Investor · Oxford, NC · Member since 2016 · 39 posts · 15 votes
Hey Everyone,
If I transferred some assets to either a SD IRA or Solo 401k, would I be able to provide a mortgage loan to myself as an investment? In other words, could I go buy rental properties using my own SD IRA or Solo 401k as the bank? If so, which has the advantage? I've read some about buying the properties within both types using mortgages and how the income is treated differently due to some profits coming from your money and some coming from the banks. So I understand that, but just wondering if there are other ways to structure this so that I retain ownership of these properties outside of the retirement account. Thanks for any insight.
Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes
9y
John, you are considered to be a disqualified person to your IRA and therefore IRA is prohibited from engaging in any business activities with you or any other disqualified person. You CAN NOT do that.
Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes
9y
John, you are considered to be a disqualified person to your IRA and therefore IRA is prohibited from engaging in any business activities with you or any other disqualified person. You CAN NOT do that.
Dmitriy is correct, there is no means for your retirement plan to be a lender on a property that you own personally.
With a self-directed IRA or 401k, it is not you investing in real estate with access to that tax-sheltered retirement savings, but rather the plan investing in real estate. It is purely a diversification play for the retirement plan, with all proceeds flowing to the retirement plan.
An IRA may not lend to you personally. However, a 401k plan does provide for a participant loan. This feature does allow you personally to borrow up to 50% of the plan value or $50K (whichever is less) from the plan for up to 5 years. You could utilize this tool borrow money from the plan than you then put into a personal real estate deal. Generally speaking, however, it is more financially prudent to simply have the plan hold title to the asset.
Investor · Oxford, NC · Member since 2016 · 39 posts · 15 votes
9y
OK, thanks everyone. So I suppose then the best way to do this is to just keep the asset in a Solo 401k and get my portfolio lender to agree to a non-recourse loan, keeping the asset and profits in the retirement account without incurring additional tax burden. This is assuming I want to use leverage and not purchase the properties for all cash. Do I have that right? Thanks again.
You are correct. If you are eligible for the Solo 401k, it will allow you to make investments directly with the plan (optionally using non-recourse financing) OR you could borrow funds for an investment you would like to make personally. You don't have that level of flexibility with the IRA.