I have accumulated significant, for me, funds in my 401k and am looking at ways to access those funds for real estate to diversify my portfolio.
I have a couple of self directed options: 1) a self directed brokerage account and 2) a self directed ROTH account as options; both managed by Charles Schwab
Anyone have any experience doing this and any thoughts?
I have experience dealing with the tax accounting headaches created when people do what you ask.
This idea is
terrible almost always terrible.
Some things to keep in mind:
1. You can't jack your profits by injecting any sweat equity
2. You don't get any of the usual tax benefits from your real estate investment (e.g., depreciation)
3. You convert preferentially taxed gains (like capital gains and unrecaptured Sec. 1250 gain) into ordinary income.
4. Your IRA or 401(k) will now need to file its own tax return, a 990T
5. Your create a headache for when you later need to do RMDs in retirement
6. You lose the ability to get a Sec. 1014 step up in basis
P.S. I think you can use REITs inside your 401(k) and get exposure to the asset class if you're interested in bumping your allocation to real estate