House Flipping 201: Scope of Work
We’ve been focusing on house flipping as an investment strategy for self-directed IRA and 401(k) plans of late. The current economic and demographic factors in many parts of the country continue to provide great flipping opportunities. For this article, we wanted to take a deeper dive into one of the most critical tools for success in this type of investing – the Scope of Work.
What Is the Scope of Work?
The Scope of Work is just what it sounds like, a document that outlines what work will be done during the remodeling or upgrade of a property. But really, the role it serves covers much, much more than that. Without a good scope of work, you risk miscommunication that can result in delays, cost overruns, or even litigation. With a good scope of work, you can get your flip project completed on time and on budget, and generate good relations with your contracting resources so they will be ready to do great work for you on your next IRA flip house, and the flip after that…
A scope of work can take many forms, and different investors or different projects may require more or less detail, but the basic purpose of the document is to outline what work needs to be done, who will be doing it, and when it needs to be done. The scope of work is essentially your project plan.
The better you get at creating a scope of work suitable to each project your self-directed IRA is working on, the easier and more profitable those projects will become.
A Cost Estimating Tool
The earlier in your project cycle you can put the scope or work in play, the better. As you are evaluating a property for purchase, you should start working on at least the framework of your plan so that you can put rough numbers on the overall rehab costs you expect. Depending on how much experience you have and whether you have a contractor you are familiar with or not, the level of detail at this stage can vary greatly.
A seasoned investor with knowledge of project costs might be able to get away with a very simple outline such as:
- Paint throughout
- New carpet in 3 bedrooms and den
- Refinish hardwood floors in kitchen, dining, and living rooms
- Light bathroom updates, paint, fixtures & vinyl floors
- Full kitchen upgrade; cabinets, fixtures & countertops
An investor with fewer projects on their resume, or who may be needing to get bids from contractors on the project might go into much more detail. For example:
Living Room:
- Painter: Ceiling White, Walls Mocha. Trim Cream. Paint supplied by customer.
Prep and patch required. - Electrical: 2 new Ceiling Fixtures, replace switches & outlets (customer supplied materials).
- Flooring: Refinish hardwood floors.
If you cost jobs yourself, a thorough scope of work will ensure you don’t miss anything. If you are hiring contractors, being able to present the same scope of work to several bidders will ensure that you the estimates you get are comparable and fully address your expectations.
A Project Plan
The main focus of the scope of work is making sure that your self-directed IRA flip project is completed as quickly as possible so the home can be offered for sale. The faster you can turn properties around, the more profitable your projects will be, as you will minimize holding costs such as taxes and insurance, and can turn your capital over more quickly.
By clearly outlining not only what needs to be done, but also who needs to address each component of the project, you can develop a clear timeline and progression. You don’t want to have the carpet installed before you paint, for example. And, being able to book your carpet install a week or more in advance, as the other components of the project start coming together, will help minimize dead time. If you did not have a clear plan, and waited to call the flooring contractor a few days ahead of time once you see prior steps completed, you might find they are booked out for 2 weeks. Your project would stall out.
At this stage, even a seasoned investor will want to get more detail into the plan. Some people prefer to create a plan by room, others prefer to look at the project by type of work (painting, electrical, etc.). Either way works, but the goal is to make sure you have the right contractors executing the right steps, in the right order, while minimizing idle time.
Of course, no project ever goes exactly as planned, but it certainly is a lot easier to put minor adjustments on a well-crafted plan than to try and sort out the down-timeline repercussions of a delay in one area when you are just winging it. With a good plan in place, if a delay happens, you can easily see that you will need to call the tile installer you have scheduled for Thursday and plan to have him come next Monday instead, for example.
Expectation vs. Reality
The words “paint this room” can mean very different things to different people. You might have been thinking white ceilings, latte walls and cream trim. Without those details, you might find that the painter thought that getting a fresh coat of latte on the walls and ceiling would do the trick. By having a clear project plan, you can eliminate unexpected surprises and potential conflicts with your contractors. As you work with the same contractors over time, the level of detail required may decrease, but it may not. When work does not meet your expectations, you end up with tension, delay, cost overruns and a whole lot of unnecessary drama. That may be what some folks like to watch on late night TV reality shows, but it is not a recipe for a successful flip. Having a scope of work that clearly outlines the work to be done eliminates any he-said, she-said moments. It is all there in writing.
Building a Successful Team
Because a good scope of work helps get everyone on the same page, and reduces the potential for unexpected delays or cost overruns, it can be part of helping you build a top-notch flipping team. Contractors would much rather work on a project where they know what they need to do, can bid a fair price, and can predict their work schedule with some degree of accuracy. If you put together project plans that make their job easier, they will want to work for you. Then, when you end up on a new project and find you have an unexpected need for, say, a plumber. That plumber will be more likely to shift their schedule around to accommodate your needs than those of a client who may not be as easy to work with.
