The Truth About Investing 401K Money in Real Estate

There are many success stories about self investing IRA money in less “traditional” investment vehicles. Many people would never think about investing 401K money in real estate, tax liens or anything else besides stocks and bonds. But, more and more experienced investors are realizing the benefits and growing truly tax-free wealth for their retirement.

In order to get the most out of self investing IRA funds, you first need to do a little comparative shopping. The average broker does not offer all of the different investment opportunities that can truly increase and individual’s profits.

A lot of professional advisors that are well educated in other aspects of accounting and tax laws have never heard of investing 401K money in real estate. But, it is a perfectly legal option. You just have to find a trustee that offers the option.

Also, you need to look at the fees charged among trustees that do offer the less traditional investment options. Some companies charge “per transaction” fees that can really eat away at your returns and profits.

A better choice, for most people, is a flat annual fee. There are a lot of new companies that are offering free and easy set-up for self investing IRA accounts. But, when you look for further information and read their free structure, you will see that they are charging you per transaction fees, as well as a broker’s commission.

Most of them still only offer the options of stocks and bonds. It is rare to find a company that offers you the option of investing 401K money in real estate, but when you do, there are sometimes even more and higher fees.

If you are interested in self investing IRA money in real estate or investing 401K money in real estate, there are specific fees that you want to avoid. Here’s a brief look at a common scenario that many people run into.

Let’s say that you decide to hold rental property in the account. Initially, you would instruct your trustee to write a check for the property. There are companies that charge as much as $175 simply to write a check to buy the property.

The deed is held in the trustees name with the additional line “for the benefit of Your Individual Retirement Account.” Some companies charge quarterly fees for asset administration. That can cost as much as $8 per deed.

Once you start self investing IRA in real estate and you see the profits or income rolling into the account, you will want to keep going, so a fee like “asset administration” could become quite unreasonable. But, that’s not even the most expensive fee that can accompany investing 401K money in real estate.

In order to buy, manage and maintain rental or other properties, you need a cash balance, because all of these things must be paid by the account. Rental income will constantly flow into the account.

So, it would not be unusual to have an un-invested cash balance of $10,000 or more. There are some account custodians that charge as much as 45% of your earned interest just to maintain the records for that balance.

The bottom line is that self investing IRA money is a good idea, if you have the time and the know-how, but remember to find out about the fees, before you choose a custodian.