How a Solo 401(k) Can Supercharge Your Real Estate Strategy

Self-employed? Serious about investing in real estate for retirement? Then the Solo 401(k) might be one of the best-kept secrets out there. It combines the flexible aplomb of a Self-Directed IRA with higher contribution limits and even the ability to borrow from your own plan. For real estate investors who want more control? There are fewer restrictions, and there’s plenty of room to grow, meaning the Solo 401(k) can be a different way of looking at retirement.

Why Real Estate Investors Love the Solo 401(k)

The biggest reason many real estate investors choose a Solo 401(k) over a Self-Directed IRA is freedom. You don’t need a custodian to approve every transaction, which means you can act quickly when a good deal comes along. That’s especially important in competitive markets, where a delayed offer could mean missing out on an opportunity.

You also get more room to contribute. In 2025, Solo 401(k) plans allow contributions of up to $69,000 per year—or even more if you’re 50 or older, per Fidelity. That’s significantly higher than the limits on IRAs. In other words? It gives you more capital to work with when you’re building your real estate portfolio.

And then there’s the loan feature. Solo 401(k)s let you borrow up to $50,000 or 50% of the account balance (whichever is less) for any purpose. That means you could borrow from the plan to help with a down payment on a property—even if that property isn’t part of your retirement portfolio. That kind of flexibility is hard to find in most retirement accounts.

The Tax Advantages That Set Self-Directed SEP 401(k)s Apart

Solo 401(k)s offer the same basic tax advantages you’d expect in a retirement plan. You can set them up as traditional or Roth accounts, depending on whether you want tax-deferred growth or tax-free withdrawals down the line.

But when it comes to real estate, there’s another major benefit: Solo 401(k)s are exempt from Unrelated Debt-Financed Income (UDFI) tax. That’s a tax that can apply when your retirement account buys real estate using a mortgage. With a Self-Directed IRA, the income tied to that debt can be taxed—even inside the IRA. But with a Solo 401(k)? No UDFI. That means more of your rental income and gains stay inside the account, growing and growing, untouched by the IRS.

This exemption can make a big difference over time. If you’re financing part of your property purchases (and many investors do), that tax savings alone can tilt the scales in favor of using a Solo 401(k).

What to Watch Out For With These Accounts

The Solo 401(k) isn’t for everyone. To qualify, you need self-employment income with no full-time employees other than your spouse. That might rule it out for business owners with a staff, but it’s a perfect fit for independent contractors, consultants, and small business owners with lean teams.

You’ll also need to stay on top of recordkeeping. Once the account grows past a certain threshold—$250,000 in assets—you’ll be required to file an annual Form 5500 with the IRS. It’s not difficult, but it’s something investors should plan for.

As with all retirement accounts, you also need to avoid prohibited transactions. You can’t live in the property, rent to close family members, or use personal funds for repairs. But with careful setup and a solid strategy, the Solo 401(k) can make investing in real estate smoother, more efficient, and more profitable.

Curious whether a Solo 401(k) fits your situation? Call American IRA at 866-7500-IRA, and we’ll help you explore your options before your next real estate move.

Interested in learning more about Self-Directed IRAs? Download our free guide