Before we start, let us tell you something that you might already know: investing in real estate using your retirement funds can be a daunting task! 

However, if done right, it can be a great way to grow your income and ensure you’ll have enough money to spend your retirement years and live the life you deserve.

For that reason, we want you to have a clear picture of how it works, what tools you have at your disposal, and what to expect. 

You need to know the rules and there are a lot of them.

But Why Invest My Retirement Funds In Real Estate?

Investing in real estate for or during your senior years can serve as an additional source of passive income, which enjoys certain tax benefits. 

For instance, if you buy a property that generates regular rental income during your senior years (like multifamily properties or assisted living facilities), you can use the revenue instead of withdrawing from your retirement savings, effectively having more money to enjoy when you’re older. 

To give you a better perspective, try to look at income from a rental property the same way you would for dividend income from stock investments or interest income from bonds — you get to sit back and wait for it to come in regularly without too much input on your end.

Let’s take a quick look at some of the benefits of investing in real estate using retirement funds:

  • Not only will you boost your senior income, but also give yourself something meaningful to do with your days.
  • If you’re handy and can maintain your investment properties, you’ll have fewer expenses to eat away at your profits.
  • By buying real estate, you’ll have another asset class to enjoy on your portfolio — not just as a source of cash but as a means of financial protection.
  • It allows you to enjoy a host of tax benefits. You can write off your mortgage interest, property taxes, and other expenses related to owning rental properties, like maintenance and repairs.

In short, real estate’s potential for long-term appreciation, combined with the tax advantages of a qualified retirement plan, are powerful reasons for people to invest their retirement accounts in real estate.

How Can I Use My Retirement Account To Invest In Real Estate?

First, you need to remember that retirement investing in real estate is a broad concept that can involve many types of investment vehicles, varying amounts of risk, and different degrees of involvement required on the part of the investor.

Using A Self-Directed IRA

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It’s possible to hold real estate in your IRA under certain conditions. You can buy single-family or multiplex homes; apartment buildings; commercial properties such as retail stores, hotels, or office complexes; raw land and lots; and even boat slips.

However, your IRA has to be self-directed. This means that alternative investments are accepted or offered by the IRA custodian, the financial institution, or the company responsible for record-keeping and IRS reporting requirements. 

It also means that this type of IRA is independent of any financial institutions — brokerage firms, banks, investment companies, etc. — that would make decisions for you (most brokerage accounts don’t allow real estate holdings, anyway).

To buy and own property via your IRA you will need a custodian, an entity specializing in self-directed accounts that will manage the transaction, associated paperwork, and financial reporting. Everything goes through the custodian to keep you from violating the strict rules regarding these types of real estate transactions.

Before we continue, understand this basic fact: You and your IRA are two separate entities. Your IRA owns the property—you don’t. 

What this means is that the real estate property you buy must be strictly for investment purposes; you and your family members can’t use it. You can’t use it as a vacation home, a place for your kids to live, a second home, or an office for your business. These rules apply to you and to people the IRS deems “disqualified.”

So who is considered a disqualified person?

  • Your spouse
  • Your parents, grandparents, and great-grandparents
  • Your children and their spouses, grandchildren, and great-grandchildren
  • Service providers of your IRA
  • Any entity that owns more than 50% of the property

You also can’t purchase the property from one of these disqualified people — known as a self-dealing transaction — nor can the IRA purchase property that you already own. 

Holding real estate in your IRA can be tricky, with tax issues and red tape. But, historically, real estate has been a good long-term investment as property values rise over time, and long-term appreciation goes hand-in-hand with the long-term investment horizon of a retirement account.

In the short term, any income the property generates is tax-sheltered within the IRA. Finally, as a hard asset, real estate helps diversify a portfolio otherwise invested in equities and other securities.

Using A 401(K) And Other Types Of IRA Accounts


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If you have a 401(k) through an employer, you might also be able to find real estate-related investment opportunities in your plan’s available offerings. However, an employer-sponsored 401(k) can have a more limited range of investment opportunities for you to choose from than your personal IRA might have.

With that said, if you have a 401(k) but cannot find the right real estate investments for your retirement account, you can also open an IRA — either a traditional IRA or a Roth IRA — and find real estate investments through that account. But you will need to do your homework first, because there are limits on an IRA that you hold if you also maintain a 401(k), and you need to learn about the tax implications of owning both retirement accounts simultaneously as well.

