I split this from a different post, since these area really separate questions from the original thread:
http://www.biggerpockets.com/forums/49/topics/74608-cashing-out-401k-to-invest-in-re
1. No, this would be a prohibited transaction. You can borrow from your 401k. Your 401k cannot make a loan to any other entity. So, while you could borrow the money from the 401k, it would then be a prohibited transaction for you to loan that money to your IRA. You (and all other disqualified persons and entities) cannot loan money to your IRA, period.
2. You can't borrow $100K from your 401k at all. The upper limit is $50K or 50% of the account balance, whichever's less.
Having borrowed $50K from the 401k, you could then create a partnership. Your SDIRA could then invest into that partnership. So, you could put in $50K and the IRA could put in $100K and have the partnership buy the property. That's not a disqualified transaction. But then all the normal rules come into play. You can't work on the property because its partially owned by the IRA and doing so would be a contribution. If more money is needed, you should add $1 and the IRA should add $2 to keep the ratio the same. I don't think that's essential (I'm neither a lawyer nor CPA), but the accounting will get VERY complex if you're kicking in money on an ongoing basis. Similar, money should come out of the partnership and go into the IRA and you in the same proportions.
3. Work through the math. Simple as that. What's your expected return? Taking the bottom end ($60K for $900 in rent) and applying the 50% rule gives you $5,400 a year in return. If that's going into the IRA, the full $5,400 goes back in for a cash on cash return of 9%. Now, the lawyer I worked with said managing a rental owned by the IRA was OK because even the IRS considers management a low-effort task. But doing repairs or maintenance would not be. So, your return might actually be a bit better. (For full disclosure, others have different opinons of managing IRA rentals yourself.) OTOH, if you could borrow $60K from your IRA (you can't), you're looking at a five year repayment at, say, 5% interest. Your monthly payment is $1132. Subtract the $450 in net operating income and you have to kick in another $682 a month. Now, if you do that, after five years you own it free and clear.
Also consider that 401k loans often must be repaid if your leave your job. Quit, get laid off, or get fired and your stuck either paying back the outstanding loan fairly quickly or else the outstanding balance is treated as a distribution. That means taxes and penalties would be due that year. And, possibly, underpayment penalties if you wait until you file your return to make that tax payment.
Source: http://www.biggerpockets.com/forums/51/topics/79749-sdira-401k-questions
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