Investing IRA 401 (k) in Stocks vs. Real Estate

If you have a 401 (k) and can self direct your retirement investment this is a must read!!!

Basic Information on Individual Retirement Accounts (IRA 401 k)

Individual Retirement Accounts (IRA 401 k) allows an employee to put funds aside for their retirement. These savings can be invested without accruing current income taxes until the money is withdrawn. 401 (k) plans are usually a retirement benefit from an employer, who can opt to match the employee’s input or offer a profit sharing contribution option. Often the employee can choose from numerous investment options (e.g. bonds, market investments, stocks) or choose to purchase their own company’s stock. These options are referred to as participant-directed plans and are frequently chosen. When an employee leaves the company, their 401 (k) leaves with them and stays active until they either A) retire or B) reach the age of 70 ½ and then by April 1 of that calendar year withdrawals must be made. A self-directed 401 (k) applies to those who have left a company and have the active account, own a small business or have sole proprietorship. After the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), self-directed 40l (k)’s can invest in real estate, private companies, tax liens, any nearly any other form of investment.

The Benefits of Investing in Real Estate vs. Stocks

It blows me away the millions of IRAs lodged in the stock market. I’ve spoken with many of my clients and informed them how self-directed IRA’s work and have urged them all to invest in real estate. Why? Simply, over the years and across the board real estate will outperform stocks. There are many misconceptions as to what self-directed IRA’s are capable of. For instance, did you know you can buy an investment property using your IRA contributions as the down payment and obtain a loan for the balance? While most self-directed custodians accommodate traditional investments such as mutual funds and stocks, specialized companies allow clients to invest in all forms of real estate (e.g., raw land, rental properties; commercial properties; real estate related private entities, such as limited liability companies, that invest in real estate). For example, you could direct $100K out of your current stocks that are not earning any return on the investment and purchase a condo or small house with no or little debt. In my opinion, buying an entry level house, especially during these economic times, is a better investment than leaving your money stale in the stock market. Get more details from www.IRS.gov and search for publication 590. On pages 44-49, you will find specifics of what you can and can not do with an IRA 401 (k). Or you can call or email me and I will do my best to answer your questions with no cost or obligation.