Buying Houses with Retirement Plan for Self Employed

The improving housing market and scarce home supply has helped real estate investors reap healthy returns from real estate. If you are a self-employed individual planning to benefit from the real estate recovery, you can open a Solo 401k account and purchase a house with tax benefits. The IRS allows investing in real estate through qualified retirement plans for self-employed such as the Solo 401k, also known as the Individual 401k. You can purchase commercial, residential, domestic or even foreign properties with your retirement plan.

Checkbook Control: Write a Check for Your Next Purchase

Solo 401k retirement plan offers checkbook control, allowing you to practice real self-direction for your retirement portfolio. You can purchase a property under your retirement account and being the trustee, you will be responsible for making all the decisions. It means you won’t have to seek custodian consent or get approval from your trustee before making the purchase. However, make sure that your Solo 40k provider is offering checkbook control and alternative investment options, including real estate, mortgage notes, tax liens, and similar investment tools.

To buy any property with your retirement account, you can simply write a check and fund the transaction with your Solo 401k. Generally, your Solo 401k will be responsible for any improvements, repairs, and maintenance of the property, so make sure to pay all these bills through your Solo 401k account only.

Funding Options with the Solo 401k

• Purchase with account balance: You can purchase the property with the available money in your account. Initially, it is best to focus on smaller properties such as single-family homes, which are easy to buy, rent, and even sell. Further, you will have sufficient funds for purchasing them and as you grow your portfolio, you can move towards other types of properties. 
• Non-recourse financing: If you come short of funds for your house purchase, you can fund the transaction with a non-recourse loan. Non-recourse loans are secured with the real estate involved in the transaction, prohibiting lenders from coming after you. This also means that as the plan owner, you will not have to act as the guarantor for the loan, which would constitute a prohibited transaction with the Solo 401k plan.

Enjoy Tax-Deferred Gains with Solo 401k Plan

In addition to the financing options available through your Solo 401k plan, you can save taxes on your investment. The profit goes directly to the Solo 401k account, and any taxes are applicable only at the time of distribution. Your money can grow tax-deferred, allowing the benefits of compounding for years.