Retirement Strategy

Retirement Account Real Estate: Self-Directed IRA and Solo 401(k)

Tax-Advantaged Real Estate Investing

Learn how to invest in real estate through Self-Directed IRAs and Solo 401(k)s. Understand UBIT, prohibited transactions, and when retirement account real estate makes sense.

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$69K

Solo 401(k) Contribution Limit (2024)

$7K

IRA Contribution Limit (2024)

37%

Maximum UBIT Rate on Leveraged Income

$50K

Solo 401(k) Loan Provision Maximum

Quick Answer

Self-Directed IRAs and Solo 401(k)s can hold real estate directly for tax-advantaged growth
Roth accounts provide tax-free appreciation - ideal for high-growth real estate
Solo 401(k) offers higher contribution limits, loan provisions, and better UBIT treatment than SDIRA
Leveraged real estate triggers UBIT at trust tax rates - consider all-cash purchases
Depreciation benefits are lost in retirement accounts - taxable real estate may be better for high earners

The Opportunity

Why Retirement Account Real Estate

Tax-Free or Tax-Deferred Growth

Real estate appreciation, rental income, and any profits grow tax-free (Roth) or tax-deferred (Traditional) inside retirement accounts. A property that doubles in value creates no taxable event. Sell and reinvest without capital gains. Compound growth without annual tax drag.

Diversification Beyond Stocks and Bonds

Most retirement accounts are limited to publicly traded investments. Self-directed accounts allow true diversification: rental properties, land, private notes, syndications, tax liens. Real estate often moves independently of stock markets, reducing portfolio volatility.

Asset Protection Benefits

Retirement accounts enjoy strong creditor protection under federal (ERISA) and state laws. Real estate held inside IRA or 401(k) may be protected from lawsuits, bankruptcy, and creditors. This protection varies by state and account type - consult an attorney for your situation.

Checkbook Control with Solo 401(k)

Solo 401(k) with checkbook control allows direct ownership without custodian approval for each transaction. Write checks from the plan account to acquire properties, pay expenses, and collect rent. No delays waiting for custodian processing. Maximum flexibility for active investors.

Implementation

Proven Strategies

Roth IRA Real Estate for Tax-Free Appreciation

Purchase real estate inside a Roth IRA. All appreciation, rental income (after expenses), and eventual sale proceeds are completely tax-free - forever. Ideal for properties with high appreciation potential where you want to avoid capital gains entirely. Best funded through conversions or backdoor contributions.

Best for: Investors in lower tax brackets now (or willing to pay conversion tax) who expect significant appreciation.

Example:

Convert $100K from Traditional IRA to Roth, pay ~$35K tax. Use Roth to purchase small rental property. Property appreciates to $300K over 15 years. Sell at 59.5+. $200K gain is 100% tax-free. No capital gains, no depreciation recapture. Compare to taxable: $50K+ in taxes owed.

Solo 401(k) for Self-Employed Investors

Self-employed individuals can establish Solo 401(k) with real estate capabilities. Higher contribution limits ($69K in 2024 vs $7K IRA), loan provision (borrow up to $50K for any purpose), and checkbook control option. Can hold real estate directly or invest in private placements.

Best for: Self-employed individuals with significant income who want maximum contribution limits and control.

Example:

Self-employed consultant maxes Solo 401(k) at $69K annually. After 5 years: $400K+ in account. Establishes checkbook control LLC. Purchases $350K rental property directly from plan. Rental income and appreciation grow tax-deferred. No UBIT concerns on unleveraged property.

SDIRA for Private Real Estate Syndications

Use Self-Directed IRA to invest in real estate syndications and private funds. Diversify across multiple properties and sponsors without direct management responsibilities. Combine tax-advantaged growth with professional management. Due diligence on sponsors is critical.

Best for: Passive investors who want real estate exposure in retirement accounts without direct property management.

Example:

Roll $200K from old 401(k) into Self-Directed IRA. Invest $50K each in 4 different syndications: multifamily value-add, industrial, self-storage, and senior housing. Professional management, diversified exposure. 15-20% projected IRRs compound tax-deferred.

Avoid These Pitfalls

Common Mistakes

Triggering UBIT on Leveraged Properties

When retirement accounts use debt financing to purchase real estate, income attributable to leverage is subject to Unrelated Business Income Tax (UBIT) at trust tax rates (37%+ above $14K). All-cash purchases avoid UBIT. Solo 401(k) has more favorable UBIT treatment than IRAs.

Prohibited Transactions - Disqualifying the Account

You cannot personally benefit from IRA/401(k) real estate: no living in the property, no renting to family, no personal services (management, repairs). Violations can disqualify the entire account, creating immediate taxation plus penalties. Use third-party property managers.

Losing Depreciation Tax Benefits

Depreciation is worthless inside retirement accounts - there is no taxable income to offset. You lose cost segregation, bonus depreciation, and all depreciation-related tax benefits. For high-income investors, taxable real estate often provides better after-tax returns than IRA-held property.

Questions

Common Questions

Here are the most common questions we receive about this topic.

Ask Your Question

Solo 401(k) offers higher contribution limits ($69K vs $7K), loan provisions, and more favorable UBIT treatment. SDIRA is available to anyone (Solo 401(k) requires self-employment). Both allow real estate, but Solo 401(k) provides more flexibility for active real estate investors with self-employment income.

No. Purchasing property from yourself (or family members) is a prohibited transaction that disqualifies your IRA. The IRA must acquire property from unrelated third parties. You also cannot sell IRA property to yourself later. All transactions must be arms-length.

UBIT applies when retirement accounts earn income from debt-financed property. The portion of income attributable to leverage is taxed at trust rates (up to 37%+). All-cash purchases avoid UBIT entirely. Solo 401(k) has partial UBIT exemption that IRAs do not. UBIT planning is essential for leveraged deals.

Very limited. You cannot provide services of value (repairs, improvements, management) to IRA property - that is a prohibited transaction. You can make investment decisions (buy, sell, refinance) but must hire third parties for all property services. Use professional property managers.

Depends on your tax situation. High-income investors often benefit more from taxable real estate due to depreciation deductions, cost segregation, and REP status benefits - none of which work in retirement accounts. Lower-income investors or those without other real estate may benefit from tax-advantaged growth inside IRAs.

Ready to Explore Retirement Account Real Estate?

Self-Directed IRAs and Solo 401(k)s open real estate investing within retirement accounts. Let us help you evaluate if this approach fits your situation.

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