Can You Use Your Retirement Investment Account for Property Investments?
6 minute read
June 11, 2024


Using retirement accounts for alternative investments like real estate is an increasingly popular strategy among savvy investors. 

Traditionally, retirement accounts such as IRAs and 401(k)s have been associated with stocks, bonds, and mutual funds. 

However, there is growing interest in diversifying retirement portfolios, including real estate and other non-traditional assets. 

This approach can provide significant benefits, including:

  • The potential for higher returns
  • Diversification
  • Protection against market volatility

This article will explore how to use your retirement investment accounts to invest in property, such as private REITs.

Let’s Start Investing

Understanding retirement investment accounts

Retirement investment accounts are designed to help individuals save and invest for their retirement years. 

The most common types of these accounts include:

IRAs (Individual Retirement Accounts)

There are two main types of IRAs:  

  1. Traditional IRAs allow individuals to contribute pre-tax income, with taxes deferred until withdrawals are made during retirement
  2. Roth IRAs are funded with after-tax dollars—plus, qualified withdrawals during retirement are tax-free

401(k) plans

These employer-sponsored retirement savings plans allow employees to contribute a portion of their salary pre-tax. 

Employers may also match contributions to a certain extent. The funds grow tax-deferred until retirement.

Other qualified investment accounts

These include accounts like SEP IRAs and SIMPLE IRAs, designed for small business owners and self-employed individuals and offer similar tax-deferred growth benefits.

The primary purpose of these accounts is to provide a tax-advantaged way to save for retirement. Traditional investment options are typically limited to stocks, bonds, mutual funds, and ETFs.

Self-directed IRAs

A self-directed IRA is a type of IRA that offers greater flexibility in investment choices compared to traditional IRAs. 

With a self-directed IRA, you can invest in a broader range of assets, including opportunities like:

  • Real estate
  • Precious metals
  • Private Equity
  • And others

What are the differences? 

Traditional IRAs are often limited to publicly traded securities, but self-directed IRAs allow diverse investment opportunities. 

This is facilitated through a custodian who administers the account while the investor makes the investment decisions.

What are the investment options?

Self-directed IRAs open the door to numerous alternative investments. 

Real estate is an increasingly popular choice, allowing investors to purchase residential or commercial properties, rental units, or raw land. 

Other options include private loans, tax lien certificates, and startups.

Benefits and risks

Investing in real estate opportunities via a self-directed IRA can offer substantial benefits, such as 

  • The potential for high returns
  • Possibilities of steady rental income
  • Portfolio diversification

However, it also comes with risks, such as:

  • Market fluctuations
  • Property management challenges
  • Liquidity issues

Investors must also adhere to IRS regulations to avoid penalties, including rules against self-dealing and prohibited transactions.

Solo 401(k)s

A solo 401(k) is a retirement savings plan designed specifically for:

  • Self-employed individuals
  • Small business owners with no full-time employees other than themselves and their spouses

What makes Solo 401(k)s different?

Similar to traditional 401(k) plans, solo 401(k)s offer tax-deferred growth on investments. 

However, they are tailored for individuals who run their own businesses, providing higher contribution limits and greater investment flexibility.

Eligibility criteria

To qualify for a solo 401(k), you must be shown to be self-employed or own a small business with no full-time employees except your spouse. This plan is ideal for:

  • Freelancers
  • Consultants
  • Small business owners

Real estate investment possibilities

Solo 401(k)s allow for real estate investments, offering significant growth and income potential. The advantages include:

  • Higher contribution limits compared to traditional IRAs
  • Tax-deferred growth
  • The ability to borrow against the plan if needed

However, like self-directed IRAs, investing in real estate through a solo 401(k) requires careful management to comply with IRS rules and avoid prohibited transactions.

By understanding the options available with self-directed IRAs and solo 401(k)s, investors can make informed decisions to diversify their retirement portfolios and potentially enhance their retirement income through real estate investments.

Risks and considerations

While investing in real estate with retirement funds can be lucrative, certain risks are part of the equation:

  • Market risks: Economic downturns can impact rental income and property appreciation—real estate markets can be volatile, and property values may fluctuate
  • Liquidity concerns: Real estate is a relatively illiquid asset compared to stocks and bonds—in other words, selling property can take significantly more time, which may be a problem if you need quick access to funds
  • Regulatory risks: Non-compliance with IRS rules can result in severe penalties and loss of tax-advantaged status, so it’s essential to understand and follow all regulations related to self-directed IRAs and solo 401(k)s

To mitigate these risks:

  • Diversify your portfolio: Avoid putting all your retirement funds into real estate—balance your portfolio with other investments to spread the risk around
  • Stay informed: Market trends and economic conditions are going to fluctuate, so keep an eye on factors that could affect your real estate investments
  • Work with professionals: Use experienced custodians, financial advisors, and tax professionals to guide your investments and ensure compliance.

Making the most out of your retirement investment strategies

Using retirement accounts to invest in mREITs can provide significant benefits, including tax advantages, diversification, and the potential for high returns. 

You can enhance your retirement investment strategy by understanding the process, complying with regulations, and mitigating risks.

Choose Marquee Funding Group for private REIT investment

Private REITs can benefit retirement investments due to the inherent potential for high returns and steady income. They offer diversification, reducing the overall risk of your retirement portfolio by including real estate assets. 

Additionally, the income generated from private REITs, often distributed as dividends, can provide a consistent cash flow. Private REITs also offer tax advantages, as they must distribute a sizable majority of taxable income to shareholders (at least 90%), allowing for potential tax deferrals within retirement accounts like IRAs or 401(k)s. 

This combination of growth, income, and tax benefits makes private REITs an attractive option for retirement investments. For more information on investing in property with your retirement accounts, start investing with Marquee Funding Group. Our experts can help walk you through the complexities and maximize the potential of your retirement investments.