Using 401k as a Real Estate investment vehicle

[Simone B.]

Has anyone used their 401k to invest in Real Estate (not REIT). If so, how did you navigate the purchase so as not to be penalized (early withdrawal) and not get an income tax hit. Is there a way in which Real Estate purchases can treated similarly to stocks/mutual funds in a 401k?

[Brian Eastman]

@Simone B.

If the 401(k) is with your current employer, you are probably stuck with what that plan offers.

if the 401(k) is from a former employer, you can roll it over to a self-directed IRA or Solo 401(k). Such plans are exactly what you describe; still a tax sheltered retirement plan, but with the ability for the plan to invest more broadly than just the stock market. Our clients invest in real estate, mortgage notes, real estate syndications, cryptocurrencies, venture capital, etc.

The key thing to understand is that the plan is the investor, not you. The plan purchases the asset, pays all expenses, and receives all income. You can direct the activities - think fund manager - but cannot benefit personally or inject value into the IRA/401(k) via the provision of services such as sweat equity.

There is lots of good information here on BP on the topic.  There are also a variety of plan formats and service models.  Do a little reading, make a few phone calls, and it will start to come together for you.