It is not widely known, but the IRS allows a 401(k) plan participant to buy real estate with their 401(k) plan. As long as the solo 401(k) plan documents allow for it, a solo 401(k) plan participant is able to purchase real estate with their retirement funds. The real advantage of using a solo 401(k) plan to buy real estate is that all income or gains generated by a 401(k) Plan generate tax-deferred/tax-free profits. Using a Solo 401(k) Plan to purchase real estate allows the 401(k) to earn tax-free income/gains and pay taxes at a future date, rather than in the year the investment produces income. With a solo 401(k) plan, you can invest tax-free and not have to pay taxes right away – or in most cases for many years allowing your retirement funds to grow tax-free! All the income or gains from your real estate deals flow though to your 401(k) account tax-free!
In addition, purchasing real estate with retirement funds allows retirement investors to better diversify their retirement portfolio and protect against a falling stock market.
One of the more popular options of a self-directed solo 401(k) Plan is the ability to make traditional as well as non-traditional investments, such as real estate. By using a self-directed solo 401(k) plan to purchase real estate, one can generate tax-deferred returns from the real estate investment as well as better diversify their retirement portfolio.
To learn about the advantages of buying real estate with a solo 401(k) plan, please contact a retirement tax professional at 800-472-0646