[Real Estate Investing](/blog/brrrr-strategy-guide) With Retirement Accounts: Self-Directed IRAs, Solo 401(k)s, and More

Most people don't realize they can use their retirement accounts to invest in real estate. They assume IRAs and 401(k)s are limited to stocks, bonds, and mutual funds. In reality, the IRS allows retirement accounts to hold a wide range of alternative investments—including rental properties, raw land, real estate notes, and more.

The catch? You can't do it through Fidelity or Vanguard. You need a self-directed account with a custodian that specializes in alternative investments. And you need to follow strict rules to avoid prohibited transactions that could disqualify your entire account and trigger massive tax penalties.

This guide explains everything: account types, setup process, rules, benefits, risks, and whether this strategy makes sense for you.

How Retirement Account Real Estate Investing Works

The Basic Concept

Instead of your IRA holding shares of an S&P 500 index fund, it holds title to a rental property. All income from that property (rent) flows back into the IRA. All expenses (taxes, insurance, maintenance, management) are paid from the IRA. The property appreciates inside the tax-advantaged account.

With a Traditional IRA/401(k): Rental income and appreciation grow tax-deferred. You pay ordinary income tax when you take distributions in retirement.

With a Roth IRA/401(k): Rental income and appreciation grow tax-free. Qualified distributions in retirement are completely tax-free—including all the gains.

The Roth advantage for real estate is enormous. Imagine a property that generates $500/month in cash flow and appreciates $100,000 over 15 years. In a Roth account, all of that is tax-free.

Account Types for Real Estate Investing

[Self-Directed IRA](/blog/dscr-loan-self-directed-ira) (SDIRA)

The most common vehicle for retirement account real estate investing.

How it works:

• You open an IRA with a self-directed IRA custodian
• Roll over or transfer funds from existing retirement accounts
• Direct the custodian to purchase real estate on behalf of your IRA
• The custodian holds title (e.g., "ABC Trust Company FBO [Your Name] IRA")

Contribution limits (2026):

• Under 50: $7,000/year
• 50 and over: $8,000/year (catch-up contribution)
• These limits apply to new contributions, not to rollovers from existing accounts

Best for: People with existing IRA balances or those who can roll over old 401(k)s.

Self-Directed Solo 401(k)

Available to self-employed individuals with no full-time employees other than a spouse.

How it works:

• You establish a solo 401(k) plan with a provider that allows real estate
• Much higher contribution limits than IRAs
• Offers a loan provision—borrow up to $50,000 or 50% of the account balance
• Can include both traditional and Roth contributions

Contribution limits (2026):

• Employee contribution: $23,500 (plus $7,500 catch-up if 50+)
• Employer contribution: Up to 25% of net self-employment income
• Total limit: $70,000 (or $77,500 with catch-up)

Best for: Self-employed individuals, freelancers, consultants, and side business owners. Also excellent for real estate professionals who have a real estate business.

Health Savings Account (HSA)

A lesser-known option. HSAs can technically be self-directed and invested in real estate, though very few custodians offer this. The triple tax advantage (tax-deductible contributions, tax-free growth, tax-free withdrawals for medical expenses) makes this incredibly powerful but impractical for most people due to low contribution limits ($4,300 individual / $8,550 family in 2026).

Coverdell Education Savings Accounts

Can be self-directed into real estate, but the $2,000 annual contribution limit makes direct property ownership impractical. Could work for crowdfunding or note investments.

Step-by-Step: Buying Real Estate With Your IRA

Step 1: Choose a Self-Directed IRA Custodian

Not all custodians are equal. Look for:

• Experience with real estate transactions (years in business, number of RE transactions processed)
• Fee structure (account fees, transaction fees, asset-based fees)
• Processing speed (some custodians take weeks to process purchases, which can kill deals)
• Checkbook control option (allows faster transactions through an IRA-owned LLC)

Popular custodians include Equity Trust, Entrust Group, Advanta IRA, and IRA Financial Group.

Step 2: Fund Your Account

Options for getting money into your SDIRA:

• Rollover from an old employer 401(k) — usually the largest source of funds
• Transfer from an existing IRA at another custodian
• New contributions up to annual limits
• Roth conversions from traditional to Roth (taxes due on conversion amount)

The rollover process typically takes 2-4 weeks. Initiate this well before you plan to purchase property.

Step 3: Find and Analyze a Property

Find a property that meets your investment criteria, just as you would with personal funds. The key difference: your IRA is the buyer, not you personally. This means:

• The property must be purely an investment (no personal use, ever)
• The numbers must work after accounting for all IRA-paid expenses
• You can't contribute personal labor (sweat equity) to the property

Use the same analysis framework from our deal analysis guide.

Step 4: Direct Your Custodian to Purchase

Once you've identified a property:

1. Submit a buy direction letter to your custodian with property details
2. The custodian reviews and processes the purchase
3. Title is held in the name of the IRA (or IRA-owned LLC if using checkbook control)
4. All closing costs are paid from the IRA

Step 5: Manage the Property Through Your IRA

• All rent is deposited into the IRA account
• All expenses (taxes, insurance, repairs, management fees) are paid from the IRA
• You cannot personally pay expenses and get reimbursed
• You cannot personally perform repairs or maintenance on the property
• Hire a property manager—this is essentially mandatory for IRA-held properties

The Rules: Prohibited Transactions

This is where most people get into trouble. Violating prohibited transaction rules can disqualify your entire IRA, making the full balance immediately taxable plus a 10% early withdrawal penalty if you're under 59½.

