Cumming, Forsyth County · Member since 2026 · 1 post · 2 votes
Hi,
Experienced real estate investor looking to get into a Self Directed IRA. We have funds in a brokerage account and also on other rentals. Pretty experienced in rentals but looking to grow retirement savings. We are younger so don't want to touch the money. Buy home for cash, rent it out, invest the rental income in the market and repeat.
Wish I got into self directing at a younger age. Investing in something like real estate or private lending that you have understanding and more control of is a very powerful way to build wealth without ups and downs. A few helpful BP blog posts below. If you have any self employment activity or plan to, take a close look at the Solo 401k.
Wish I got into self directing at a younger age. Investing in something like real estate or private lending that you have understanding and more control of is a very powerful way to build wealth without ups and downs. A few helpful BP blog posts below. If you have any self employment activity or plan to, take a close look at the Solo 401k.
It sounds like you have an investment strategy in mind; so, one of your next steps is to establish your SDIRA (or Solo 401(k) if you are eligible to do so). It will take some time (the amount of time varies according to a few factors) to get the account open and funded so that you can be ready for your IRA to make an offer on a property and/or to purchase other assets. When choosing an SDIRA custodian, evaluating factors such as fees (as they would be applied to your investment strategy), customer service, experience with real estate assets, track record, online capability, etc. would be helpful in the decision-making process. SDIRA real estate investors often take a minute to evaluate whether a checkbook IRA is right for them or not as they set up their account.
Real Estate Agent · Cumming, GA · Member since 2016 · 226 posts · 157 votes
4mo
Hi Walter,
I've tried both approaches. I worked with Quest IRA to set up a self-directed Roth IRA, but after going through a full cycle on a deal, it didn't feel worth it to me because of UBIT (worth looking into if you're not familiar).
I also set up a Solo 401(k) and have invested through that. If I remember correctly, you do need to show some level of self-employment income to qualify. One thing to keep in mind with both structures is that the investment needs to be passive, you can’t be actively managing the property yourself.
Attorney · Spanish Fork, UT · Member since 2025 · 77 posts · 97 votes
4mo
Hi Walter,
It sounds like you’ve already built a solid foundation with your brokerage and rental accounts. Moving into the self-directed world is a powerful way to accelerate that growth, but the specific "vehicle" you choose—and how you drive it—is everything.
When you’re looking at self-directing, you generally have two main paths: a Self-Directed IRA (SDIRA) or a Solo 401(k). While both are great tools, the Solo 401(k) often takes the lead if you qualify (typically by having self-employment income and no full-time employees).
Here is why the Solo 401(k) is often the preferred tool for active real estate investors:
1. Significantly Higher Contributions If your goal is to maximize your savings while you're young, the Solo 401(k) is the clear winner. You can contribute much higher annual amounts to a Solo 401(k) ($72k) than you can to an SDIRA ($7.5k). If you want to move the needle quickly, this is the better tool.
2. Avoiding the "UDFI" Tax Trap This is a huge factor for real estate. If an SDIRA uses a mortgage to buy a property, it is hit with Unrelated Debt-Financed Income (UDFI), which triggers the Unrelated Business Income Tax (UBIT). This tax can soar to 37% very quickly. However, the Solo 401(k) is generally exempt from UDFI on debt-financed real estate, allowing you to use leverage without that massive tax hit.
3. Less "Catastrophic" Mistakes If you accidentally engage in a prohibited transaction:
In an SDIRA: The IRS can disqualify the entire account. The whole balance is treated as a distribution, which can be a tax nightmare.
In a Solo 401(k): The rules are typically less punishing. Generally, only the specific amount involved in the transaction is disqualified, protecting the rest of your retirement plan.
Key "Landmines" to Avoid Regardless of which account you use, you have to be mindful of the rules to keep the IRS happy. Think of these as the ground rules for the game:
No "Sweat Equity": You cannot manage your own property or pick up a hammer. You must hire a third-party property manager and independent contractors. Your role is purely the "bank" and the strategist.
Disqualified Persons: You aren't the only one who can't touch the property. Your spouse, parents, and children (and their spouses) are "disqualified." They cannot live in the property, work on it, or provide any services to it.
Passive vs. Active Business: Your retirement plan is meant for passive investment activity (like long-term rentals), not running an active business. If you start "flipping" houses frequently or running a business inside the plan, you can trigger UBIT, which, again, can hit that 37% mark very fast.
UDFI Awareness: While the Solo 401(k) has a great exemption for real estate debt, you still need to be aware of UDFI/UBIT if you're using debt for other types of investments or business activities within the plan.
Self-directing is a fantastic way to play the long game, especially since you're starting young. It's imply important to be aware of the problems that you can inadvertently create for yourself as outlined above.
Note: This information is for
educational and informational purposes only and does not constitute legal,
tax, or financial advice. No attorney-client, fiduciary, or professional
relationship is established through this communication.
Experienced real estate investor looking to get into a Self Directed IRA. We have funds in a brokerage account and also on other rentals. Pretty experienced in rentals but looking to grow retirement savings. We are younger so don't want to touch the money. Buy home for cash, rent it out, invest the rental income in the market and repeat.
Any insight on the process would be great!!
Since your objective is to hold the rentals inside of your IRA then you'll have to use a lender that will lend to the Self Directed IRA. There are not very many around,but you can do your research and find them. Here are a few: North American Savings Bank (NASB); First Western Federal Savings Bank. You can do a google search to find some more. Good luck
Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
4mo
I personally would not invest in real estate with a retirement account. It can become a burden.
1) You are more limited with the real estate(No recourse loans, lower Loan to value ratios, etc) 2) Need sufficient retirement account balance overhead to fix items, otherwise, you might be forced to sell the property 3) Required Minimum Distributions(RMD) might require you to sell the property.
If you want to do real estate, I would go with the syndication route or invest in notes.
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
4mo
Agree. We use our sdira money to invest in things (like notes) since they are not tax efficient (my words) and use “cash” to invest in real estate for the tax depreciation
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