A self directed 401k account allows investors to invest their retirement savings into alternative assets beyond just stocks, bonds and mutual funds. One popular alternative investment option is real estate, which can provide diversification, cash flow, and potential appreciation benefits. By working with companies like Fidelity that offer self directed 401k accounts, investors can use 401k funds to invest in various real estate options. This provides more control and flexibility in managing retirement funds.
Benefits of using self directed 401k for real estate investing
The main benefits of investing in real estate through a self directed 401k include: 1) Tax-deferred growth – You don’t pay taxes on investment gains until you take withdrawals in retirement. This helps compound returns over long time periods. 2) Diversification – Real estate performs differently than paper assets like stocks and bonds, providing portfolio balancing effects. 3) Cash flow potential – Rental real estate can provide steady cash returns in addition to appreciation. 4) Inflation hedge – Real estate values often keep pace with or outpace inflation over time.
Real estate investment options with self directed 401k
There are several real estate investment options to consider within a self directed 401k: 1) Rental properties – You can purchase residential or commercial rental properties using 401k funds. A property manager typically handles day-to-day management. 2) Real estate crowdfunding platforms – Invest in a portfolio of properties along with other investors through online real estate platforms. 3) REITs – Real Estate Investment Trusts provide a liquid, dividend-paying real estate security to 401k investors.
Using Fidelity 401k for self directed real estate investing
Fidelity is one of the major 401k providers that offers self directed account options for investors who want more flexibility. Key points about using Fidelity for real estate investing include: 1) Variety of self directed account types – You can open Solo 401k, SIMPLE IRA, Traditional IRA, or Roth IRA plans. 2) User-friendly online platform – Fidelity provides an intuitive online portal to manage your alternative investments. 3) Range of investment choices – Beyond real estate, you can invest in private companies, loans, precious metals, and more.
Rules and requirements for self directed 401k real estate investing
While self directed 401k plans allow alternative real estate investments, they have rules investors must abide by: 1) No self-dealing – You cannot personally benefit from properties held in your 401k account. 2) Unrelated business taxable income (UBTI) – If an investment property generates positive net income, this amount would be subject to UBTI each year. 3) Required minimum distributions (RMDs) – Once you turn 72, a portion of your 401k must be withdrawn annually.
In summary, self directed 401k accounts offer investors the opportunity to add real estate to their retirement portfolios. By working with providers like Fidelity, you gain flexibility in directing a portion of your 401k funds into private rental properties, real estate platforms, REITs or other alternative real estate investments in a tax-advantaged vehicle. However, make sure you understand the unique rules around self directed plans.