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401K trade for farm ground?

Discussion in 'The Okie Corral' started by WEATHERBY460, Mar 6, 2012.

  1. WEATHERBY460

    WEATHERBY460

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    I am 35, with about 200k in my 401k...and its not gaining much lately. farm ground is going up and up and will continue...does anyone know if I can pull the money from my 401k to buy land? Thanks
     
  2. kiole

    kiole

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    Get advice from a financial adviser/ whoever your 401k is with. If you make a bad move it could result in lots of taxes and fees.
     

  3. glockfanbob

    glockfanbob

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    Probably not worth the gigantic penalty you will pay for pulling it our early.
     
  4. willie_pete

    willie_pete NRA Life Member

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    You will pay a penalty and tax.

    WP
     
  5. ray9898

    ray9898

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    With penalty and taxes you will lose about 50%. Not worth it in my book.
     
  6. gigab1te

    gigab1te

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    I read something about this within the last year in Money Magazine or the Wall Street Journal. The article said you can convert $ from a 401K to real estate, but the real estate has to be held in the name of a trust, or by a bank or something like that, and a trustee has to be involved. There are restrictions on what you can do with the property (I don't think you can use it as a residence), and what you can do with the income from the property (rents, crops or minerals you sell, etc.). I think this is something you definitely would need to talk to an expert about. The feds have no sense of humor about improperly removing money from a 401K.
     
  7. heliguy

    heliguy

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    The wife is going to inherit a 300 acre farm in central IL. We've followed the land prices and it's ranged from $3000 - 4500 per acre over the last 10 yrs. But there is a lot of volatility. THe key to maximizing price is to know who owns the acerage next to your land because they will pay a premium price to have contiguous lots....
     
  8. jame

    jame I don't even know....what I'm doing here....

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    You'd better talk to a financial advisor. If the land is to be considered as capital investment, penalties may not apply.

    Also, you may want to do a price check. Farmland here in Iowa is going for $7500 to $10,00/acre. Just 40 acres could run you up to $400,000, and it's hard top tell if this is a bubble or not.
     
  9. RWBlue

    RWBlue Mr. CISSP, CISA CLM

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    I can take a loan from my 401K. I can do anything with it I want, BUT I have to pay back the loan sometime in the future with a set interest.

    In your case, the money you make on the land would be taxable. The interest you pay would be tax deductible.
     
  10. Dennis in MA

    Dennis in MA Get off my lawn

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    Max of $50k. Tough to buy farm land for that.

    I don't think the interest is deductible, but I could be wrong. (I could argue it either way, tho. Lol)
     
  11. RWBlue

    RWBlue Mr. CISSP, CISA CLM

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    As I understand it, the max you can barrow is dependent on the 401K.

    I have owed myself more than 50K from my 401K.
    I have deduced the interest.
    Then again, I am not a tax/financial expert. Maybe there is a reason I have been able to do it, but it can not be done by everyone.
     
    Last edited: Mar 6, 2012
  12. Dennis in MA

    Dennis in MA Get off my lawn

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  13. RWBlue

    RWBlue Mr. CISSP, CISA CLM

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  14. Jonesee

    Jonesee

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    OK, here is a strategy to purchase the land, but it has a major drawback.

    You can convert your 401k to a self directed IRA. With the funds from the IRA you can then purchase the real estate as an investment.

    Here is the drawback:
    You cannot then manage the land or make personal use of it. I believe you are required to have a real estate management firm handle it for you.

    If you were purchasing the land as a hunting plot, you may be able to fly under the radar. The only person that will complain about someone hunting on the land would be you or the real estate management company....

    However if you want the land to develop it, it is unlikely it will work and the IRS will step on it.

    If you are contemplating trying this, you will need to hire a financial planner or tax attorney that is well versed in this area.
     
    Last edited: Mar 6, 2012
  15. RWBlue

    RWBlue Mr. CISSP, CISA CLM

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    Can you convert a 401K with a company you currently work for into an IRA?

    I asked if I could do this with one company and they told me it was illegal. Was I lied to?
     
  16. davsco

    davsco

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    pretty sure jones is right (convert to trust and buy the land). if your 401k is with your current employer, i'm guessing their plan won't allow for this.

    but if you do liquidate your stocks and buy land, prob is you have all your eggs in one basket, and a VERY illiquid investment.

    if your 401k is with your employer, and you take out a loan against it, check your employer's rules but pretty sure you would have to pay it ALL back before you switched jobs.

    not sure how much other cash you have sitting around, but a farmer wanting to sell might take a reasonable down payment and take back a note for the rest (vs finding a bank or mortgage company to lend the money). letting him rent back the property might help in the equation.
     
    Last edited: Mar 6, 2012
  17. Jonesee

    Jonesee

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    That is what a financial planner or tax attorney is for. Consult one to find out all the details and what you need to do.

    I've converted some of my funds to a self directed IRA.
     
    Last edited: Mar 6, 2012
  18. saluki9

    saluki9

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    No it's a hard rule, and doesn't depend on the plan
     
  19. Z71bill

    Z71bill

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    You may be able to invest your 401k - penalty free - into a REIT that invests in farm land -

    I will guess the fees (upfront or yearly - MAYBE both) will be high compared to a plain Jane S&P fund -

    But IMHO - if you really want to invest in farm land - and have less than $10 million to spend - a REIT would be a much better way to do it.

    http://beefmagazine.com/cowcalfweekly/1029-first-publicity-farmland-fund

    I AM NOT TELLING YOU THIS IS A GOOD INVESTEMENT

    I AM NOT TELLING YOU THIS IS A GOOD INVESTEMENT

    I AM NOT TELLING YOU THIS IS A GOOD INVESTEMENT

    But if YOU research it - it may be better than trying to actually buy land and manage it.
     
  20. Jonesee

    Jonesee

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    I believe the OP already has a specific piece of land in mind and is trying to find a way to purchase the property and fund it himself.

    I don't think his end goal is really to "invest" in real estate vis-a-vis a REIT.