401k solo or SDIRA for next investment property

[Josie W.]

I currently have a traditional IRA with 150k approx. I currently have 3 rental properties cash flowing. First and second property SFH equity $90k, approx. 3rd property $160k I bought it with a home equity loan on my residence. $130k loan value.

Thinking about reducing taxes and fees, would it be better to get a 401k solo or a SDIRA or should it be better to get a conventional mortgage with current rates.

I don't know much about 401k solos or sdiras but I am learning and I am willing to make the change if it would be the best choice.

Thank you

[Brian Eastman]

@Josie W.

Whether investing in real estate with retirement plan funds or personal funds is "better" is a difficult question with no one answer. They are very different approaches, just like investing in stocks with personal vs IRA funds.

The primary reason to consider investing retirement funds in real estate is if you believe you can protect and grow your tax-sheltered retirement savings better by having the plan investing in real estate rather than what it is invested in today.  It is all about asset choice and diversification for the retirement plan.

Whether an IRA or Solo 401(k) will best suit your needs depends on your situation. A Solo 401(k) is only available to someone who is self-employed and has no non-owner employees in any business they control. Rental properties produce passive investment earnings, not self-employment income. So, unless you have something else that produces earned self-employment income, the IRA route would be appropriate.

There are several quality providers of self-directed plans active here on BP.   Do a little reading then get on the phone with a few.  You will learn quickly about the opportunities and limitations of a self-directed retirement plan.