Real estate in Solo 401k vs. individually owned

[Derek Grue]

Hello BP,

I’ve read in a variety of places on these forums that it is financially more advantageous to own real estate in your own name as opposed to your solo 401k. Let it be said that I’ve primarily interested in small to midsize Multifamily properties. (10-40units) I’ve yet to see someone write a blog post explaining this ideology so therefore I want to challenge the status quo on this topic. There’s a few things I want us to keep in mind: 1.) The reductions on your taxes due to depreciation and interest, etc when owned in your own name. 2.) In a solo 401k those reductions are not allowed. Although all of the income received from rent goes into the solo 401k and can grow tax-deferred. 3.) Has anyone ran the numbers to see if it’s finacially advantageous to own real estate in the Roth component of your Solo 401k and all that income would grow tax-free for life? 4.) one final thought is to take into effect how a Required Minimum Distribution (RMD) will play when it comes time to pay taxes when you reach 70 1/2. 

If none of this makes sense, let me know and I’ll try to clarify some more. 

[Brian Eastman]

@Derek Grue

There is no one right answer.

Generally speaking a Roth IRA will provide more spendable after-tax money based on the length of time invested and rate of return.

With the Roth approach, you typically have less capital on the input side - due to taxes on the initially contributed amount or conversion.  However, you are simply paying tax on the seed, and anything you grow from that will be tax free.  The Roth is also not subject to RMD's, so if you do not need this money and are planning on handing it off to the next generation, that is an advantage.

A discussion about your specific situation with a licensed tax professional will be the best way to evaluate this topic.