Today’s REI Classroom Lesson

Dmitriy Fomichenko explains how your Solo 401k plan can act as a private bank and you’re able to borrow from yourself.

REI Classroom Summary

Dmitriy goes over the length of time you’re able to borrow from your Solo 401k and how you can obtain a loan for purchasing a property.

Listen to this REI Classroom Lesson

Real Estate Investing Classroom Show Transcripts:

Mike: Welcome back to the FlipNerd.com REI Classroom, where experts from across the country the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.

Dmitriy: Hello. My name is Dmitriy with Sense Financial. I’m the host of today’s REI Classroom show. And today’s topic is how to create your own private bank, which will never turn you down.

Mike: This REI Classroom real estate lesson is sponsored by UglyOpportunities.com.

Dmitriy: So how do you create your own private bank that you control? And you do that by using your retirement account and specifically, a self-directed Solo 401(k) plan, which is a qualified retirement plan designed for those people who are self-employed or own a small business without full-time employees. So if you’re in one of those categories, then you can actually create this qualified plan. You can fund it by rolling over funds from another retirement account or by just making new contributions. It allows you to contribute up to $59,000 per year, is the maximum so you can grow that really quickly.

And should you ever need some cash for your personal needs, you can actually access up to $50,000 of your retirement dollars before you retire for any reason whatsoever. This feature of the Solo 401(k) plan is known as a participant loan. It allows you to borrow from your retirement dollars up to $50,000 or 50% of the balance for any reason whatsoever. It’s a five-year loan and if it is used for the purchase of a primary residence, it actually can be extended to 15-year repayment term.

The interest rate is set at prime plus 1%, and you’re actually making payments back to your own retirement account. So not only you’re using the funds, you’re also helping to build your own retirement fund. Instead of paying to the creditor interest, you’re paying back to your own 401(k) so it’s growing there.

Again, it is a private bank that you set up that you control because with a truly self-directed solo 401(k), you’re acting as a plan trustee and as a plan administrator. So you, as the participant of the 401(k), will apply for the loan. And then, on the same application, you as the plan administrator will approve that loan. So basically, it is you who is applying and you who is approving. So there is no one in the middle. And you can access this feature at any time whenever you need it.

It’s not something that should be taken lightly because you’re accessing your own retirement dollars. So you always need to make sure that it is a justified transaction that you’re doing there. But other than that, it is a great feature. It’s great to have access to up to $50K that is available. So that is today’s show and I look forward seeing you on the next show.

Mike: HomeVestors, the “We Buy Ugly Houses” folks, is a franchised system of hundreds of real estate investors that have purchased over 65,000 houses. If you’d like to learn more about the most powerful real estate investing system in existence, whether you’re a pro looking to take your business to the next level or whether you have no experience at all, but a burning passion to be successful in real estate investing, please visit FlipNerd.com/ugly to learn more.

Please note, the views and opinions as expressed by the individuals in this program do not necessarily reflect those of FlipNerd.com or any of its partners, advertisers or affiliates. Please consult professionals before making any investment or tax decisions, as real estate investing can be risky.

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Dmitriy is the founder and president of Sense Financial Services LLC, boutique financial firm specializing in self-directed retirement accounts with checkbook control. He began his career in financial planning and real estate investing in 2000. He owns multiple investment properties in various states and is a licensed California Real Estate Broker. Over the years, he has instructed hundreds of investment and financial planning seminars and has mentored thousands of investors.