money out of your 401k while you’re still employed is usually called an “in service distribution”.  Some 401k plans offer it, some don’t.  Just ask.

Option #3:  Leverage.  Yes, leverage… in other words, debt… aka, getting a loan.  Your IRA or 401k actually can get a loan – in its own name – in order to finance its own deals.  These loans have to match specific criteria, and you should definitely have a qualified IRA attorney review the loan terms before you sign on.  But there’s nothing inherently problematic about getting a loan in your IRA.

A quick note about leverage… two things to be aware of.  Using leverage to finance cash-flow producing deals in your IRA – like rental properties – will likely cause your IRA to be subject to pay income taxes each year on the income generated by the leveraged assets.  And second, just by using a 401k instead of an IRA, that issue – the obligation to pay income tax on leverage-related income – goes away… just another reason to prefer the 401k over the IRA.

And finally, Option #4:  Joint Ventures.  In the context of our discussion, what this means is probably that you have identified a great deal and you set up an arrangement with some 3rd party who can provide whatever your IRA can’t provide to get the deal done, such as capital.  Joint Venture is just another word for partnership.  This can be an AWESOME way to build your account very quickly.  But note:  This is where you start to get into the “big leagues” of the types of flexibility that self-directed retirement accounts offer.  As such, you MUST plan to get good legal advice on every aspect of the deal, including, at minimum, proper formation of the joint venture or partnership agreement and you’ll need good advice on avoiding prohibited transactions.

So there you have it, my friends… 4 distinct ways to capitalize your IRA or 401k for doing your next great real estate deal.

What do you think?  Have you ever used a creative approach to funding real estate or other transactions in your IRA, such as leverage or a joint venture?  I’d love to hear about your experience on today’s show page at SelfDirected.org/275.

The next episode of this show, my friends, is the completion of the series I affectionally call 5 Steps to Getting Started Right with Real Estate IRA’s… and it’s a big one… it’s the one step that practically everybody ignores.  It’s one of those things that you’ll never miss it… until it’s too late and serious damage is already done.

What is it?  Why don’t you find out right now?  The link to the next episode is on today’s show page at SelfDirected.org/275.

Thanks for listening, folks.  And remember:  Invest wisely today, and live well forever!


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Bryan Ellis

I am host of Self Directed Investor Talk, which I'm told is America's #1 podcast and for affluent self-directed investors. I'm also something of an expert in self-directed IRA's, solo 401k's and 1031 exchanges. You can find more of my writing in some cool places like TheStreet.com, Entrepreneur.com, ThinkRealty and even Forbes (that was always one of my goals!). I live in metro Atlanta, Georgia with my wife and business partner Carole Ellis(she's a real business partner... not just because she's my wife... I'd want to work with her if I wasn't married to her... and I'd want to marry her, too). I also have 4 children ranging in age from 2 to 20 (yes, you read that correctly). It's my goal to be the name everybody thinks of when they think of Self-Directed IRA's and Solo 401(k)'s.