by
Garrett Clark
Investment Guidance
How to Use a Solo 401(k) for Real Estate Investing
Did you know your retirement plan can help you invest in real estate—without paying capital gains taxes up front? A Solo 401(k) offers self-employed individuals the power to invest in alternative assets like rental properties, land, and even real estate syndications. In this blog, we explain how to use a self-directed Solo 401(k) to build wealth through real estate, including IRS rules, tax advantages, and how to stay compliant. If you're ready to diversify beyond stocks, this strategy could unlock serious long-term returns.
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If you’re self-employed and interested in building long-term wealth, a Solo 401(k) may be one of the most powerful tools at your disposal. Designed specifically for business owners with no full-time employees (other than a spouse), the Solo 401(k) allows for high contribution limits, both traditional and Roth options, and most importantly, a wide range of investment possibilities, including real estate.
Unlike typical 401(k)s or IRAs that are often restricted to mutual funds and publicly traded stocks, a Solo 401(k) can be self-directed. This means you can use it to invest in real estate, opening the door to steady cash flow, appreciation, and tax-advantaged growth—all within your retirement account.
But before you go shopping for rental properties with your retirement dollars, it’s crucial to understand the rules, risks, and structure involved. Missteps can lead to prohibited transactions, tax penalties, or disqualification of the entire plan. This blog will walk you through exactly how to use your Solo 401(k) for real estate investing—the right way.
Why Use a Solo 401(k) for Real Estate?
Real estate is one of the most popular nontraditional investments in Solo 401(k)s, and for good reason. Here are a few benefits:
Tax-Advantaged Growth: All rental income and capital gains are either tax-deferred or tax-free (if using a Roth Solo 401(k)).
High Contribution Limits: In 2024, you can contribute up to $69,000 annually—or $76,500 if age 50 or older—giving you a strong capital base to start investing.
Leverage Without UDFI Tax: Unlike IRAs, Solo 401(k)s using non-recourse loans to finance real estate purchases are not subject to Unrelated Debt-Financed Income (UDFI) tax.
Asset Diversification: Real estate provides an alternative to the stock market, offering stability, inflation protection, and passive income.
Types of Real Estate You Can Buy
Your Solo 401(k) can be used to invest in a variety of real estate assets, including:
Single-family rental homes
Multi-family properties
Commercial real estate
Raw land
Real estate syndications
You can purchase the property outright or use a non-recourse loan (more on that later) to finance part of the transaction.
If you’re self-employed and interested in building long-term wealth, a Solo 401(k) may be one of the most powerful tools at your disposal. Designed specifically for business owners with no full-time employees (other than a spouse), the Solo 401(k) allows for high contribution limits, both traditional and Roth options, and most importantly, a wide range of investment possibilities, including real estate.
Unlike typical 401(k)s or IRAs that are often restricted to mutual funds and publicly traded stocks, a Solo 401(k) can be self-directed. This means you can use it to invest in real estate, opening the door to steady cash flow, appreciation, and tax-advantaged growth—all within your retirement account.
But before you go shopping for rental properties with your retirement dollars, it’s crucial to understand the rules, risks, and structure involved. Missteps can lead to prohibited transactions, tax penalties, or disqualification of the entire plan. This blog will walk you through exactly how to use your Solo 401(k) for real estate investing—the right way.
Why Use a Solo 401(k) for Real Estate?
Real estate is one of the most popular nontraditional investments in Solo 401(k)s, and for good reason. Here are a few benefits:
Tax-Advantaged Growth: All rental income and capital gains are either tax-deferred or tax-free (if using a Roth Solo 401(k)).
High Contribution Limits: In 2024, you can contribute up to $69,000 annually—or $76,500 if age 50 or older—giving you a strong capital base to start investing.
Leverage Without UDFI Tax: Unlike IRAs, Solo 401(k)s using non-recourse loans to finance real estate purchases are not subject to Unrelated Debt-Financed Income (UDFI) tax.
Asset Diversification: Real estate provides an alternative to the stock market, offering stability, inflation protection, and passive income.
Types of Real Estate You Can Buy
Your Solo 401(k) can be used to invest in a variety of real estate assets, including:
Single-family rental homes
Multi-family properties
Commercial real estate
Raw land
Real estate syndications
You can purchase the property outright or use a non-recourse loan (more on that later) to finance part of the transaction.
“With a Solo 401(k), your retirement doesn’t have to wait for Wall Street—real estate can be your new growth plan.”
Garrett Clark
Director of Sales
Prohibited Transactions: What NOT to Do
The IRS has strict rules about who can benefit from investments held within your Solo 401(k). Violating these rules can result in hefty penalties and even disqualification of your plan.
