Over time as I switched from investing in stocks, bonds, and mutual funds to investing in real assets like real estate, I ran into a problem; I ran out of money to invest. There is little I hate more than being on the sidelines with no cash to invest as I watch great deals pass me by. A very sophisticated, investor friend asked me if I had a 401K or IRA. I had a 401K, but of course the conventional wisdom I knew was that you couldn’t use those funds to invest in real estate, and even if you could, I couldn’t get at the money in my employer-sponsored 401K plan until I left the company or retired.
Let’s bust Myth #1. You can only invest IRA and 401K money in stocks, bonds, and mutual funds. The truth according to the IRS is you can invest in just about anything except collectibles, such as art, antiques, gems, coins, or alcoholic beverages.
Myth #2 that you can’t withdraw your 401K money until you leave your company or retire may not be true. It is dependent on your specific plan. In my case, it turned out not to be true.
My friend asked me if I could do an in-service transfer. He explained that with an in-service transfer, I could withdraw some of my 401K money while still working for Boeing and transfer it to what’s called a self-directed IRA, in which I could invest in just about anything EXCEPT stocks, bonds, and mutual funds. At that time, I had worked for Boeing for 30 years, and I told my friend, if that was possible, I would certainly have heard about it before. Luckily, I didn’t leave it there. I did a bit of research and learned that Boeing’s plan would allow me to do an in-service transfer of all of the company’s matching funds, so I rolled all of that money to a self-directed IRA custodian and invested it in real estate. There was no tax penalty. The only disadvantage was that Boeing discontinued its matching for six months.
So, if you’re tired of the volatility of the publicly traded markets but feel like you’re stuck in the mutual fund investments allowed by your 401K or IRA, you may not be.
The other lesson here is that sometimes when you hear something you’ve never heard before or seems too good to be true, don’t run away from it. Just because it doesn’t follow the “Conventional Wisdom,” doesn’t mean it isn’t true or incredibly valuable. Check it out.
A few years ago Chris introduced the above scenario to me. I work for Boeing as Chris did and had a substantial amount in my 401K that I became more concerned about due to the reliance of the fund value based on how the market performed. As we continued to discuss this new found way of investing (huge surprise to me) I finally decided to act on it. I opened up a Self Directed IRA, rolled over everything I could from my 401K funds (pre-tax and post-tax) into the Self Directed IRA (Traditional & Roth). Chris also introduced me to several non-conventional real estate investment opportunities which I took advantage of and have currently invested it in 4 real estate assets through the Self Directed IRA company that funds the assets and received cash flow from the assets for minimal annual fees and transaction charges.
The knowledge that Chris has shared has completely changed my outlook on my future and the security of my investments while receiving passive cash flow.
I am very grateful for Chris and this new path he has given me.
Hey Tom,
So glad to hear you’re happy with your decision to further diversify your portfolio by taking some of it out of the stock market and investing in real assets like real estate.
I firmly believe you’ll be be even happier as these investments mature and gain momentum in terms of capital return, cashflow, and appreciation. I’m happy I was able to play a small part in showing you a different path. All the best, Chris