BlogSelf-Directed 401k Real Estate Investment Do's and Don'ts
Posted about 5 months ago

Self-Directed 401k Real Estate Investment Do’s and Don’ts

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.

Published in Member Blogs, Solo 401k

Comments ( 2 )

  1. In regards to do’s and don’t s, what if the property was bought by an LLC and the only member of LLC is the custodian of the solo 401k plan. In addition an operating agreement is drawn that states that member/custodian is to buy real estate only for the Solo 401k and member/custodian agrees and abides by the prohibited transactions. All funds funnel through the LLC and then paid back in full with all profits to Solo 401k, there’s zero distributions to member at all. Paper trail and funds are 100% transparent without any commingle with personal funds or reimbursements. Would this type of set-up be under compliance?

  2. Yes a solo 401k may also invest in an LLC whereby the solo 401k is the sole member. Click here to learn more about investing a solo 401k in a single member LLC for passively placing investments.

    Just like all the gains and expenses would flow through the solo 401k bank account when investing in real estate directly through the solo 401k, the same is true for real estate investments placed under the solo 401k owned LLC.