Getting Back Into Real Estate – Need Advice on 401(k) Investing

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Getting Back Into Real Estate – Need Advice on 401(k) Investing

Brandon O.
Real Estate Investor · Evergreen park, IL · Member since 2015 · 42 posts · 6 votes

Good afternoon BP family! It's interesting how the things we put into the universe often come full circle. Ten years ago, I created my profile on this platform as a hungry and motivated 28-year-old looking to build wealth through real estate. Life took some unexpected turns, causing me to put my dreams on hold, but now I'm feeling that fire again and ready to get back in the game.

I have limited liquid funds, so I'm considering leveraging one of my 401(k)s to invest in real estate. Specifically, I'm looking to roll it over into a self-directed 401(k) or IRA to gain access and control over my investments. I've received conflicting advice, one recommendation was to roll it into an IRA, which would require setting up an LLC, opening a business account, and linking the IRA to the LLC account. Another suggestion was to go with a self-directed 401(k). Based on my research, the self-directed 401(k) seems like the better option, but I'd love to hear from those who have experience with this strategy.

Has anyone used this approach to invest in real estate? Any insights or advice would be greatly appreciated. Thanks!

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Roger StPierreBusiness Member
Lender · Rapid City, SD · Member since 2017 · 30 posts · 20 votes
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And if you don't want to use all of your funds and leverage what you want to purchase real estate inside of your SoloK or SDIRA, then a Non Recourse Loan is the way to increase your purchasing power.

[email protected]605-341-1203
First Western Federal Savings Bank
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  • Brett SynickyPro Member
    Solo 401k and SDIRA Consultant · Orange, CA · Member since 2013 · 873 posts · 498 votes
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    @Brandon O.

    Lots of people on this forum have used a checkbook IRA and/or Solo 401k for investing in non-wall street assets. There are lots of threads about this if you search. Learn more about both here:

    https://www.biggerpockets.com/member-blogs/2810/blog_posts/2...


    https://www.biggerpockets.com/member-blogs/2810/21298-solo-4...

    1Reply
  • Terra Padgett
    Investor · Houston, TX · Member since 2022 · 126 posts · 122 votes
    1y

    Yes, I prefer the SoloK over the SDIRA. I don't think you need an LLC with the IRA but you do need one for the SoloK. However if investing in real estate, you'll likely already have at least one LLC. Once either is setup, you can certainly direct the funds into real estate; buy properties directly, buy into other people's deals, invest in promissory notes and other debt investments. You can personally borrow from the SoloK to do things with. Many options. They're great ways to access capital to get started.

    0Reply
    • Dmitriy Fomichenko
      Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes
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      Quote from @Terra Padgett:

      Yes, I prefer the SoloK over the SDIRA. I don't think you need an LLC with the IRA but you do need one for the SoloK. However if investing in real estate, you'll likely already have at least one LLC. Once either is setup, you can certainly direct the funds into real estate; buy properties directly, buy into other people's deals, invest in promissory notes and other debt investments. You can personally borrow from the SoloK to do things with. Many options. They're great ways to access capital to get started.

      You don't need an LLC for Solo 401k.

      1Reply
    • Terra Padgett
      Investor · Houston, TX · Member since 2022 · 126 posts · 122 votes
      1y

      @Dmitriy Fomichenko I needed one. 

      0Reply
  • Brett SynickyPro Member
    Solo 401k and SDIRA Consultant · Orange, CA · Member since 2013 · 873 posts · 498 votes
    1y

    @Terra Padgett

    You actually don't need an LLC for either one. You can have a self directed IRA that requires you to go through the custodian for all transactions, custodian is on title FBO the IRA, and the custodian has to sign everything. This setup is not ideal for investing that can be transaction heavy, due to red tape, delays, and transaction fees or higher flat annual.

    Enter the checkbook IRA, where usually a special purpose LLC is created that allows the IRA owner to bypass the custodian for all transactions and investments making it a much more efficient way to invest. A special purpose trust can also be used.

    A Solo 401k does not require a custodian and since it's a trust the Solo 401k owner can be the trustee which gives them the same checkbook control that comes with the IRA LLC/Trust. An LLC can be created to hold the assets of the Solo 401k if there's a reason for it but it's not necessary.

