Andy Bales - Director of Finance & Technology

Can I use my 401(k) to invest in real estate?

A question that frequently comes up is if you can use your 401(k) to invest directly in real estate deals.

While you cannot use a 401(k) directly, there is another option. You can leverage a Self-Directed IRA.

What is it?

A Self-Directed Individual Retirement Account SDIRA is a specialized type of individual retirement account that allows for a broader range of investment options, including real estate. With an SDIRA, you can use your retirement funds to purchase real estate properties, including residential, commercial, or even real estate-related assets like real estate investment trusts (REITs). (Additionally, you can use it to purchase a variety of other assets such as cryptocurrency, precious metals, or foreign currency)

This is in contrast to regular IRAs where there are limitations on what you can invest in - e.g. approved securities such as bonds, stocks, ETFS, etc.

How Does it Work?

In order to purchase real estate using a self-directed IRA, funds first have to move from the self-directed IRA to a Custodian. A custodian will ensure the desired investment satisfies IRS regulations regarding SDIRA. There a large number of custodians such as Millennium Trust who offer such services. Once funds are entrusted to the Custodian, the Custodian can wire funds on your behalf to the desired real estate investment.

The Advantages

• Portfolio diversification

• Higher return potentials

• Generational Estate Planning

The Disadvantages

• Strict guidelines

• Thorough due diligence required

• Limited Protections