Good relationships can also help you reduce costs. Many contractors include a contingency cost for the unexpected, as it is so commonly part of their projects. If your contractors see that you know what you are doing and they can execute their role more easily, they should be able to pass on that savings to you while still making a fair profit for themselves.
Plan for Success
Like so many key components of a successful investing strategy, the scope of work is a well thought out road map. When you plan well, consider pitfalls and potential contingencies, and communicate well with your team, you are much more likely to achieve your goals. This is true when evaluating potential investments and when executing any specific investment strategy. When it comes to flipping houses with IRA or Solo 401(k) funds, a good scope of work can be the difference between a slam-dunk profitable job and a time-wasting, money loser of a project.
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Quick answers to common questions
We’ll take you through a simple, step by step process designed to put your investment future into your own hands…immediately. Everything is handled on a turn-key basis. You take 100% control of your Retirement funds legally and without a taxable distribution.
YES! In 1974, Congress passed the Employee Retirement Income Security Act (ERISA) making IRA, 401(k) and other retirement plans possible. Only two types of investments are excluded under ERISA and IRS Codes: Life Insurance Contracts and Collectibles (art, jewelry, etc.). Everything else is fair game. IRS CodeSec. 401 IRC 408(a) (3)
It’s actually pretty simple. Early on, regulators let the securities industry take the lead in educating the public about retirement accounts. Naturally, brokers and banks promoted stocks, bonds, and mutual funds—giving the impression that those were the only allowed investments. That was never true... and still isn’t. You can probably guess why they kept the rest under wraps.
It is possible to use funds from most types of retirement accounts:
- Traditional IRA
- Roth IRA
- SEP IRA
- SIMPLE IRA
- Keogh
- 401(k)
- 403(b)
- Profit Sharing Plans
- Qualified Annuities
- Money Purchase Plans
- and many more.
It must be noted that most employer sponsored plans such as a 401(k) will not allow you to roll youraccount into a new Self-Directed IRA plan while you are still employed. However, some employers will allow you to roll a portion of your funds. The only way to be completely sure whether your funds are eligible for a rollover is by contacting your current 401(k) provider.
A Solo 401(k) requires a sponsoring employer in the format of an owner-only business. If you have a for-profit business activity – whether as your main income or as a side venture – and have no full-time employees other than potentially your spouse, your business may qualify. The business may be a sole-proprietorship, LLC, corporation or other entity type.
A self-directed retirement plan is a type of IRA or 401(k) that gives you greater control over how your retirement funds are invested. Unlike traditional accounts held at banks or brokerage firms that limit you to stocks, bonds, and mutual funds, self-directed plans allow you to invest in a wide range of alternative assets including real estate, private businesses, precious metals, cryptocurrency, and more.
These plans still follow the same IRS rules and maintain the same tax-deferred or tax-free benefits as conventional retirement accounts. The difference is simply in how and where you choose to invest.
No. Moving to a self-directed IRA or Solo 401(k) does not trigger any taxes, as long as your funds are eligible for rollover.
Self-directed retirement plans maintain the same tax-advantaged status as traditional plans offered by banks or brokerage firms. The key difference is flexibility—our plans are designed to give you greater control and allow for a wider range of alternative investments beyond stocks, bonds, and mutual funds.
A prohibited transaction is any action between your retirement plan and a disqualified person that violates IRS rules and can lead to serious tax consequences. Under IRS Code 4975(c)(1), prohibited transactions include:
- Selling or leasing property between your plan and a disqualified person Example: Your IRA cannot purchase a property you already own.
- Lending money or extending credit between the plan and a disqualified person Example: You cannot personally guarantee a loan your IRA uses to buy real estate.
- Providing goods or services between your plan and a disqualified person Example: You can’t use your personal furniture to furnish a rental property owned by your IRA.
- Using plan income or assets for the benefit of a disqualified person Example: Your IRA cannot buy a vacation home that you or your family use.
- Self-dealing by a fiduciary (using plan assets for their own benefit) Example: Your CPA shouldn't loan your IRA money if they’re advising the plan.
- Receiving personal benefit from a deal involving your IRA's assets Example: You can’t pay yourself from profits your IRA earns on a rental.
If a transaction doesn’t clearly fall within the allowed guidelines, the IRS or Department of Labor may review the situation to determine if it qualifies as a prohibited transaction.
Disqualified persons are individuals or entities that are prohibited from engaging in certain transactions with your IRA or 401(k). Doing so could trigger a prohibited transaction, which may result in taxes and penalties.