The biggest pitfall? Engaging in self-dealing or prohibited transactions. Here are some key restrictions:
You cannot live in or use the property personally.
You cannot rent it to or buy it from yourself, your spouse, your children, parents, or other “disqualified persons.”
You cannot perform work on the property yourself, even mowing the lawn or painting a wall.
All expenses related to the property—maintenance, insurance, taxes—must be paid directly from the Solo 401(k). Likewise, all income must go back into the plan.
Using a Non-Recourse Loan
If your Solo 401(k) doesn’t have enough cash to buy a property outright, you can still use financing, but there’s a catch. The loan must be non-recourse, meaning it is secured solely by the property itself. You cannot guarantee the loan. If the borrower (your Solo 401(k)) defaults, the lender can only take the property, not pursue your assets.
This is one of the biggest advantages of the Solo 401(k) over the Self-Directed IRA. With a Solo 401(k), you can use leverage without triggering UDFI tax, which is a tax assessed on profits attributable to borrowed money in an IRA.
Just make sure the loan and all related documents are titled in the name of your Solo 401(k) trust, not your name.
Title and Legal Structure
When purchasing property with your Solo 401(k), all documents must reflect that the buyer is your retirement account, not you as an individual. The purchase contract, insurance policy, deed, and any loan agreements should all be titled in the name of the Solo 401(k) trust (e.g., “John Smith Solo 401(k) Trust”).
Do not commingle personal and retirement funds. All expenses must be paid directly from the 401(k) bank account or checkbook, and all income must go directly back into that account.
Holding Real Estate in Your Solo 401(k): What It Looks Like
Once the property is in your Solo 401(k), it operates like any other rental business—but under the umbrella of the trust. Your Solo 401(k) receives rent payments, pays for repairs, property management, insurance, and property taxes. If you decide to sell the property later, all proceeds go back into the Solo 401(k), where they continue to grow tax-deferred (or tax-free in a Roth sub-account).
Some clients use a property manager to handle the day-to-day operations, ensuring there’s no direct involvement that could be considered a prohibited transaction. Others prefer to be more hands-on, but must be careful not to cross the line into personal involvement.
Exit Strategies and Liquidity
Unlike publicly traded stocks, real estate is not easily liquidated. That means you need to have a long-term strategy, particularly if you’re approaching retirement age. If you want to convert the property to income in retirement, you can:
Sell the property and take distributions as cash
Distribute the property “in-kind” (meaning the property itself becomes your asset, and you pay taxes on its fair market value)
Convert to Roth before selling, to avoid taxes on future gains (if eligible)
A financial advisor or Solo 401(k) specialist can help you determine the most tax-efficient strategy for your situation.
Documentation and Compliance
To keep your Solo 401(k) compliant, maintain accurate records of every transaction related to your property investment. This includes:
Purchase and sale agreements
Invoices and receipts for repairs and maintenance
Rental income records
Bank statements from the Solo 401(k) trust account
It’s also wise to consult with a CPA or Solo 401(k)-specialized advisor to ensure you're keeping within IRS guidelines.
Real Estate in a Solo 401(k) Can Supercharge Your Retirement—If Done Right
Using a Solo 401(k) for real estate investing is a strategic way to build tax-advantaged income, achieve portfolio diversification, and protect against inflation. But it’s not without complexity. The key to success is understanding the rules and adhering strictly to them.
By using proper titling, avoiding prohibited transactions, and working with experienced professionals, you can unlock powerful long-term gains and take greater control over your financial future.
At Survival 401k, we specialize in helping self-employed individuals use their Solo 401(k) to its full potential, including property investments. If you're ready to start investing in real estate through your Solo 401(k), reach out today at www.survival401k.com to get personalized guidance tailored to your goals.
Prohibited Transactions: What NOT to Do
The IRS has strict rules about who can benefit from investments held within your Solo 401(k). Violating these rules can result in hefty penalties and even disqualification of your plan.
The biggest pitfall? Engaging in self-dealing or prohibited transactions. Here are some key restrictions:
You cannot live in or use the property personally.
You cannot rent it to or buy it from yourself, your spouse, your children, parents, or other “disqualified persons.”
You cannot perform work on the property yourself, even mowing the lawn or painting a wall.
All expenses related to the property—maintenance, insurance, taxes—must be paid directly from the Solo 401(k). Likewise, all income must go back into the plan.
