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Can I flip properties inside my Solo 401k?
Can I flip properties inside my Solo 401k?
Updated over a week ago

This depends on how many properties you flip in a year. There is no hard legal guideline, but many attorneys suggest the following:

  • 1-2 flips per year = Safe investment activity for your 401k

  • 3-4 flips per year = A more grey area where there may be some IRS concern

  • 5+ flips per year = Very likely to be deemed as business activity and heavily taxable

Doing business activity inside a 401k with 401k money carries heavy taxation known as Unrelated Business Income Tax (UBIT).

The great news is that business activity is designed to go in a business, and generating business income is smart because you can make tax-deductible contributions into your Solo 401k.

The general rule of thumb is:

Put your passive investment activity in your 401k. Put your business activity in your business and save big on taxes by contributing up to $59,000 per year into your Solo 401k from your business income.

Here’s why you want to avoid the UBIT tax. UBIT is based on the trust tax rates in the tax code. These are the highest federal tax rates that exist:

  • $0.00-$2,500 15% $0.00

  • $2,500-5,900 $375 + 25% of amount over $2,500

  • $5,900-9,050 $1,225 + 28% of amount over $5,900

  • $9,050-12,300 $2,107 + 33% of amount over $9,050

  • $12,300 or greater, 3,179.50 + 39.6% of amount over $12,300

When UBIT is paid by a 401k, those profits are taxed twice: Once with UBIT and again later when distributed as income in retirement.

To avoid UBIT:

Put your passive investment activity in your 401k. Put your business activity in your business.

Short Answer: You can’t flip properties inside your 401k, but you can flip properties outside your 401k and receive major tax benefits.

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