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rickyt31

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3 minutes ago, bigjohnson2009 said:

My brother and I bought a condo, but it's simply because he has the free time and wants to use it, you are absolutely right it's a 2nd job. I'm just in it to add some financial acumen and fill in when he's working. 

The more and more we evaluated it the smaller and smaller our list of potential rentals got. Ultimately we only picked up this one because it was left to some out of town people when the owner passed and we were able to scoop it at a 20% discount. That amount is literally all of our equity right now. Renting can be lucrative if you're willing to put in the time and your patient and selective.

Yeah so it sounds like you were able to leverage yourself well and end up using a small initial investment to by a place with a lot of value, and are willing to put the time in. 

I don't know a ton about it, but it seems like that's the way to make that 10%+ return. Different strokes for different folks, but I'll pass.

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Thanks for the conversation guys.  In terms of the headache, wouldn't be on my shoulders.  A good friend of mine owns a few rental properties in a small town, actually owns the local pharmacy well, owns the building the pharmacy is in and leases it out.  Actually showed me some of his spreadsheets and broke down his numbers, he is very steady in the green even while still making mortgage payments on some them.  He wants to take on more properties, he would be happy to share the risk and owe the bank less to take on more and bigger properties.  I trust him a ton, he is young and ambitious and very honest.

The way I am understanding it, I would either actually just be investing in his LLC (which owns the properties) or could go more direct and co-own a piece of a single property, I prefer the former.  Really love the thought of one day actually owning the properties outright, without mortgage or loan properties.

I did see with a self-directed 401K or IRA, any rent money or anything you get back has to go back into that account, which is what I'd prefer anyways.   Still only 34 so thinking by the time retirement comes, should be a few properties fully paid off by then.  But with maybe 250K just sitting in our retirement accounts, I would totally be willing to throw 50-75K of the into rental real estate to help diversify so as not to be so dependent on markets, then if is going well, investing more down the road.

So just thinking 10% ROI on the interim isn't quite as important as will be owning the properties one day.

Edited by BrettFavre004
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8 hours ago, bigjohnson2009 said:

Ultimately renting property is about ROI, and you need to be able to accurately forecast the rent amount. Set parameters for the return you desire and then see what kind of properties hit those goals. If you're not making 10%+ on the rent annually and the unit isn't in an area ripe for appreciation, why not just invest and remove the effort and risk?

As for a self-directed 401k, as a CPA I rarely see it. Administrative costs can be heavy and you can't take money out of it if needed (assuming you are not 59.5). Annual contributions are also subject to 401k limits and if it's an old work 401k then you could have issues being allowed to contribute at all. 

I strongly lean towards doing any real estate investment with after tax funds for a multitude of reasons (simplicity, stepped-up basis for heirs, capital gain treatment on appreciation) and just keeping your retirement portfolio simple.

So A) Can I move my traditional 401k (currently with Fidelity) to a self directed 401 or self directed IRA?  Or do you have to start contributing to it from scratch assuming you don't change jobs. Can I simply tell my employer to send my 401K money with their matching to the bank of my choice?  Or keep pumping it into Fidelity and maybe move it over in chunks as needed and keep both open?

And then secondly, I would be totally willing and kind of want to move my retirement money to after tax funds, so I am thinking that would mean a SD IRA.

Thirdly, which banks or institutions might you know of that would work for my needs?  I've seen Titan Bank and Pensco and other places, but really have no clue which one might be best for me.

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1 hour ago, BrettFavre004 said:

So A) Can I move my traditional 401k (currently with Fidelity) to a self directed 401 or self directed IRA?  Or do you have to start contributing to it from scratch assuming you don't change jobs. Can I simply tell my employer to send my 401K money with their matching to the bank of my choice?  Or keep pumping it into Fidelity and maybe move it over in chunks as needed and keep both open?

And then secondly, I would be totally willing and kind of want to move my retirement money to after tax funds, so I am thinking that would mean a SD IRA.

Thirdly, which banks or institutions might you know of that would work for my needs?  I've seen Titan Bank and Pensco and other places, but really have no clue which one might be best for me.

A) If you're still employed with them it's likely you cannot roll your 401k anywhere. You'll need to maintain that account with them. If it's an old employer you could roll into an IRA or a new employer's 401k. (I'd recommend the IRA, since fees are typically lower) You could potentially borrow $50,000 from your 401k to assist with financing a real estate venture. 

B) The money that's currently in retirement accounts is unlikely to move to an after-tax position if it's just your employer's 401k. You could start contributing all or a portion to a Roth 401k if your employer allows it. You could also do a Roth conversion, but I don't think you'll be able to do that with an existing 401. You could also reduce your contributions to your 401k (just make sure you're hitting the match) and save up more after-tax funds for a real estate venture.

C) I'd recommend asking friends to find a good bank local to you. If you have a CPA ask them.

I really can't give too much advice on a football forum, but if you're serious about this and you have reasonable assets, I'd recommend engaging a CPA after the 15th and having a sit down. Before that you can bounce most of these questions of the buddy who's doing real estate things and maybe use his CPA.

 

 

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  • 1 month later...

What's everyone's thoughts on the following scenarios:

 

Scenario A:

Maxing out a Roth 401K ($19,000 this year) through employer and putting that money in S&P 500 Index Funds. Also getting a Employer Match at 6% of salary to Roth 401K.

Scenario B:

Putting $0 into Roth 401K, and instead taking that same money ($19,000 + Employer Match at 6% given in cash) and investing in S&P 500 Index Funds through Etrade/Ally Invest?