Here’s who is considered a disqualified person:
- You (the account holder)
- Your spouse
- Your parents, grandparents, and other ancestors
- Your children, grandchildren, and their spouses
- Any advisor or fiduciary to the plan
- Any business or entity owned 50% or more by you or another disqualified person, or where you have decision-making authority
These rules exist to prevent self-dealing and ensure your retirement plan remains in compliance with IRS regulations.
(Reference: IRC 4975)
Understanding and following these rules can be tricky, but it’s very doable. The best way to stay compliant is to work with professionals who specialize in self-directed retirement plans. They can help you navigate IRS guidelines and avoid prohibited transactions.
If an IRA holder is found to have engaged in a prohibited transaction with IRA funds, it will result in a distribution of the IRA. The taxes and penalties are severe and are applicable to all of the IRA’s assets on the first day of the year in which the prohibited transaction occurred.
Yes. While self-directed retirement plans allow for a wide range of investments, there are a few important restrictions.
You cannot invest in collectibles or life insurance contracts, and you must avoid prohibited transactions—activities that benefit you personally rather than the retirement plan. These include things like buying or selling property to yourself or family members, using plan assets for personal gain, or self-dealing in any way.
Violating these rules could cause your entire IRA to lose its tax-advantaged status. To protect your account, it’s essential to work with professionals who understand IRS regulations and can help you stay compliant.
This is a common misconception. In many cases, professionals may simply be unfamiliar with self-directed retirement plans, as they fall outside their usual scope of work. CPAs and tax preparers are trained to file taxes, not necessarily to advise on alternative retirement strategies. Financial advisors and brokers often work for firms that focus on traditional investments like stocks and mutual funds—and may not benefit from or support alternative options like real estate or private lending.
Self-directed retirement investing is legal under IRS rules—but like any specialized area, it requires working with professionals who understand how it works.
The IRS has rules in place to make sure your IRA is used only for the exclusive benefit of the retirement account—not for personal gain or to help family members. These rules can get complicated because there are many ways a conflict of interest can occur, even unintentionally.
For example, if your IRA buys a house and rents it to your mother, you might be reluctant to evict her if she stops paying rent. That emotional connection creates a conflict between what’s best for your IRA and your personal relationships, something the IRS aims to prevent.
These rules help ensure your retirement account stays compliant and protected. (See IRC 408)
Yes. Most tax-deferred retirement accounts—such as Traditional IRAs, old 401(k)s, 403(b)s, and TSPs—can be rolled over into a self-directed IRA or Solo 401(k), depending on your eligibility. Roth IRAs cannot be rolled into these accounts.
You can contribute directly from earned income, subject to annual IRS contribution limits. The method and amount depend on the type of plan you have (e.g., Solo 401(k) vs. IRA).
To take a distribution, you'll request funds through your custodian or plan administrator. Distributions may be taxable depending on your account type and age. Early withdrawals may be subject to penalties.
For 2025, the Solo 401(k) max contribution limit is $81,250 if age 60-63, $77,500 if age 50-59 or 69+, and $70,000 if under 50. Traditional and Roth IRAs have a limit of $7,000 ($8,000 if age 50+). Limits are subject to IRS adjustments.
Yes. IRA contributions are typically due by your personal tax filing deadline (e.g., April 15). Solo 401(k) contributions follow your business tax filing deadline, including extensions.
IRS reporting requirements vary depending on the type of self-directed retirement plan you have. Here’s a quick breakdown of what you need to know
Please note: Our team can help you understand what’s required for your specific account, but we don’t provide tax or legal advice. We always recommend working with a qualified tax professional to ensure full IRS compliance.
Self-Directed IRA (Traditional or Roth)
- Form 5498 – Filed by your custodian each year to report contributions, rollovers, and the fair market value (FMV) of your account.
- Form 1099-R – Issued if you take a distribution or move funds out of your IRA.
- Annual Valuation – You'll need to provide updated FMV for any alternative assets held in the account, such as real estate or private placements.
Solo 401(k)
- Form 5500-EZ – Required if your plan assets exceed $250,000 as of year-end. Must be filed annually by the plan participant.
- Form 1099-R – Required if you take a distribution or roll funds out of the plan.
- Contribution Tracking – Keep records of employee and employer contributions. These are not filed with the IRS but may be needed for tax reporting or audits.
SEP IRA
- Form 5498 – Filed by your custodian to report contributions and FMV.
- Form 1099-R – Filed by your custodian. Issued for any distributions.
- Employer Contributions – Must be reported on your business tax return (and on employee W-2s, if applicable).
Health Savings Account (HSA)
- Form 5498-SA – Filed by your HSA custodian to report contributions.
- Form 1099-SA – Filed by your HAS custodian. Issued for any distributions.
- Form 8889 – Must be included with your personal tax return to report contributions, distributions, and how funds were used.
