top of page
  • Writer's pictureRick Martin


Cheers to transferring our money out of those stagnant mutual funds

I don’t always make wise decisions, but in 2010 I did. I was staring at my mutual fund returns from 2000-2010, and the feeling was deflating. My portfolio of funds had been flat for the last 10 years. Maybe you noticed it too; it’s what happened over that period. When you added the dot com crash in 2000 and the 2008 recession, I had gained, lost, gained, lost, and was slowly gaining again, and I was literally at ground zero after 10 years. A decade of building that nest egg, and nothing to show for it. I had conversations with others; we were all depressed about it.

I was responsible - I was doing the right thing, or so I thought. I had read all about "dollar-cost averaging," and how to invest in yourself first. Invest the first 10% of your income straight into your savings account, and then transfer that directly into your mutual fund, and after ten years, you are well on your way to a healthy retirement. I built up a modest amount before 2000 doing this, but after I got hit by the 2000 market crash, I was no longer investing consistently. I was only letting my mutual fund shares "grow" on their own. And after 2010, I realized that if I was not contributing, and if those shares were left to work on their own, they were not working very hard. They were flat for ten solid years of my working career. I tried moving them around to different institutions, thinking this might help - Vanguard, Merrill Lynch, UBS, all with the same result. Plenty of service fees, commissions, and inflation, but very little to show for returns. I compared that to the rental property that I owned in Seattle. It had 300k in equity. It was, by far, my most sizable chunk of wealth at the time. I had gotten lucky with a few stocks, but nothing compared to this. I cannot remember how or why I discovered it, but this was when I found the Solo 401k.

The chains were off. I no longer had to invest within such a limited window, and thereby remove the limitations on my nest egg. With a solo 401k, I could invest in rental properties, land, apartments, a small business - even gold. And so, it began. I set up an s401k with a company for $500, and I transferred all those idle mutual funds into it. Shortly after, in 2011, I partnered on two rental properties, and by 2015, I had more than doubled my investment. Looking back, that would seem pretty risky. I no longer look to single-family rentals for investing, finding multifamily (apartments) much more risk diverse, due to the sheer number of doors. However, a rising tide raises all ships, and those investing in any form of real estate between 2010 – 2015 should have done well. I cannot sell myself short, however. We bought those properties at a discount, fixed them up, placed tenants in them for four years, and sold at a healthy profit. We controlled the investment. I was no longer depositing my hard-earned savings into pools of companies I didn't know much about - companies that were at the beck and call of the emotions of the stock market. I have since parlayed those rental property profits into multifamily, and thus it grows.

One mistake I can share as a teachable moment. I did not set it up as a Roth IRA so that it can build tax-free. I instead decided to take the tax write off, and defer those taxes. While it reduced my taxable income for those years and allowed me to avoid capital gains on those sales, I will have to pay taxes on my future distributions. Fortunately, traditional IRAs and 401ks can convert to Roth IRAs. If you do not need the tax write off(although a $50,000 tax-write off can be hard to resist), try going with a Roth IRA so that your investments can grow tax-free.

Son let me tell you about the birds and the bees, and solo 401ks.

Solo 401ks are not the only option. Self-directed IRAs are another device that allows you all the same flexibility in terms of investments. The solo 401k has better ease of transaction as you have checkbook control, whereas the SD-IRA has a custodian. Because of this, SD-IRAs have more logistics and forms. The solo 401k has tax advantages, as well. So why not just go with the Solo 401k? Solo 401ks are only for the self-employed, but W-2 workers do not despair. The big picture is, with either vehicle, you can transfer your retirement funds into either, and begin investing in real estate. Also, if any portion of your income is from self-employment, you can use that to open a solo 401k.

I will even speak from experience from having both, and say that the SD-IRA is easy to set up and operate as well. It is also simpler to remain IRS compliant, as the custodian oversees all documentation. While the relative autonomy of the s401k is an advantage, it also comes with greater responsibility as you must organize your record-keeping, should the IRS ever come knocking. One thing to keep in mind is UBIT (unrelated business income tax), when investing with an SDIRA. Yes, even though your IRA is a tax deferred account, it does have some slight exposure on the capital gain (not the cash flow or in the case of a refi), but there are ways to mitigate this exposure through depreciation. Solo 401k's do not have this exposure.

You will need to conduct your due diligence on which company is right for you, but here are a few suggestions: and

One final point before wrapping this up: you cannot invest your retirement funds into your own syndication or joint venture — another reason I use my retirement funds to invest in other people's deals.

I am not a CPA, lawyer, or investment advisor – nor do I play one on tv, but I am willing to share stories of my investment background as food for thought — things that have worked for me, as well as things that have not worked. I chalk up the decision back in 2010 to open a solo 401k as something that worked. If you have questions, never hesitate to reach out.


bottom of page