Posted by Sailor on December 15, 2006 at 11:04:14:
Bill, I’ve been retired a very long time, but the change I recall related to the requirement that pension funds be invested in company stock. I pre-date the 401k, which replaced our more restrictive plan.
You are correct about weighing the benefits between 1031s, which I used extensively pre-retirement, & the SDIRA. When I was doing exchanges, they were not as well known outside of Calif. I did the 1st one in my current county in NC 15 years ago & it really threw a curve ball to everyone because it was an out-of-state reverse exchange involving an equity share. It also triggered an audit (which I survived nicely, but it was not fun). So it was w/great relief @ retirement to convert to a SDIRA. However, there is still an advantage to 1031s in that you can later convert purpose; e.g., you can exchange rental properties & later convert to your retirement home OR you can exchange residences & later convert to a rental. I believe there is more info on this in the Archives.
The thing is that when it comes to your own $$$ & retirement, it literally pays to do the research. You cannot depend on lawyers & CPAs–run everything by them to make sure you are doing it correctly, but they are probably not going to do your thinking for you.
Re: Buy multiple properties with your 401K ??? - Posted by Bill Jacobsen
Posted by Bill Jacobsen on December 13, 2006 at 18:15:38:
First of all, the 401-K is an account that is set up by your employer and the employer controls the types of investments which can be made. They are usually set up with a financial company of some sorts.
If you are your own employer you can set it up to be self directed. Or if you have left the company you can convert it to an IRA which is self-directed.
This would work best if buying houses to flip because you do not have to pay taxes for the gain in the year that it occured but only at the time of withdrawel. If you plan to withdraw within 5 years it is not worth it. With rentals you have another issue because all gains within the self-directed account will be taxed as regualar income instead of capital gains. You have to do your own calculations to see if it is worth it.
Re: Buy multiple properties with your 401K ??? - Posted by Sailor
Posted by Sailor on December 13, 2006 at 14:20:07:
Do it w/a self-directed IRA (SDIRA). I’ve done it nearly 15 years.
The advantage is that there are no tax consequences until you
take withdrawals, hopefully @ a time & age when you are in a low
bracket… You can roll-over current IRA into SDIRA. There are
several companies that act as custodians.
I recommend you search the Archives for relevant posts.
Re: Buy multiple properties with your 401K ??? - Posted by Sailor
Posted by Sailor on December 14, 2006 at 08:37:55:
Sorry, Bill, but I disagree. In a traditional SDIRA, interest (notes)
or income from property (rents or sale) are NOT taxable until
withdrawal. I’ve done rentals in a SDIRA for a very long time.
What you say about employers dictating investment
was true when I retired a long time ago, but I believe there have
been changes since then. I’m also not sure your 5-year cut-off is
relevant for everyone. I plan my withdrawals for years when
taxable income is less, not by sale timing. That’s why I have a
current closing date of 2 Jan.
The best thing for anyone is to research not only the Archives, but
the actual rules. Anyone doing REI should have a skilled CPA,
chosen for RE expertise.
Re: Buy multiple properties with your 401K ??? - Posted by Bill Jacobsen
Posted by Bill Jacobsen on December 14, 2006 at 13:19:57:
You caused me to reread my comments and I realize that they were not clear. Any income from rentals or from flipping properties would be deferred until withdrawn from an IRA. The longer you can defer the income the better. You also may be converting capital gains to ordinary income if in an IRA. You need to weigh the benefits of the SDIRA against doing 1031’s.
I am not aware of the changes in the 401 that you speak of. I have been looking into a 401 for my company and as far as I know I, as employer, determine where the 401 is set up, and thus, the investment options available.
Thanks for letting me know that I might have misled someone with my statements.
Re: Buy multiple properties with your 401K ??? - Posted by Sailor
Posted by Sailor on December 13, 2006 at 16:31:25:
Yes, but you should check w/your CPA
Yes, or to a mgt co. who w/deduct expenses, then forward to custodian (I recommend the latter because you don’t want to have the custodian writing tiny checks
Re: Buy multiple properties with your 401K ??? - Posted by Sailor
Posted by Sailor on December 13, 2006 at 15:13:01:
Roths are a new-fangled thing to me, but my understanding is that in a Roth you’ve already paid the taxes. It is only your profits that would be tax-free. It’s still a very good deal.