A common method of diversifying a self-directed 401k is to invest the Plan in physical real estate such as family homes, commercial real estate and farm land, for example. While investing a self-directed 401k in real estate is allowed under the IRS regulations, specific rules apply including not using the property for personal or business use, for example. Here are some other points to keep in mind if you’re considering making a real estate investment under your self-directed 401k.
Do’s-Self-Directed 401k Real Estate Investment
Do make sure your 401k allows for investing in real estate.
Do make the purchase offer in the name of the self-directed 401k.
Do make the escrow deposit using self-directed 401k funds.
Do take title to property in the name of the self-directed 401k.
Do wire the self-directed 401k funds directly to the tile company not your personal or business bank account.
Do deposit all rental income directly into the self-directed 401k bank or brokerage account.
Do pay all the property expenses (e.g., repairs, property tax, insurance, etc.) using self-directed 401k funds.
Don’ts-Self-Directed 401k Real Estate Investment
Do not purchase, sale or exchange property owned by you or your business to the self-directed 401k.
Do not use the self-directed 401k owned property for personal or business use.
Do not use personal funds to pay for property expenses.
Do not use the self-directed 401k owned property as security for a personal loan or business loan.
Do not rent the self-directed 401k owned property to your children, parents, business or spouse.