    1Reply
  • Dmitriy Fomichenko
    Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes
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    @Terra Padgett, please explain why you needed the LLC for Solo 401k.

    1Reply
  • Brandon O.
    OP
    Real Estate Investor · Evergreen park, IL · Member since 2015 · 42 posts · 6 votes
    1y

    Thank you everyone for your feedback! 

    1Reply
  • Brandon O.
    OP
    Real Estate Investor · Evergreen park, IL · Member since 2015 · 42 posts · 6 votes
    1y

    @Dmitriy Fomichenko I just read an article that you wrote years ago on this. Very good information. I have two traditional 401k(s) one from a past employer (vanguard) and a current one (fidelity). I won't have any issues rolling my 401k from Vanguard to a solo 401k correct? Thanks 

    0Reply
  • Daniel Baker
    Property Manager · Member since 2022 · 28 posts · 24 votes
    1y

    A few things to think about here. I looked at this a while back. Both self-directed IRAs (SDIRAs) and self-directed 401(k)s (Solo 401(k)s) allow you to invest in real estate, but there are key differences that might make one a better fit for your situation:

    Self-Directed IRA (SDIRA)

    • Requires a custodian to oversee transactions.
    • If using an LLC (aka a "Checkbook IRA"), you get direct control but must ensure compliance with IRS rules.
    • Subject to Unrelated Business Income Tax (UBIT) if using financing (e.g., a mortgage).
    • Lower contribution limits compared to a Solo 401(k).

    Self-Directed 401(k) (Solo 401(k))

    • More control, no custodian required.
    • No UBIT when using leverage for real estate.
    • Higher contribution limits ($69,000 in 2024, or $76,500 if over 50).
    • Requires a self-employment component (even part-time business qualifies).

    Since you want more control over your investments and possibly plan to use leverage, the Solo 401(k) seems like the better fit—provided you qualify with some form of self-employment. Also, I am not an expert, just a few things I learned.

    2Reply
  • Dmitriy Fomichenko
    Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes
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    @Brandon O.

    If you are eligible, you can rollover 401k from a past employer into Solo 401k.

    401k with the current employer typically locked up until you either reach a retirement age or leave that employer. I suggest you contact them and inquire about "in-service distribution". 

    1Reply
  • Roger StPierreBusiness Member
    Lender · Rapid City, SD · Member since 2017 · 30 posts · 20 votes
    1y

    And if you don't want to use all of your funds and leverage what you want to purchase real estate inside of your SoloK or SDIRA, then a Non Recourse Loan is the way to increase your purchasing power.

    [email protected]605-341-1203
    First Western Federal Savings Bank
    WebsiteView Page
    2Reply
  • Account Closed
    Investor · Member since 2025 · 21 posts · 21 votes
    1y

    Hi @Brandon O.! As mentioned by others, it is possible to invest in real estate in an IRA or Solo 401(k) without forming an LLC. Just be aware that whether it's an IRA or 401(k), there are still IRS rules that need to be followed or your risk losing the tax-advantaged status of the account. For example, you can't sell to or buy from "disqualified individuals" including yourself, certain family members, etc. You also can't live in or personally benefit from a property that's held in a self-directed account (IRA or 401(k)).

    Each account has a few eligibility requirements too, so make sure you're aware of those to see if you qualify. Our head of education has a nice explainer video on the difference between the two that might help.

    2Reply
  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    1y

    @Brandon O. Using your 401(k) to invest in real estate can be a great strategy, but it’s important to choose the right approach. A Self-Directed IRA (SDIRA) allows you to invest in real estate, but if you use financing, you may owe Unrelated Business Income Tax (UBIT) on profits. A Solo 401(k), on the other hand, offers more flexibility, allows higher contributions, and avoids UBIT when using leverage—but you need self-employment income to qualify. Rolling over funds correctly avoids taxes and penalties, but withdrawing directly triggers income tax and a 10% penalty if you’re under 59½. You could also borrow up to $50K from your 401(k), repaying it within 5 years without penalty. If you qualify, a Solo 401(k) is typically the better option, but if not, an SDIRA with a checkbook LLC is a solid alternative. Work with a tax pro and an experienced custodian to stay compliant and maximize your investment potential.

    This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

    [email protected]941-914-7779
    INVESTOR FRIENDLY CPA®5241 Reviews
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