Another option for you might be a Solo 401(k) — a personal retirement account for individuals with single-person businesses or consulting practices and with no employees. If this describes you, you might also consider opening a Solo 401(k), which can allow you to use your account to purchase real property directly.

Of course, you need to do your due diligence. There are potential pitfalls besides self-dealing, that can ensnare an investor who purchases real estate through an IRA or Solo 401(k). 

For example, if you need to sell the property when the real estate market is down — because, for example, you have reached the age of your plan’s required minimum distribution (RMD) — you might have to sell the property for less than you had hoped for.

Another key issue here is that, when you purchase a property through a retirement account, all of the income that the property earns will need to be deposited directly back into the retirement account itself. If you take any of that income out and put it in your bank account, it will be subject to taxation and possibly some hefty penalties.

For these reasons, although investing your IRA or Solo 401(k) directly in a piece of real estate has historically had the potential for returns over time, you will need to thoroughly research this type of investment and learn about the restrictions, tax issues, and risks before making such a move.

Borrowing against your IRA or 401(k)

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Some retirement plans, including Solo 401(k)s and some of the standard, employer-sponsored 401(k) plans, allow you to borrow money from your retirement accounts and use it to purchase real estate.

Keep in mind that in such a case the real estate itself is not held inside the retirement account — which means it won’t be enjoying the tax-deferred earnings benefits that the plan provides. The potential benefit here would simply be that you could tap the funds in the account and — provided you pay the loan back according to the plan’s schedule — enjoy access to that investment money without tax or penalty.

There is, of course, a substantial risk here as well. Owning an individual piece of real estate requires active attention to the property and carries the risk of loss — loss of tenants, property damage, loss of equity in a down market, etc.

Moreover, if you were to use your employer’s 401(k) plan to borrow the money to purchase a piece of property, you could face an additional risk — a significant one. Assuming you took out a mortgage to buy the property if you lost your job, your entire outstanding mortgage balance might come due immediately!

For these reasons, you will need to conduct thorough research and educate yourself on all of the tax implications, legal ramifications, and financial risks before borrowing against your retirement account to fund a real estate investment.

However, there are ways to mitigate or reduce these potential risks and share a lot of the workload necessary to invest in real estate with your retirement account. Syndication for example is a good way to do so, since you will be joining a select group of people that know what they’re doing and can help or guide you through this process, making it easier to build your wealth and leave an enduring legacy!

Using A Qualified Retirement Plan (QRP)


The QRP Book By our friends over at eQRP Co.

A QRP, or Qualified Retirement Plan, is a retirement plan that is tax-favored under Section 401 of the Internal Revenue Code, also referred to as the Tax Code or the IRS Code.

QRPs are a great alternative to Self-Directed IRAs and 401(k)s, given that some of the most powerful tax strategies exist within the aforementioned section of the tax code, which covers many types of tax-sheltered QRP plans.

For those that qualify, a QRP offers significant benefits above the self-direct IRA, some of them are:

  • You don’t need a custodian from a financial institution for a QRP like a self-directed IRA does.
  • You can take personal loans from the plan, of up to $50,000 – to be used for any purpose.
  • Prohibited transactions do not disqualify a QRP.- It has its consequences, of course, but they’re not nearly as harsh as what you might get from a self-directed IRA.

It’s important to note that A QRP can only be sponsored or created by an employer for the exclusive benefit of his employees or by a self-employed individual, otherwise, it won’t provide any tax benefits.

There are some caveats of course.  A QRP — especially one that’s required to cover non-owner employees of a business — is very complex and costly to run. The IRS and DOL compliance requirements are incredibly elaborate, and if those rules are not followed it gets 10x more costly.

For that reason, our friends over at eQRP Co have written the QRP Book that can help you learn to navigate the nuances of the tax code and also protect your investments. The QRP Book will also help you get full control of your 401(k) & IRA money and avoid the IRA Tax on Real Estate Investments like multifamily and residential assisted living properties!

Order a FREE copy of the QRP book by clicking here 

Our mission is to transform your financial future by providing a way to take control of your retirement money – money that’s stranded in 401(k) or IRA accounts. 

And remember! If you want to learn more about syndication, you can read our blog or subscribe to our newsletter! We frequently share information like the one in this article to help you learn more about passive investing, real estate, and our favorite asset class: Multifamily properties!

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