Can you use a solo 401k to fund turn key properties?

[Jason Ines]

Wanted to see if this strategy is obtainable. I want to roll over my 401k and traditional IRA into a solo 401k directed to real estate to buy turn key properties with positive cash flow. Am I able to use the appreciation and cash flow to grow the solo 401k and also maintain the operating expenses of the rentals?

[George Blower]

@Jason Ines

1. First, I presume that (i) you are self-employed; and (ii) you do not have any full-time w-2 employees (i.e. working 1000 hours or more per year) working for your self-employed business or otherwise working for you. Given this understanding, you would be eligible to establish a self-directed Solo 401k which allows for investing in real estate.

2. If you are self-employed with no full-time employees, you can set up a Solo 401k through a 401k provider which allows for investing in real estate. In that case, you can simply have the account at a bank or brokerage where you will have direct checkbook control.

3. All of the income and expenses will need to flow in and out of the retirement account.

4. If you will you debt to acquire the real estate, it must be non-recourse financing. See more at the following link: https://www.biggerpockets.com/blogs/9552/70408-ira...

5. You can't live on the property or otherwise use it for personal use.

6. You can't work on the property as it must be a passive investment (e.g. you must hire someone to fix the toilet and can't pay the expense with non-retirement funds).

7. You must purchase/sell real estate from/to an unrelated person and the real estate can't be titled in your name personally (e.g. in the case of the 401k, it would be titled in the name of the 401k and you would sign as trustee of the 401k).

8. You should verify that you are eligible to transfer the funds from your existing retirement account (e.g. if the funds are in your current employer 401k, you will likely not be able to transfer until you quit your job).