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Buying Real Estate with the Solo 401k
Buying Real Estate with the Solo 401k

Let’s cover a real world example of the Solo 401k purchasing a piece of real estate.

Updated over a week ago

It’s important to use the right sequence of getting your deal done and you must have the Solo 401k established with your plan and trust document to properly title your offer and closing documents.

 1) Fund your Solo 401k 

There are a number of ways to quickly and easily fund your Solo 401k. You can roll over funds from existing SDIRA, Solo 401k, traditional IRA, 401k, 403b, TSP (Thrift Savings Plan), Defined Benefit plan or 457b (and more). 

You can also fund your plan with new tax-deductible contributions. If you have active self-employment income, this is the quickest and easiest way to fund your Solo 401k.

2) Locate the Property

If you already have a property in mind, then you’re all set! If you don’t yet have a turnkey passive cashflow deal maker, you’re in good hands. At Solo 401k, we provide resources like dealmaker access to our Solo 401k accountholders so that finding a profitable deal is easy. 

As your Solo 401k document provider, we don’t sell the investments ourselves, but we are happy to share what we’re doing with our Solo 401ks and give access to those resources to our accountholders. We believe in walking the walk, so we only refer our accountholders to dealmakers with whom we have invested personally or have done extensive due diligence. 

After you have the property identified, you’ll put in your offer using the name of your Solo 401k Trust (e.g. John Doe 401k Trust). If there’s any earnest one to put down, you can write the check out directly from your Solo 401k bank account. Your Solo 401k will own the property, so you want to be sure to use only you Solo 401k funds to pay for any fees.

3) Offer and Closing

One of the great things about your Solo 401k is that you have flexibility in purchase methods. This means you can pay for the property in full using your retirement funds (if no mortgage is needed/wanted) or you can get financing for your purchase. It’s possible to get a non-recourse loan for your Solo 401k to use leverage to purchase your property. Unlike the Self-Directed IRA (SDIRA), the Solo 401k is not subject to the Unrelated Debt Financing tax (UDFI). This makes the Solo 401k the easiest retirement vehicle available to use leverage purchasing a property.

In any offer documents and at the closing table, the Solo 401k itself is the buyer. This keeps the retirement funds separate from you and keeps those funds tax-deferred. You are the trustee of your Solo 401k, so you sign the closing documents. The check presented at closing will be from your Solo 401k bank account.  You’re in total control during the entire deal.

4) Fees and other aspects of your real estate deal

If you have any ongoing expenses, such as property taxes and/or maintenance for the property, they should be paid from your Solo 401k bank account. Remember that personal funds and retirement funds should never mix to avoid triggering prohibited transactions or a taxable event.

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