Any finance guys? How to use 401k money for classic cars

[sam1]

I am much better with cars/real estate than stocks - I guess it is go with what you know. Would like to use 401k money to invest in cars, any ideas how to do it???

[workbenchracer]

Don't do it.

[MrQuick]

yeah i agree, theres so much work that goes into a car to make it worth anything. Real estate is the best way to double your money.

you see guys buying and selling at auction. if you get lucky you might double. but buy in is high to start. a friend made 180k on his house in 7 months...used that money to fund a nice car hobby.

[Modo Innovations]

There is a big penalty for early withdraw. Most of them have at least a 20% early withdrawl penalty plus an extra 10% for Uncle Sam.

[Damn True]

Ok, you give a wad of money to me and I use it on my car. No assurance of a return on this investment of course, but Wall Street is no sure thing either.

[dropit69]

nope i bought the house across the street from me..already could have made 20k profit but my renter pays the whole payment and taxes ..so it tll be mine for free in 9 years..real estate way to go..im already looking for next house ..right next to it :naughty:

[redsand]

Man,
Big mistake, you could take a loan from it, but if you were to lose your job you usually have to pay it back immediatly or default which you then have to pay penalties and claim it as income.

Do real estate. It is like gold...

[Andrew McBride]

not a good idea at all. Have heard of people messing w/ 401K stuff for many reasons and it never works out. Invest in other areas, stockmarket can be a good area, only ONLY if you are familiar w/ trading. Realestate as well is a good area.

[toxicz28]

You would be looking at a 20% penalty, and a 20% income tax, and that's just from the IRS, not to mention any penalties from the fund itself! So, to buy a $60,000 car, you would need to pull $100,000:scared: . Not a very wise financial investment if you ask me.

[jeffandre]

My dad made a small fortune in the real estate market starting in the early 1970's. His only regret is that he put his money into real estate instead of the stock market. His 3 million would have been roughly 15 million post-net crash (assuming he invested in Fortune 500 companies and mutual funds instead of individual stocks). He still did alright though.

[sam1]

thks for the advice - I have done some real estate and had good luck, but it is very time consuming and not a passion for me. I have done quite well on a few cars, and was looking for some options with my self directed 401k - ie. creating a car investment trust... I will have to disagree on keeping $$$ out of cars, I have made same nice profit on both project and completed cars - but it takes patience and luck (on the search end)... Was hoping to find an investment guy who might have some input the possibilities.

[Neil B]

If I am understanding you correctly, you want to place retirement funds into a trust that invests in classic cars? Are you self-employed and do you contribute via a SEP IRA or similar plan?

My understanding is that a self-directed IRA does allow alternative investments, such as real estate, but you cannot buy property for personal use (present or future) with IRA funds. There are also certain prohibited transactions (i.e. Investments in collectibles). Refer to IRS Publication 590 for details.

[toxicz28]

I have done quite well on a few cars, and was looking for some options with my self directed 401k - ie. creating a car investment trust... I will have to disagree on keeping $$$ out of cars, I have made same nice profit on both project and completed cars

I didn't mean not to invest in cars. I read a few years ago, that it was a more stable investment than the stock market. What I was trying to say was not to pull your 401k money to do it. With the tax and penalty, your initial investment would have to jump 66% just to break even.

[sam1]

Neil B - Thanks for the info... I was guessing that is the case. I would surely not take the tax and penalty hit... but it would be nice to be able to buy and sell cars tax deferred.

[Neil B]

Neil B - Thanks for the info... I was guessing that is the case. I would surely not take the tax and penalty hit... but it would be nice to be able to buy and sell cars tax deferred.


Sam1 - The tax code does not state what you can invest in, only what you can't. Pub 590 lists the specific exclusions, and cars aren't one of them. However, the way I interpret the tax code, if you were to 'use' the car in the present or future it would be disallowed. Same goes for Real Estate, you can buy a house with IRA funds but you can't use it as a 2nd home, retirement home, etc.

[sam1]

Neil - If I have a warehouse and would store the cars - and drive them only for maintenance purposes would this be a possibility? Sounds like no... Could I form a partnership which holds the cars and invest in that?

[rockdogz]

Could I form a partnership which holds the cars and invest in that?

That's a pretty interesting idea... a 'car fund'. I don't think anyone's doing that...

[Neil B]

Neil - If I have a warehouse and would store the cars - and drive them only for maintenance purposes would this be a possibility? Sounds like no... Could I form a partnership which holds the cars and invest in that?


It is possible to self-direct your IRA to invest in private entities through a passive custodian. However, most IRA custodians do not offer truly self directed IRAs. They will only allow you to invest in their approved list of investment options. For example, a brokerage firm will limit investments to stocks, bonds and mutual funds. Check with your IRA custodian to see what is possible.

[69Nova]

Great another guy who wants to make money on cars which will help drive up the price on cars. I hope ther will be some sorta classic car market crash so people like this wont make my dreams unreachable.

Andrew Petty

[sam1]

Andrew,

Sorry I am ruining your fun. Ever heard of a free market economy?

[69Nova]

All I am trying to say is I personaly like to see classic cars driven and enjoyed rather than sitting in a warehouse. Plus this just sounds like a dumb idea a kid would have. Also real estate seems to be where money can be made, my grandfather has made alot of money over the past few years on real estate.

Andrew Petty

[sam1]

If you are going to be so negative, why don't you just leave the post alone? I am glad your Grandpa made some money in real estate, but that has nothing to do with this post.

If you can't afford your hobby, get another one, or a second job at Arbys to pay for your hot rod.