You Cannot:

• Live in or use the property — Not even for one night. Not even over the holidays.
• Let disqualified persons use the property — This includes your spouse, parents, children, grandchildren, and their spouses
• Perform repairs or improvements yourself — You can't mow the lawn, paint a wall, or fix a leaky faucet on an IRA-owned property
• Pay expenses from personal funds — Every dollar in and out must flow through the IRA
• Sell to or buy from disqualified persons — You can't sell your personal property to your IRA or vice versa
• Receive any personal benefit — No hiring your own company to manage the property

Disqualified Persons Include:

• You (the IRA holder)
• Your spouse
• Your parents, grandparents, and their spouses
• Your children, grandchildren, and their spouses
• Any entity you own 50%+ of
• Your IRA custodian and their employees

Consequences of Violations

If you commit a prohibited transaction, the IRS can deem the entire IRA distributed as of the date of the violation. This means:

• Full account balance taxed as ordinary income
• 10% early withdrawal penalty if under 59½
• Potential additional penalties and interest
• Loss of all future tax-advantaged growth

The rules are strict, but they're clear. Follow them precisely.

UBIT and UDFI: Taxes Inside Your IRA

Even within a tax-advantaged account, two types of taxes can apply:

Unrelated Business Income Tax (UBIT)

Applies when your IRA operates an active business (like flipping houses). Rental income from a buy-and-hold strategy is generally exempt, but:

• Fix-and-flip profits inside an IRA may trigger UBIT
• Rates follow trust tax brackets (which hit the highest rate quickly)
• Your IRA must file Form 990-T if UBIT exceeds $1,000

Unrelated Debt-Financed Income (UDFI)

If your IRA uses a mortgage to purchase property, a portion of the income is taxable:

• The taxable portion equals the percentage financed by debt
• Example: IRA buys property 50% cash, 50% mortgage → 50% of income is subject to UDFI
• UDFI rates follow trust tax brackets
• The tax reduces but doesn't eliminate the benefits of leveraging inside an IRA

Strategy tip: If your IRA has enough cash to buy a property outright (no mortgage), you avoid UDFI entirely. This makes all-cash IRA purchases particularly tax-efficient.

When This Strategy Makes Sense

Ideal Candidates

• You have $50,000+ in old 401(k)s or IRAs sitting in underperforming investments
• You have a Roth IRA with significant balances (tax-free real estate growth is powerful)
• You're self-employed and can maximize Solo 401(k) contributions
• You want real estate exposure but already have a large stock portfolio
• You're investing in your 50s and want to accelerate retirement income

When It Might Not Make Sense

• Your retirement accounts are small (under $30,000) — hard to buy property and maintain reserves
• You need the depreciation deductions (IRA-held properties don't pass depreciation to you personally)
• You want to be hands-on with renovations (prohibited transaction risk)
• You need liquidity — selling IRA-held property takes time
• You don't want to pay custodian fees and deal with paperwork

Roth Conversions: A Powerful Strategy

Consider converting traditional IRA funds to a Roth IRA before purchasing property:

1. Convert $100,000 from Traditional to Roth IRA (pay taxes on $100,000 now)
2. Purchase a rental property with the Roth IRA
3. Property generates $800/month in cash flow — tax-free forever
4. Property appreciates to $200,000 over 15 years — appreciation is tax-free
5. Sell the property in retirement — zero capital gains tax

You pay taxes once on the conversion amount, then never again. For properties you expect to appreciate significantly, the math is compelling.

Comparing IRA Real Estate to Personal Real Estate Investing

Getting Started

1. Inventory your retirement accounts — What do you have, where is it, and what are the current balances?
2. Decide on account type — Self-Directed IRA or Solo 401(k) (if eligible)
3. Choose a custodian — Compare fees, processing speed, and reputation
4. Initiate rollovers — Start moving funds 30-60 days before you plan to purchase
5. Find your deal — Using the same criteria as any [rental property investment](/blog/best-states-for-rental-property-investment-2026)
6. Hire a property manager — Mandatory for IRA-held properties
7. Consult professionals — A CPA and attorney experienced with self-directed retirement accounts

For foundational investing knowledge, start with our beginner's guide to real estate investing. If you're approaching retirement age, our guide on investing in your 50s covers timeline-specific strategies that pair well with retirement account investing.

Retirement account real estate investing isn't for everyone. But for investors with significant retirement balances and the patience to navigate the rules, it's one of the most tax-efficient ways to build [real estate wealth](/blog/equity-vs-appreciation).

Related Articles

• Analyzing First Deal Guide
• [First Investment Property Financing](/blog/first-investment-property-financing)
• [First Rental Property Checklist](/blog/first-rental-property-checklist)
• Investing During Recession
• Investing In Your 20s Real Estate