Rollover capital gains into a 401k?

Question

Is it possible to invest money from capital gains from the sale of a real estate investment property into a 401K to defer the tax on those capital gains?

Michael Plaks · Answer

@Dan Sheeks

If they really are capital gains - then no. But capital gains apply to selling rental properties.

If you're talking about a flip property, then it's not called capital gains. It's called business income. If there's still income left after all business expenses, then your flipping business can open a 401k plan (or some other retirement plan) and redirect some or all of the remaining profits into this plan.

There's more to it, so I'll throw in the standard advice: talk to a tax professional.

Justin Windham · Answer

@Dan Sheeks

Contributions to a Solo 401k must come from earned income. As others have mentioned, passive income or profits from the sale of a rental property generally wouldn't qualify for this purpose. If the property was owned by a Solo 401k to begin with, the taxes could be deferred. If some or all of the income is or can be considered earned income, you might be able to make Solo 401k contributions. Your tax advisor would have more information regarding passive and earned income for your particular situation.

Chris Seveney · Answer

@Dan Sheeks

No. But if you have an LLC or S Corp then you can pay yourself a salary and 25% of that you can have the company put into a solo 401k. There is more to this and you need to speak to an IRA specialist but you can defer some profits and put them in a solo 401k

George Blower · Answer

I agree that can't defer capital gains from the sale of real estate owned outside of a 401k into a 401k (if the real estate is owned by the 401k the proceeds MUST go back to the 401k).

In simple terms, a 401k is a vehicle to save earned income (i.e. income earned from your personal effort) and not investment income earned from your cash or other assets such as capital gains.

Carl Fischer · Answer

@Dan Sheeks

No on the 401k unless the RE was owned by the 401k. If not 1031 is the vehicle to defer taxes.

Todd Powell · Answer

@Dan Sheeks. No sir. I that was possible, I would have done this many times myself. 401K money comes from ore tax employment, and you avoid paying taxes. In theory, your question makes sense, but the government has lots of rules. I do think in many cases, you CAN use your 401K to invest into RE, but I do not know of any laws letting us use RE sale profits and putting them into a 401K

Rollover capital gains into a 401k?

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