Using a Non-Recourse Loan
If your Solo 401(k) doesn’t have enough cash to buy a property outright, you can still use financing, but there’s a catch. The loan must be non-recourse, meaning it is secured solely by the property itself. You cannot guarantee the loan. If the borrower (your Solo 401(k)) defaults, the lender can only take the property, not pursue your assets.
This is one of the biggest advantages of the Solo 401(k) over the Self-Directed IRA. With a Solo 401(k), you can use leverage without triggering UDFI tax, which is a tax assessed on profits attributable to borrowed money in an IRA.
Just make sure the loan and all related documents are titled in the name of your Solo 401(k) trust, not your name.
Title and Legal Structure
When purchasing property with your Solo 401(k), all documents must reflect that the buyer is your retirement account, not you as an individual. The purchase contract, insurance policy, deed, and any loan agreements should all be titled in the name of the Solo 401(k) trust (e.g., “John Smith Solo 401(k) Trust”).
Do not commingle personal and retirement funds. All expenses must be paid directly from the 401(k) bank account or checkbook, and all income must go directly back into that account.
Holding Real Estate in Your Solo 401(k): What It Looks Like
Once the property is in your Solo 401(k), it operates like any other rental business—but under the umbrella of the trust. Your Solo 401(k) receives rent payments, pays for repairs, property management, insurance, and property taxes. If you decide to sell the property later, all proceeds go back into the Solo 401(k), where they continue to grow tax-deferred (or tax-free in a Roth sub-account).
Some clients use a property manager to handle the day-to-day operations, ensuring there’s no direct involvement that could be considered a prohibited transaction. Others prefer to be more hands-on, but must be careful not to cross the line into personal involvement.
Exit Strategies and Liquidity
Unlike publicly traded stocks, real estate is not easily liquidated. That means you need to have a long-term strategy, particularly if you’re approaching retirement age. If you want to convert the property to income in retirement, you can:
Sell the property and take distributions as cash
Distribute the property “in-kind” (meaning the property itself becomes your asset, and you pay taxes on its fair market value)
Convert to Roth before selling, to avoid taxes on future gains (if eligible)
A financial advisor or Solo 401(k) specialist can help you determine the most tax-efficient strategy for your situation.
Documentation and Compliance
To keep your Solo 401(k) compliant, maintain accurate records of every transaction related to your property investment. This includes:
Purchase and sale agreements
Invoices and receipts for repairs and maintenance
Rental income records
Bank statements from the Solo 401(k) trust account
It’s also wise to consult with a CPA or Solo 401(k)-specialized advisor to ensure you're keeping within IRS guidelines.
Real Estate in a Solo 401(k) Can Supercharge Your Retirement—If Done Right
Using a Solo 401(k) for real estate investing is a strategic way to build tax-advantaged income, achieve portfolio diversification, and protect against inflation. But it’s not without complexity. The key to success is understanding the rules and adhering strictly to them.
By using proper titling, avoiding prohibited transactions, and working with experienced professionals, you can unlock powerful long-term gains and take greater control over your financial future.
At Survival 401k, we specialize in helping self-employed individuals use their Solo 401(k) to its full potential, including property investments. If you're ready to start investing in real estate through your Solo 401(k), reach out today at www.survival401k.com to get personalized guidance tailored to your goals.
If you’re self-employed and interested in building long-term wealth, a Solo 401(k) may be one of the most powerful tools at your disposal. Designed specifically for business owners with no full-time employees (other than a spouse), the Solo 401(k) allows for high contribution limits, both traditional and Roth options, and most importantly, a wide range of investment possibilities, including real estate.
Unlike typical 401(k)s or IRAs that are often restricted to mutual funds and publicly traded stocks, a Solo 401(k) can be self-directed. This means you can use it to invest in real estate, opening the door to steady cash flow, appreciation, and tax-advantaged growth—all within your retirement account.
But before you go shopping for rental properties with your retirement dollars, it’s crucial to understand the rules, risks, and structure involved. Missteps can lead to prohibited transactions, tax penalties, or disqualification of the entire plan. This blog will walk you through exactly how to use your Solo 401(k) for real estate investing—the right way.
Why Use a Solo 401(k) for Real Estate?
Real estate is one of the most popular nontraditional investments in Solo 401(k)s, and for good reason. Here are a few benefits:
Tax-Advantaged Growth: All rental income and capital gains are either tax-deferred or tax-free (if using a Roth Solo 401(k)).
High Contribution Limits: In 2024, you can contribute up to $69,000 annually—or $76,500 if age 50 or older—giving you a strong capital base to start investing.
