Solo 401k for RE Investing

[Roseann Koefoed]

I have a cash flowing MF portfolio (about 80 units) and I will be leaving my corporate job soon to 1) be a better Mom to my kids and 2) focus on growing my RE portfolio.  My husband and I each have about $500k in retirement savings (401ks, IRÁ, ROTH).  

Since I will be leaving my corporate job and effectively self-employed as I manage most of my MF portfolio, can I roll my retirement savings into a Solo 401k and invest in RE with the money?

I understand that any RE earnings would have to stay in the account until I retire.  But I wanted to buy 1-2 short term rentals with the money.  STRs that I could use for personal use (family vacations) once or twice a year.  Can I do that without violating any rules?

If my husband (who has a brokers license on the side of his day job) were to broker the RE transaction my Solo 401k purchases, can he take that commission without violating any rules?

So many questions.  Help me!

[Kory Reynolds]

Quote from @John Underwood:

Quote from @Kory Reynolds:

I would be VERY careful about doing any direct real estate investing with a retirement account.  Yes it is possible, but there are so many land minds to step up, and the penalties so severe, it almost isn't worth it.  Real estate is already relatively tax advantaged anyways.

The prohibited transaction rules can be quite onerous - even some sweat equity on the property can trigger problems for you. Then if you end up doing a self directed IRA instead of a Solo 401k from not having any self employment income, you are subject to UBIT rules, which can cost you thousands in fee annually just for the filing depending on the complexity - in addition to the tax owed. If it is a normal 70/30 leveraged property, you may end up subject to tax on 70% of your returns anyways - so cost benefit, is that 30% tax free portion worth the high tax rates paid and additional filing fees to get tax free treatment on the 30%?

Investing in syndications, passively with an unrelated party (beware of UBIT if an IRA on both of those), or just hard money loans to third parties are all great ways to invest in real estate with a retirement account to minimize as many headaches as possible.

My self directed IRA's (one being a Solo401k, both being ROTH's) both own houses. I have studied the rules and even taken a class.

There are rules that must be followed and if you do you'll be fine.

The people I have read about that got in trouble were blatantly breaking the rules.

 I do agree - if you follow the rules, you'll be fine.  And good on you - it sounds like you have done more to educate yourself and go about things the right way than most (by far).  The problem is, the great majority people don't bother to educate themselves on it and just go for it.  Each year I have a handful of new or prospective clients come to us that have done some real estate investing with their qualified accounts, and in literally every single case they were doing things wrong without being aware (or just pretending to us they didn't know) that they were not following the rules - prohibited transactions and/or not addressing UBIT reporting.  Certainly those out there doing it right (I still have a couple of clients that are), but it does seem to be in the minority.