Real Estate Investments
IRA Investments in Real Estate
Real Estate is one of the most popular investment assets for self-directed IRA and Solo 401(k) retirement plans. Since our founding in 2005, Safeguard Advisors has established thousands of self-directed plans for investors wanting to own a rental property, flip houses, lease out farmland, or participate in a syndicated commercial real estate deal. There are many reasons that self-directed investors are attracted to real property investments, and a myriad of ways an IRA or 401(k) can invest in real estate. Let’s take a look at some of the primary considerations that go with this type of investing.
Why Real Estate?
Real Estate has always been looked at as one of the best investments for wealth creation. As the saying goes; “they are not making any more land”. We do seem to continue to make more people, however, so demand is a given. Real estate has several unique dynamics, most notably that it is a real asset and therefore not exposed to the risk of total value loss one can experience in paper assets. Generally speaking, real estate values are a lot less volatile than other market-based asset classes, so there is an inherent stability over time. Real estate also provides an avenue for both asset appreciation and generation of operating income such as rents. And not insignificantly, real estate is everywhere and is an asset class that most folks understand fairly well. Being able to invest in something you can physically see in your own community is a big draw for a lot of people.
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Rental Property
Because rental property is one of the more popular options, let’s take a closer look at how such transactions work in an IRA.
As with all plan investments, IRS rules prohibit any kind of direct or indirect benefit between a retirement plan and a disqualified party. So, any real estate deal has to first and foremost be done exclusively by and for the benefit of the IRA or 401(k).
- The plan will purchase the property and be on title All expenses for the acquisition and maintenance of the property must be paid for with plan funds.
- Any contracts such as leases, insurance, or construction services should be executed via the plan and not in your own name.
- All income produced by the rental or future sale of the property must go to the plan, and will be tax-sheltered to the plan.
You or a disqualified party may not benefit from the plan, such as by compensating yourself for the management of the plan, using plan held property, or renting property to a family member or family owned business. The reverse is also true, in that you or a disqualified party may not add value to the plan through the provision of goods, services or facilities.
You as the IRA LLC manager or Solo 401(k) trustee have the authority to administer plan investments. When it comes to rental real estate, this includes things like identifying opportunities and deal negotiations, signing contracts, paying the bills and receiving income into the plan account.
Within reasonable limits, you can safely perform some of the basic administrative activities associated with property management, including screening tenants, signing leases and collecting the rents. You could also choose to have the plan hire a professional property manager and therefore be ensured of remaining fully within the arm’s length requirements of the tax code. Even basic administration could be construed as providing services to the plan (which is prohibited) if it becomes excessive in nature. Self-managing a handful of single family homes may not be an issue. On the other hand, doing all the paperwork associated with a 30-unit apartment complex is a whole lot more work, and could be viewed by the IRS as providing services.
You or a disqualified party should refrain from performing any work on plan-held properties. If your self-directed IRA owns a rental and there is a tenant turnover event, with a need for some cleaning, painting or other repairs, for example, the plan needs to hire unrelated 3rd parties to do that work. You cannot perform work on the property yourself and be compensated, nor can you give your time and labor to the plan for free, as doing so would effectively be making undocumented contributions into the plan and artificially boosting the tax-sheltering benefits of your IRA.
Active Deals and UBTI
Among the key considerations with respect to deal type is the potential exposure to Unrelated Business Taxable Income (UBTI). Per the tax code, income that a tax-exempt entity like an IRA receives from passive sources is fully sheltered. However, if a tax-exempt entity engages in a trade or business activity on a regular or repeated basis, and is therefore viewed to be substantively competing with taxpaying businesses, then UBIT applies. This tax is designed to protect tax-paying businesses from unfair competition.
Passive activities not subject to UBIT would included interest, dividends, royalties, rent from real property or the sale of an asset held over time to produce passive income.
In the real estate sphere, active business deals would include any kind of development or dealer activity, such as new home construction or flipping of houses. One should use caution and discuss their strategy with a licensed tax professional if their investment goals include such deals. It may be necessary to adjust your investment strategy to become passive to ensure profitability and minimize tax exposure.
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What Kind of Real Estate Can be Held in an IRA?
An IRA or 401(k) retirement plan can invest in real estate in many different ways. There are no restrictions from the IRS related to the type of real estate that may be held. Following are some of the common types of real estate investments:
- Residential rental properties
- Commercial properties & apartments
- Industrial or storage properties
- Raw land, farm land, ranches & timber land
- Real estate development projects
- Property flipping
- Real estate partnerships, joint ventures, or syndicated investments
- Real estate crowd funds
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Using Mortgages
A self-directed IRA or Solo 401(k) may use debt financing such as a mortgage to acquire property and is not restricted to all cash purchases. In keeping with the rules related to self-dealing, any mortgage must be non-recourse, meaning no personal guarantee may be pledged by you or a disqualified party to the IRA. You cannot pledge your assets as security for the IRA’s debt.
In an IRA, the use of debt-financing creates tax exposure. The tax is on Unrelated Debt Financed Income or UDFI, and is assessed on the percentage of the income that the IRA derives based on the borrowed, non-IRA capital.
The impact of UDFI taxation is generally not significant. A $100K property with a $60K mortgage that produces 10% return would likely only see an annual tax bill of $100-$200 at most, depending on the available write-offs for expenses. The small cost of the tax will be far outweighed by the overall benefit of using leverage. The IRA should receive a higher cash-on-cash return for each dollar deployed into a leveraged property investment.
Solo 401(k) plans are exempted from UDFI taxation on debt associated with the acquisition of real property. So, if you qualify for such a plan and intend to use leverage in your real estate investing, the Solo 401(k) option greatly simplifies things and reduces the tax cost.
Joint Ventures and Syndicates
Another way to leverage you IRA or 401(k) into potentially larger deals than the capital your plan may have available can achieve is to team up with other investors. This can be done in many way, Including:
With any of these deal types, the same rules and considerations apply as to a deal the IRA may do on its own. One must avoid disqualified parties, and there may be tax exposure if the deal involves leverage or the underlying income producing activities would be considered a trade or business.
- Simple joint ventures between the IRA and one or more partners to purchase a property as tenants-in-common. An IRA may partner with anyone not viewed as a disqualified party, whether that party is also using IRA or non-IRA funds.
- Participating in a real estate syndicate or private placement such as a LLC or LLP formed to bring many investors into a large deal like an apartment, commercial project, golf course, etc.
- Investing in real estate crowd funds.
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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.