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32 minutes ago, RavensTillIDie said:

What's everyone's thoughts on the following scenarios:

 

Scenario A:

Maxing out a Roth 401K ($19,000 this year) through employer and putting that money in S&P 500 Index Funds. Also getting a Employer Match at 6% of salary to Roth 401K.

Scenario B:

Putting $0 into Roth 401K, and instead taking that same money ($19,000 + Employer Match at 6% given in cash) and investing in S&P 500 Index Funds through Etrade/Ally Invest?

Always invest in your retirement while you can. 

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35 minutes ago, RavensTillIDie said:

What's everyone's thoughts on the following scenarios:

 

Scenario A:

Maxing out a Roth 401K ($19,000 this year) through employer and putting that money in S&P 500 Index Funds. Also getting a Employer Match at 6% of salary to Roth 401K.

Scenario B:

Putting $0 into Roth 401K, and instead taking that same money ($19,000 + Employer Match at 6% given in cash) and investing in S&P 500 Index Funds through Etrade/Ally Invest?

Maybe i'm missing a finer point, but i'm not sure why you'd forgo the 6% match and go with Scenario B?

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Just now, pwny said:

He’s getting the match in cash. 

I see what i missed.

Scenario B is a non-retirement account.

I'm not sure what kind of money @RavensTillIDie make's, and what his financial situation is.  That's key here.  But in general, you should go for 15% of your income into a retirement account.  That percentage typically equates to the money you'd need at a typical retirement age, assuming keeping the same standard of living, etc.  Lots of assumptions there.

If you have overflow past that 15%, Scenario B is fine as it could give you some money to access prior to turning 59 1/2.  If you're thinking about retiring early.

I think you must do Scenario A, and perhaps blend in some Scenario B depending on income and personal financial situation.  I don't think it's a one or the other equation.

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2 minutes ago, theJ said:

But in general, you should go for 15% of your income into a retirement account.  That percentage typically equates to the money you'd need at a typical retirement age, assuming keeping the same standard of living, etc.  Lots of assumptions there.

The main assumption of this is that you started doing this at 25. If you’re not starting until 32-35, you’re gonna need to double that to reach the same threshold or to work into your 70’s.

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8 minutes ago, pwny said:

The main assumption of this is that you started doing this at 25. If you’re not starting until 32-35, you’re gonna need to double that to reach the same threshold or to work into your 70’s.

Good point.  Lots of assumptions.

@RavensTillIDie

I'd recommend doing a deep dive on these numbers before setting it up and going on auto-pilot.  If you're not comfortable running the numbers yourself, find a good retirement planner that is.  Ask lots of questions. 

Oh, and if they try to sell you life insurance, you didn't find the right planner.

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6 minutes ago, theJ said:

find a good retirement planner that is.  Ask lots of questions. 

This is a good idea and probably the best idea. Because the best plan might actually to be - if the company is going to just give you the money  in cash - to get yourself into a ROTH IRA/401K with someone. 

If you just do a normal portfolio through Etrade or whatever, that 6% match in cash is probably going to put you into a higher tax bracket and be taxed higher than if you just had it as a company match and took it out later. You’re probably all but guaranteed to lower your ROI by doing that. 

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For some context, I actually moved to a smaller company recently and so that came with a nice salary bump. And up to this point (been working since I was 21; I'm 29 now) I've maxed out my Roth 401K and Roth IRA because my previous company offered your standard employer match and because that's what most people and the internet said to do. It's yielded a decent enough ROI (~8% in those years).

However, things are a little different at this company and any money you don't put towards your 401K gets paid out to you in cash (including the "employer match"). The added salary from this isn't a huge bump in the tax bracket, but obviously taxes do apply (as they would with a Roth 401K).

My boss is actually recommending I don't put any money into the Roth 401k. Rather, continue to max out the Roth IRA and then take the additional money and invest it on my own in Index Funds/any other business ventures that would allow me to get greater than 10% ROI (avg ROI on index funds). His belief is that this allows you to have more readily available access to your assets (can sell as needed and use before age 59) and lends itself to early retirement (45/50 vs 59).

The pitch sounds great and I'm thinking of leaning that way, but I guess on the surface the trade off is the long term capital gains tax and early retirement vs tax free withdrawals and working 10-15 years longer.

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1 hour ago, RavensTillIDie said:

For some context, I actually moved to a smaller company recently and so that came with a nice salary bump. And up to this point (been working since I was 21; I'm 29 now) I've maxed out my Roth 401K and Roth IRA because my previous company offered your standard employer match and because that's what most people and the internet said to do. It's yielded a decent enough ROI (~8% in those years).

However, things are a little different at this company and any money you don't put towards your 401K gets paid out to you in cash (including the "employer match"). The added salary from this isn't a huge bump in the tax bracket, but obviously taxes do apply (as they would with a Roth 401K).

My boss is actually recommending I don't put any money into the Roth 401k. Rather, continue to max out the Roth IRA and then take the additional money and invest it on my own in Index Funds/any other business ventures that would allow me to get greater than 10% ROI (avg ROI on index funds). His belief is that this allows you to have more readily available access to your assets (can sell as needed and use before age 59) and lends itself to early retirement (45/50 vs 59).

The pitch sounds great and I'm thinking of leaning that way, but I guess on the surface the trade off is the long term capital gains tax and early retirement vs tax free withdrawals and working 10-15 years longer.

You can access money in a 401k well before 59.5 using the Roth Conversion Ladder.

https://www.moneyunder30.com/roth-ira-conversion-ladder

.Your boss is wrong - take the tax free growth. With a Roth 401k -> Roth IRA conversion, there aren't even any tax implications. Just roll the money over, and in 5 years you can take out the principal tax free with no penalty.

Edited by ramssuperbowl99
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