Updated almost 9 years ago on . Most recent reply
Using 401K to buy rental!
Has anyone used their 401K to buy a rental and receive tax free income ? If so, how does one go about doing so? Would I be able to make repairs out of pocket or does everything have to be from the 401K?
Most Popular Reply
That would not be possible. The IRS defined disqualified parties who may not transact with, benefit from, or provide benefit to the IRA. This includes:
You as the account holder
Your spouse if married
Lineal antecedents; parents, grandparents, etc.
Lineal descendants; children, grandchildren, etc.
The spouse of a descendant
A fiduciary to the plan
A key employee of a company you or any of the above control
A business/joint-venture partner
An entity such as a business or trust where one or more of the above have equity control or director level authority.
So, your personal property management company is a disqualified party to your IRA.
A self-directed IRA is a way to diversify the tax-sheltered retirement savings into an asset class where you can get better returns. Many real estate investors use such plans so they can invest in what they know. But, there is no mechanism for using IRA funds to directly or indirectly benefit you, family, or family businesses other than by growing the value of the IRA itself. To access the funds, you have to take a distribution and pay taxes (unless it is a Roth IRA).