Using retirement accounts for investing in real estate

Perhaps you thinking or asking:

Can I use my own IRAs or 401k to invest in real estate of my choice?

Or, I’ve heard of stock funds that invest in real estate, but can I invest directly into properties of my chosing?

So the answer is, yes you can invest in properties of your choosing – HOWEVER, it takes a special account (handled by a legitimate custodian) to do so.  In other words, don’t expect you current W2 employer’s 401k to allow you to invest in real estate.  

What you need is a custodian (a company) that specifically handles your retirement account and provides the ability (read as: important paperwork) for investing in real estate.  This means, the account(s) are setup and the custodian is trained and prepared to handle all the legal formalities of handling the investment to keep the IRS happy and to ensure that all the rules are being kept to keep you from violating the limitations of retirement accounts that can invest in things.  To be technically correct, the IRS never forbids IRAs and such from investing directly in real estate, its the plan custodians that do – and most don’t allow it (because of the paperwork perhaps).

For example, the custodian ensures that your position in the investment is properly structured (notes, contracts, deeds, etc.) before your funds can be sent over to the sponsor.  This means they also have to keep records and files, send out notifications and reminders, and yes, charge fees for all their support.  But these fees are generally very reasonable – the custodian keep you legit, AND, they provide a means for you to make your retirement funds grow in something much more stable than an emotionally driven stock market.  Your traditional 401k provider is typically setup to manage all the paperwork for stock portfolios because they are being paid by your employer to contract the work out (if necessary) to maintain the paperwork and notices.  On top of all this, your custodian will also provide some level of training to help you know the rules, the risks, and the opportunities and potential.  An especially good custodian will also help you network with other sponsor investors so you can find ways to get your funds invested and keep them invested.

I have only used Quest Trust Company as a custodian for investing my Roth IRAs, so I can vouche for them, but a google search can help you find others.  Quest can also provides ESA, HSA, SEP IRA, Traditional IRA, Roth IRA, Simple IRA, and Solo 401k.

But before you dive in there, let me tell you about another option which can work nicely for those of you who are really active in real estate and desire to run you own investing company(ies).

If you set up your own Corp (S-Corp or C-Corp) you can have your Corp be the custodian of your own Solo 401k (or 401a or 401 whatever) which can provide “check writing” capabilities.  This means you can write the check yourself (as a Trustee of the 401k plan) and directly fund a deal and have your 401k be the passive investor in a deal.  Your Solo 401k will be setup at some bank (like a Schwab) which can offer you the online access you desire check printing, statements, and all the other paperwork that comes with it.  

Sound awesome?  It is – and there’s even more awesome advantages.

  • You can put funds in your own Solo 401k by rolling over your traditional IRAs (and perhaps some other non-Roth type of accounts) right into your Solo 401k – so there is no need to keep traditional IRAs even sitting around.
  • If you have a 401k from a former employer, you can do a rollover of those funds into your new Solo401k
  • If you are over 59 1/2 years of age, you may be able to transfer funds from your current employer’s 401k into your new Solo 401k
  • Your bank holding your Solo 401k funds will most likely even enable you to invest directly into the stock market if thats what you need from time to time.
  • You can also roll/transfer funds from your spouse’s retirement accounts into your Solo 401k – it’s depends on your setup as to how you record who owns what if that continues to be important (speak with the attorney or advisor creating your documents).
  • You will likely have much more liberty in your ability to take a loan out of your own 401k – such as, no restrictions as to what you will do with the funds.  Many employer based 401ks limit use of loan funds to hardship situations or buying a car etc.  AND AND AND, the interest you pay on your 401k loan goes back into YOUR account! (Of course, you have to set a very reasonable interest rate – so don’t go crazy – it has to pass the “smell test” with the IRS – like prime plus 1 or 2% or something)
  • You can also have your own corporation match your 401k contributions up to 100% (that is, if you are paying yourself as an employee of your own corporation).  Thus, if you put in 25k as an employee, your Corp can put in another 25k.  Now that’s sweet!  But, sigh, your company needs to earn a profit of at least 50K for that to happen (because you will also have to pay some payroll taxes – like Medicare taxes even if you try opt to put 100% of your income into the 401k).  Oh, don’t forget, your spouse can do the same!  So, in a profitable Corp, the 401k can have up to 100k per year (if you are both over 59 1/2) put into it tax free and then be invested in real estate that produces cash flow and value increases!

There are, of course, some rules when it comes to investing in real estate from these special retirement accounts.  And the rules vary between types (IRA, 401k etc) so you will want to check with your custodian or become educated yourself if you become a trustee of a such an account.
You are not allowed to have any “prohibited transactions” (unless you want the consequences – which are steep).Quest Trust Company has a great blog post on this.

An abbreviated summary of which includes (but is not limited to) the following restrictions:

  • The account beneficiary (you) cannot benefit in any secondary way outside of the investing retirement account
    • you can’t live in a property being held in your retirement account
    • you can’t have any relatives live in the property held
    • you cannot be a contractor or even a free-labor assistant in rehabbing or building the property (you can however, decide the contractors that do the work)
  • You cannot invest in “collectibles” – works of art, antiques, metals, gems, stamps, coin, alcoholic beverage (see the IRS for details).
  • All the proceeds of the investment must go back into the retirement account
  • All the expenses of the investment must also come from the retirement account – you cannot add your own funds to cover a short fall for example – so leave some buffer in your account.
  • The retirement account must be listed as the investor (or owner if that applies) of the property

Also, within an IRA, there is thing called “UBIT” unquallified business income tax – which is assessed if a portion of the investment you funded used loan money to help fund it – see your CPA for details.  401ks don’t have this issue.And, other such details.

You can also use retirement funds to provide private lending (bridge loans) to other’s deals (and v.v. others put their retirement funds to work in your own deals if you are a fellow investor).  Besides private lending, you can also invest in commercial deals, rentals, flips etc – just know the rules.
Oh, don’t forget, that which is in retirement account still has the rule that if you pull it out (like spend it for something other than an investment which will put the funds back) before you are 59 1/2 you may incurr penalties.

Also keep in mind, that once funds are in a deal within your retirement account, those funds may not be available until the deal is complete – which may be a long while.  So choose wisely what you do with your funds.  If you have a while before you need them (you are younger and can’t pull the funds out without penalty for example) then investing in longer term deals may be a great idea for you.

This blog is not a substitute for knowing how to do things correctly – it is intended only to make mention of some possibilities you may want to explore.


  • Yes, you can use retirement funds for investing in real estate – BUT – it must be the right kind of an account with a proper custodian (even if that may be yourself under a Corporation of your own).
  • Yes, you will need legal assitance to get this done corretly.
  • Yes, it isn’t free, but it can be well worth it.



    Written by Jay Personius

    Jay is an accomplished Systems and Software Engineer, Agile Coach, and Real Estate Investor with over 40 years of experience in both the Defense and Private sectors of business.

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