401k & REI - Posted by ns

Posted by Nate(DC) on February 05, 2002 at 16:06:16:

That may be true, but I believe it is a requirement, not discretion of the administrator, that loans be repaid when employment terminates.


401k & REI - Posted by ns

Posted by ns on February 05, 2002 at 06:25:54:

I just quit my job to focus on REI. My question is about my small 401k from my former employer? Does this have to be rolled over into an IRA or can I just take the $$$ and invest in RE, and pay taxes on it next year as income? I wasnt sure how that worked, and I appreciate your input.
I would rather invest in a good rental, my 401k hasnt moved for a year!
Thanks and looking forward to your input!

Did you know - Posted by Bud Branstetter

Posted by Bud Branstetter on February 05, 2002 at 15:45:01:

That you could form a corporation. That corporation could have a 401K plan. You could roll your 401K over into your corporation’s 401K without tax consequenses. You could even direct that the administrators invest the proceeds of a 401K in real estate.

Not knowing your situation it is difficult to tell you what is best. What is usually best for you is to delay paying taxes on the earned income for as long as possible. If you have other income it may be best to roll it over to a Roth now. You may have too much income from your RE investing to be able to contribute to a Roth.

Re: 401k & REI - Posted by Randy, OH

Posted by Randy, OH on February 05, 2002 at 13:20:26:

I agree with the comments below, but would add another consideration. If your income this year is low because you have terminated your employment and you are just getting started in REI, you may want to consider taking the money out of the 401k and not rolling into an IRA. You would still pay the 10% penalty, but maybe no income tax. You could then use the money for REI without hasseling with an IRA. Just a thought. Good luck.

Re: 401k & REI - Posted by jim

Posted by jim on February 05, 2002 at 10:58:04:

Check with the IRS about the possibliity of turning the 401k into a Roth IRA. It you can’t turn it into a Roth, take the money and run. The advantages of having a 401k or an IRA that is not a Roth are almost nil. There may even be disadvantages if you have a good income after you are retired. Of course the “financial planners” (lol) are not going to tell you this because they want your business. That is why I said to check with the IRS.

Re: 401k & REI - Posted by Mike (NY)

Posted by Mike (NY) on February 05, 2002 at 10:52:55:

You may want to find out if the company that is controlling your 401k will let you take a loan from it. In many cases you can borrow up top 50% of the amount in the plan and pay it back over 5 years. 10 years for hardship or the purchase of an owner occupied home (I believe). The benefit here is that the interest rate is usually low and most of the interest paid goes back into your plan. Be sure to check with your plan administor for details.

Re: 401k & REI - Posted by trevor-IN

Posted by trevor-IN on February 05, 2002 at 08:25:53:

Eric has the best suggestion about rolling it into the self-directed IRA and then investing with the money. If you’re under 59 1/2 years of age and simply cash it out, then you’ll pay a 10% penalty on top of the taxes, which means that you’ll only be getting about 60% of the balance. If you roll it over and use it, you’ll be able to use the entire amount to invest with. If you roll it into a Roth, you’ll avoid the penalty but will have to pay taxes. However, the best advantage to the Roth is that all gains, including any with an investment in real estate, are tax-free. Give Mid-Ohio a call or anyone else that does that sort of thing.

Re: 401k & REI - Posted by Eric

Posted by Eric on February 05, 2002 at 07:06:35:

You can roll that over into a self directing IRA and purchase real estate through that. If you roll it into a Roth all your real estate profit would be tax free. There is a company called Mid Ohio who has these plans, I believe. I just learned about this so please e-mail if you decide to pursue this.


Re: 401k & REI - Posted by brian

Posted by brian on February 05, 2002 at 07:05:37:

i am no expert but if you have held that 401K for more then the past year you might want to wait a little while to do a big sell off of your holdings so that you can recover the potential losses that the market has had lately. as far as your idea though i have no idea.

Re: 401k & REI - Posted by Mark (SDCA)

Posted by Mark (SDCA) on February 05, 2002 at 13:32:20:

I could not disagree more. You say there are no advantages to a 401K. How about these?

  1. You don’t pay the 10% penalty on the tax.
  2. The money grows tax deferred until you remove the money. (In my case 20 years+).
  3. The TAX itself is deferred until you actually remove the money. (Time value of money.)

These are just the advantages of an EXISTING 401k. There are even more advantages to contributing to a 401K (lower taxable income this year, company match which amounts to free money etc.).

Anyone who is eligible to contribute to a 401K and fails to do so… at the VERY least up the maximum that the company will match is less than a financial genius.


PS I am NOT a financial planner.

Re: 401k & REI - Posted by Nate(DC)

Posted by Nate(DC) on February 05, 2002 at 13:54:02:


The problem with that is, if you have an outstanding loan at the time you leave your job, you will be required to pay it back within a very short period of time or it will be treated as a premature distribution and taxed. Furthermore, if you have already left your job, you will not be able to borrow against your 401K assets. Generally, the only way you can borrow against a 401K is to be at the job, and have the repayment done by automatic payroll deduction the same way your contribution is. That’s their security that they’ll repay - that you have this future income stream they can tap.


Re: 401k & REI - Posted by brian

Posted by brian on February 05, 2002 at 09:00:54:

once again, think about waiting… a 10 percent hit, taxes, and the large potentiall market setbacks. just doesnt seem that smart a move yet. but like i said i am no expert but i dont see how losing 60 percent to have it retied up in a retirement account is a good idea.

It’s only the way it’s conceptualized. - Posted by Brent_IL

Posted by Brent_IL on February 05, 2002 at 16:33:40:

It’s only conceptualization.

Using a one-time deposit as an example, think of the cash intended for a qualified plan as being in two parts, your money, and the money due the IRS. Regardless of the rhetoric, you never get to spend the IRS?s money.


Traditional Qualified Plan;

One time investment of $3,000 for 30 years at net 10% ROI = $53,348.21

Less 30% taxes of $15,704.46

Equals $36,643.75 left for you.

Roth-type plan:

$3,000 income;

Less 30% taxes of $900

Equals $2100 left for investment.

One time investment of $2,100 for 30 years at net 10% ROI = $36,643.75 left for you.

No difference.

The plan participant doesn’t get to spend the government’s money. It’s either sent to the plan sponsers, or the IRS, but never to his pocket. The value is that inside the plan the internal build-up is not being taxed as it would in a traditional investment approach.

Re: 401k & REI - Posted by Mike (NY)

Posted by Mike (NY) on February 05, 2002 at 14:14:08:

Yes and No, it all depends upon the plan administor, and your Human Resources Department. I have done this with my plan and they simply set up a repayment program via a coupon book. If I don’t repay I’m given notice and if the next payment comes around and I still don’t pay then I’m taxed on the money borrowed and charged the 10% withdrawel fee.

Again this all depends on your plan administor.