Real Estate IRA vs. Solo 401k

[David B.]

So my wife and I are starting to look for a house to buy with our IRA, and then rent out, probably in Florida. This is something we have been considering for a couple years, and understand the procedure and rules.

But as of last night I started learning about doing the same thing from a Solo 401k, which we would fund from our IRA, which apparently we are eligible for since I have been self-employed with my own business for the last 20 years. So we also understand the ins and outs of running a business, along with the related responsibilities and tax laws. My wife is a diligent bookkeeper, and we have a sharp CPA doing our taxes and giving general advice.

I am learning about all the advantages of using a Solo 401k instead of an IRA, but what are the disadvantages? It appears that I don't need a custodian for this, but what professional services do I need, besides a CPA? Any other pitfalls to watch out for?

Is the money easily moved from the IRA to the Solo 401k?

We would be leveraging this with a non-recourse loan. Would this be done the same way as with an IRA? Do the lenders care one way or the other?

Thanks for any help.

David

[Dmitriy Fomichenko]

UDFI (Unrelated Debt Financed Income) is the income produced from the financed portion of the property inside of a retirement account and it triggers UBIT (Unrelated Business Income Tax) when transaction happens inside of an IRA. Solo 401k is exempt from this rule.

Hope this helps.