How to Use Your IRA or 401(k) to Invest in Real Estate: The Benefits of a Self-Directed IRA
If you have money sitting in a traditional IRA or an old 401(k), you might think your only options are stocks, bonds, or mutual funds. The truth is, you can use those same retirement funds to invest directly in real estate — without cashing out and paying taxes or penalties.
The key? A Self-Directed IRA (SDIRA).
What Is a Self-Directed IRA?
A Self-Directed IRA works just like a traditional or Roth IRA in terms of tax advantages, but it gives you the freedom to invest in a much wider range of assets — including rental properties, commercial buildings, vacant land, or even private real estate deals.
Unlike a standard IRA that’s limited to Wall Street products, an SDIRA puts you in control of where your retirement money goes.
How to Rollover Your IRA or 401(k) Into an SDIRA
- Open an SDIRA with a qualified custodian – Not all banks and brokerages offer them, so you’ll need one that specializes in self-directed accounts.
- Transfer or rollover funds – Move your existing IRA or old 401(k) into the SDIRA without triggering taxes or early withdrawal penalties.
- Choose your real estate investment – This could be a rental property, a commercial building, a fix-and-flip, or even an investment in a real estate syndication.
- Purchase through the SDIRA – The property is owned by the IRA, and all income and expenses flow through the account.
The Benefits of Using an SDIRA for Real Estate
- Tax advantages – Rental income and gains grow tax-deferred (traditional SDIRA) or tax-free (Roth SDIRA).
- Diversification – Real estate can help balance your portfolio and protect against stock market volatility.
- Tangible asset – You’re investing in something physical and potentially more stable than paper assets.
- Leverage opportunities – In some cases, your IRA can even use non-recourse loans to finance property purchases.
- Control – You choose the asset, location, and investment strategy.
Important Rules to Know
The IRS has strict guidelines for SDIRA investments:
- You can’t live in or personally benefit from the property.
- Expenses must be paid from the IRA, and income must flow back into the IRA.
- Certain “prohibited transactions” with family members are not allowed.
Why This Matters Now
Real estate offers potential for consistent cash flow and long-term appreciation. With market uncertainty, diversifying your retirement portfolio into real assets can be a smart way to hedge against inflation and stock market swings.
Rolling over your IRA or 401(k) into a self-directed account could open the door to investments you’re passionate about — without losing the tax benefits of a retirement plan.
Final Thought:
Your retirement money shouldn’t be stuck on autopilot. If you’ve been curious about investing in real estate but assumed you didn’t have the cash, your retirement funds might be the key. By using a self-directed IRA, you can take control of your portfolio and invest in assets you believe in.