And calm down! I just had a damn question.

[MrQuick]

ok, you guys need to take it down a notch or go play out in the wood shed... remember everyone is entitled to my opinion.
If a guy wants to buy cars and make a buck,hell let him. Everyone eles does and don't hate them for it. Who cares if they bring the prices up,what are we going to do about it?? cry cause we don't have a foot in it? pick yourself up and run with it buck-o. If not, Kudo's to you.
Lets not take our frustation on a guy trying to find himself. All we can do is offer our suggestions and let him make his own desision. Please

[zbugger]

Play nice guys.

Andrew, believe it or not, part of this hobby is making money on cars. Ever heard of building one car to fund another? It's not always just for profit. I for one would love to make money on cars. Can I be jealous of those that do? Sure. I keep it to myself or say crap under my breath. I have respect for those who use their talents to make money for themselves. I wish I had that kind of talent. I just don't have the imagination for it. My imagination is too busy thinking of boobies. Who cares how someone funds their project anyway? Unless it's through illegal activity, it doesn't matter. Some guys work in real estate and fund their addiction that way. Some work in banking, some in the tech industry. Make money how you want to.

And Vince...

... remember everyone is entitled to my opinion.
ummmm...... no.

[MrQuick]

heee hee he....sorry that was a typo! :slap:

[69Nova]

Why are you angry, I am not the only person to suggest real estate. I was just voicing my opinion. It also sounds like you would take a risk using your 401k money to invest in cars.

Good luck with whatever you do.
Andrew Petty

Oh, and dude calm down.

[race-rodz-inc]

. My imagination is too busy thinking of boobies. .

how about investing in strip clubs.... other than lotto tickets... where do a lot of guys throw away money in hopes of a dream that will never be reached.... well most of the time never be reached. dancers dont get near what they are given in tips.... and it has to go in "somebody's" pocket.... may as well be yours.

sorry... thinkin about boobies and makin money... this was the first thing that came to mind... i will keep the rest of my brainstorming to myself.

[sam1]

Andrew - I am not angry, just wondering why you had such an issue w/ my question - you come on saying I am going to ruin your hobby and that it is a "dumb idea a kid would have". Whats the use?

[69Nova]

Well then lets just put my crazy remark in the past. Again I am sorry. Also what kind of car do you have or looking to invest in.

Andrew Petty

[BonzoHansen]

IMO, 401k should be on the safer side of your total portfolio, and your outside investments can gain in risk (take a total portfolio view). A mix of mostly S&P index fund, with some global security exposure, and some high yield bond funds, and a REIT (real estate) fund, if available. Does your 401k offer any kind of advice product (Advice Access, Financial Engines, pre-mixed funds, etc.)? That can be good and require little to no ongoing action for you.

The only way legally buy cars with 401k$, as I understand it, is to cash out. I am not sure about k loans, as your plan may have restrictions about its use and $$ available. And as mentioned, the penalties & fees in either scenario will require you to get a big return to make up for the cost of funds. I am rather sure that IRS regulations prevent you from buying such assets (cars, art, physical land, etc.) within a retirement account. Your plan trustee and/or administrator should be able to offer guidance. Even if you can legally, your plan sponsor (company) probably won’t let you in fear of being sued for beech of their fiduciary responsibilities if you lose all your $$ in such illiquid assets.

If you really think you can make $$ doing this, then only put enough $$ into your k to get all of the employer matching funds, and get the rest out and do what you want. IMO. And I stayed at a Holiday Inn last year.

[Neil B]

The only way legally buy cars with 401k$, as I understand it, is to cash out. I am not sure about k loans, as your plan may have restrictions about its use and $$ available. And as mentioned, the penalties & fees in either scenario will require you to get a big return to make up for the cost of funds. I am rather sure that IRS regulations prevent you from buying such assets (cars, art, physical land, etc.) within a retirement account. Your plan trustee and/or administrator should be able to offer guidance. Even if you can legally, your plan sponsor (company) probably won’t let you in fear of being sued for beech of their fiduciary responsibilities if you lose all your $$ in such illiquid assets.

He's got a self-directed IRA. His trustee/custodian is passive.

Here's some good info on what's allowed and what isn't....

http://www.trustetc.com/investment/investment-opportunities.html

http://www.trustetc.com/investment/prohibited-ira-transactions.html

[ProdigyCustoms]

Great another guy who wants to make money on cars which will help drive up the price on cars. I hope ther will be some sorta classic car market crash so people like this wont make my dreams unreachable.

Andrew Petty

Personally I hope any old car get to be worth $100K. Just had a conversation with someone about this very subject, and what some of the premiere cars have sold for. I am thrilled for all of us building these cars when i hear $60 to $200K for hot rods. It simply means if you build it, and need out for some reason, there may be an exit. Versus putting $60K+ in something to only be worth half.

With all that said, investing in cars for retirement could be great, or it could be suicide. Been there, done that. This market has ramped up very quickly, maybe to quickly. Buying opportunities, or what look like Buying opportunities may start to show up. but much like the stock market, sometimes buying when something is down is a horrible mistake. real estate has also exploded in the last few years, but looks to keep rising with building cost still rising. I say buy property, this coming from a guy with his money in cars, LOL! But it is what I do!

[sam1]

Thanks for all your input - I surely would not have a major part of my retirement in cars due to the risk, if there was a way to potentially finance and earn profit on the cars tax deferred it would be a nice and enjoyable addition to a portfolio... it seems like this would fall under "collectibles" and/or personal use and therefore be problematic.