Did You Know That as a Self-Employed Individual, You Can Use Your Solo 401K to Invest in Real Estate?


Solo 401K

Raleigh is a particularly favorable location for this type of investment. Here’s a concise guide on how to make it happen!

What is a Solo 401k?

A Solo 401k is a retirement plan designed for self-employed individuals, including freelancers, small business owners, and independent contractors. It applies to various types of businesses, such as sole proprietorships, LLCs, C Corps, and S Corps. You qualify for a Solo 401k if your businesses don’t have any full-time common-law employees other than yourself and your spouse. You can check your eligibility at Solo401k.com.

Investing in Real Estate with a Solo 401k

Since the 1980s, IRA investors have been using their retirement funds to invest in real estate. This approach allows them to diversify their investments beyond the stock market. The introduction of the IRA LLC structure enabled account holders to hold properties directly within a managed LLC. In 1996, a tax court ruling confirmed that retirement account holders should have direct control over their investment choices. The Solo 401k was established in 2006, enabling users to self-custody their funds and assets without the need for a middleman. Account holders could purchase properties titled under the Solo 401k trust, with themselves as the trustee.

What Does This Mean?

In essence, a Solo 401k empowers you to invest your retirement funds in real estate assets like condos, houses, land, and mortgage notes. Any profits you generate from these investments, including gains and rents, can be reinvested directly into your Solo 401k without incurring taxation.

Here are some recommended best practices compiled by the Nabers Group for investing in real estate through a Solo 401k:

  • Avoid living in the property, as it’s considered a prohibited transaction.
  • Prohibit family members from residing in the property.
  • Hire an independent third party for property repairs; refrain from performing the work yourself.
  • Engage an independent third party to manage the property.
  • Deposit rent checks into your 401k trust bank account rather than personal or business accounts.
  • Pay for expenses and repairs using the 401k trust bank account.
  • Your Solo 401k cannot purchase a property that you already own.

To learn more about real estate and Solo 401k, visit Solo401k.com.

Ready to Invest? Many self-employed clients have successfully invested in real estate using this method to generate profits. If you have any questions or want to embark on your investment property search, feel free to contact me at 919-438-0548 or Ryan@HudsonResidential.com I’m here to assist you.

Shoutout to my teammate, Annie Meadows, for the inspiration for this blog!