Leverage Without UDFI Tax: Unlike IRAs, Solo 401(k)s using non-recourse loans to finance real estate purchases are not subject to Unrelated Debt-Financed Income (UDFI) tax.
Asset Diversification: Real estate provides an alternative to the stock market, offering stability, inflation protection, and passive income.
Types of Real Estate You Can Buy
Your Solo 401(k) can be used to invest in a variety of real estate assets, including:
Single-family rental homes
Multi-family properties
Commercial real estate
Raw land
Real estate syndications
You can purchase the property outright or use a non-recourse loan (more on that later) to finance part of the transaction.
“With a Solo 401(k), your retirement doesn’t have to wait for Wall Street—real estate can be your new growth plan.”
Garrett Clark
Director of Sales
Prohibited Transactions: What NOT to Do
The IRS has strict rules about who can benefit from investments held within your Solo 401(k). Violating these rules can result in hefty penalties and even disqualification of your plan.
The biggest pitfall? Engaging in self-dealing or prohibited transactions. Here are some key restrictions:
You cannot live in or use the property personally.
You cannot rent it to or buy it from yourself, your spouse, your children, parents, or other “disqualified persons.”
You cannot perform work on the property yourself, even mowing the lawn or painting a wall.
All expenses related to the property—maintenance, insurance, taxes—must be paid directly from the Solo 401(k). Likewise, all income must go back into the plan.
Using a Non-Recourse Loan
If your Solo 401(k) doesn’t have enough cash to buy a property outright, you can still use financing, but there’s a catch. The loan must be non-recourse, meaning it is secured solely by the property itself. You cannot guarantee the loan. If the borrower (your Solo 401(k)) defaults, the lender can only take the property, not pursue your assets.
This is one of the biggest advantages of the Solo 401(k) over the Self-Directed IRA. With a Solo 401(k), you can use leverage without triggering UDFI tax, which is a tax assessed on profits attributable to borrowed money in an IRA.
Just make sure the loan and all related documents are titled in the name of your Solo 401(k) trust, not your name.
Title and Legal Structure
When purchasing property with your Solo 401(k), all documents must reflect that the buyer is your retirement account, not you as an individual. The purchase contract, insurance policy, deed, and any loan agreements should all be titled in the name of the Solo 401(k) trust (e.g., “John Smith Solo 401(k) Trust”).
Do not commingle personal and retirement funds. All expenses must be paid directly from the 401(k) bank account or checkbook, and all income must go directly back into that account.
Holding Real Estate in Your Solo 401(k): What It Looks Like
Once the property is in your Solo 401(k), it operates like any other rental business—but under the umbrella of the trust. Your Solo 401(k) receives rent payments, pays for repairs, property management, insurance, and property taxes. If you decide to sell the property later, all proceeds go back into the Solo 401(k), where they continue to grow tax-deferred (or tax-free in a Roth sub-account).
Some clients use a property manager to handle the day-to-day operations, ensuring there’s no direct involvement that could be considered a prohibited transaction. Others prefer to be more hands-on, but must be careful not to cross the line into personal involvement.
Exit Strategies and Liquidity
Unlike publicly traded stocks, real estate is not easily liquidated. That means you need to have a long-term strategy, particularly if you’re approaching retirement age. If you want to convert the property to income in retirement, you can:
Sell the property and take distributions as cash
Distribute the property “in-kind” (meaning the property itself becomes your asset, and you pay taxes on its fair market value)
Convert to Roth before selling, to avoid taxes on future gains (if eligible)
A financial advisor or Solo 401(k) specialist can help you determine the most tax-efficient strategy for your situation.
Documentation and Compliance
To keep your Solo 401(k) compliant, maintain accurate records of every transaction related to your property investment. This includes:
Purchase and sale agreements
Invoices and receipts for repairs and maintenance
Rental income records
Bank statements from the Solo 401(k) trust account
It’s also wise to consult with a CPA or Solo 401(k)-specialized advisor to ensure you're keeping within IRS guidelines.
Real Estate in a Solo 401(k) Can Supercharge Your Retirement—If Done Right
Using a Solo 401(k) for real estate investing is a strategic way to build tax-advantaged income, achieve portfolio diversification, and protect against inflation. But it’s not without complexity. The key to success is understanding the rules and adhering strictly to them.
By using proper titling, avoiding prohibited transactions, and working with experienced professionals, you can unlock powerful long-term gains and take greater control over your financial future.
At Survival 401k, we specialize in helping self-employed individuals use their Solo 401(k) to its full potential, including property investments. If you're ready to start investing in real estate through your Solo 401(k), reach out today at www.survival401k.com to get personalized guidance tailored to your goals.