Setting Up a Real Estate 401K
A real estate 401K, also known as a Solo 401K, Individual 401K, or Self-Directed 401K is a 401K qualified plan that is designed specifically for the self-employed or small business owners to invest in real estate.
Establishing a real estate 401K plan includes adopting approved IRS 401(k) plan documents. It is extremely important to work with tax professionals who have expertise in the tax and ERISA fields when establishing a 401K plan for your business.
Why Choose IRA Financial
IRA Financial Group’s tax and ERISA specialists have helped more than 16,000 clients self-direct their IRA and invest $4.6 billion in alternative assets, such as real-estate.
Founder of IRA Financial Group and former tax and ERISA attorney, Adam Bergman, has published seven books to help investors self-direct their individual retirement account.
Find IRA Financial Group on Forbes! Adam Bergman is a frequent contributor to Forbes.com and an official member of the Forbes Financial Council.
Experience You Need
IRA Financial Group has over a decade of experience helping investors self-direct their retirement accounts.
Tell Us What You Need
Our team will work one-on-one with you to establish a Self-Directed IRA, Solo 401(k) or ROBS solution that fits your goals.
Helpful Tips for Real Estate 401K
Understand the IRS prohibited transaction rules. These rules are based on the premise that investments involving IRA and related parties are handled in a way that benefits the retirement account and not the plan participant.
The deposit and purchase price for the real estate property should be paid using Solo 401(k) Plan funds or funds from a non-disqualified third-party.
No personal funds or funds from any “disqualified person” should be used.
All expenses, repairs, taxes incurred in connection with the Self-Directed Solo 401(k) Plan real estate investment should be paid using retirement funds – no personal funds should be used.
If additional funds are required for improvements or other matters involving the real estate investments, all funds should come from the Solo 401(k) Plan or other retirement funds or from a non “disqualified person.”
If financing is needed for a real estate transaction, unlike an IRA using non-recourse financing to purchase real estate will not trigger the UBTI tax, since it will not be treated as UDFI. A non-recourse loan is a loan that is not personally guaranteed and whereby the lender’s only recourse is against the property and not against the borrower.
No services should be performed by the Solo 401(k) Plan holder or “disqualified person” in connection with the real estate investment by the retirement account. Other than typical trustee type of services, no active services should be performed by the plan participant or a “disqualified person” with respect to the real estate transaction.
Title of the real estate purchased should be in the name of the Self-Directed Solo 401(k) Plan. For example, if Joe Smith established a Self-Directed Solo 401(k) Plan and the plan was named ABC LLC 401(k) Plan, title to real estate purchased by Joe’s Self-Directed Solo 401(k) Plan LLC would be as follows: Joe Smith Trustee of the ABC LLC 401(k) Plan.
Keep good records of income and expenses generated by the real estate investment.
Make sure you perform adequate diligence on the property you will be purchasing especially if it is in a state you do not live in.
All income, gains or losses from the Self-Directed 401(k) Plan real estate investment should be allocated to the 401(k) Plan.
Don’t engage in any self-dealing real estate transactions, which would involve buying or selling real estate that will personally benefit you or a “disqualified person.”
“What about your IRA, including rollover IRA? You need to look at state law, advises tax attorney Adam Bergman of New York’s IRA Financial Group.”
“Adam Bergman…gets several calls a day from clients like McDermott looking to invest their retirement funds in real estate. ‘Our average client has retirement accounts of about $150,000 and is looking to buy one or two properties.'”
“Jeff Brown…transferred roughly $50,000 from his workplace 401(k) to purchase homes to fix up and sell…He uses a self-directed IRA that he set up through IRA Financial Group in Miami Beach.”
What Our Customers Have to Say
I moved my IRA funds to IRA Financial Group because their program gives me checkbook control. I use my IRA for fix-up Real Estate. Checkbook control gives me the ability to pay Subs. quickly to get the best price. I have found IRA Group staff to be very responsive to questions and very professional. Not wanting to put my IRA in jeopardy, this is extreme helpful. They get a full 5-stars out of 5-stars from me!”
– Walt M.
“I was a bit nervous working with a company that I hadn’t run across before but the whole process worked out great. Plenty of communication and explanations. Very happy with my experience using IRA Financial Group.”
– Troy Horton
“Just wanted to say “Thank you” for all of your efforts on this transaction. I know I gave you all a tight time frame, but you absolutely performed. Adam, thanks for your help and advice on the matter. I’ll make sure I send some people your way.”
– Tony Eelman