Investor · Tampa, FL · Member since 2016 · 2 posts · 0 votes
Looking at purchasing a small home with a LARGE lot. The home won't appraise for a mortgage. Hubby is military retiree and we have several rentals. We were planning to rent the small home as Short Term Rental to pay for the land until he hits 59.5 and do the withdraws. I am just trying to figure out the ins and outs of this process? We are dealing directly with the owner on the property. We asked initially about owner financing. She wouldn't go for it. =(
While both the solo 401k and IRA rules allow for investing in real estate, you will not be able to use the property for personal use unless you take an in-kind distribution of the property. If you wait until age 59 1/2 or older to take an i-kind distribution of the property, federal taxes will apply,and depending on your state of residence, state taxes may also apply; however the 10% early distribution penalty will not apply.
For a list of banks that will loan funds to both a solo 401k and an IRA see the following.
In most cases, a large factor in deciding between a Solo 401k or an IRA is whether one is eligible for the Solo 401k. If so, that's usually the way to go because of the additional features the Solo 401k has. This can often lead to more flexibility and better returns, especially if financing is involved in real estate transactions. Be sure to understand the prohibited transaction rules that apply to either structure, though. Sometimes people learn that retirement accounts aren't the solution to a given obstacle because of those rules.