How to Buy a Rental Property with Your Retirement Plan
Rental property is the most popular asset choice for investors with a self-directed IRA or Solo 401(k) plan. Whether you’re looking to invest in a local property and self-manage the project, or to put your IRA capital to work in another state through the services of a turnkey provider, there are many benefits associated with real estate investing.
Income-producing real estate has always been a key pillar in creating wealth. And putting your tax-sheltered IRA or 401(k) savings to work can be a strong step forward in securing your retirement future.
The Benefits of a Rental Property in Your IRA
There are many reasons a rental property is a popular investment choice for your self-directed IRA. Real estate provides:
- A solid asset that provides security for your investment principal
- A less volatile asset than many conventional choices
- Income through positive cash flow
- Potential for asset appreciation over time
- The option to use leverage and increase ROI on a dollar-for-dollar basis
- An excellent portfolio diversification choice
Most investors have a good understanding of real estate, since they’ve been renters and homeowners throughout their life.
This experience allows you to “invest in what you know”, which is a key benefit of investing with a self-directed retirement plan.
Investing in rental property with a self-directed IRA or Solo 401(k) plan comes with some special considerations.
Here’s what you need to know about buying a rental property in your self-directed retirement plan.
Start with a Plan
When making any investment, you need to start with a business plan.
When it comes to investing in a rental property, you’ll want to have a framework to guide you along the way.
Understanding property values, vacancy rates and market rents when comparing properties is an important starting point.
There are many tools you can use to research and evaluate markets and properties. The advice of a local expert like a realtor, fellow investor, or attorney can be helpful.
Other important considerations include:
- Knowing your purchase budget
- Anticipating rehab and operational costs
- Lining up necessary vendors like contractors, insurance providers and property management
- Thinking about one or more exit strategies
Next, your self-directed retirement plan needs to be setup and funded before you start making offers on properties. This is important for compliance reasons as discussed below.
With an established and funded plan, you’ll be positioned to write stronger offers — potentially with all cash, and with shorter closing periods. This can lead to successful offers with aggressive pricing.
Offers and Contracts
When buying a property for your self-directed IRA, all contracts and expenses must be handled through the plan itself.
It’s prohibited to personally place a property under contract and provide earnest money, and then assign or transfer the contract to the IRA. This is considered self-dealing by the IRS.
There are ways to utilize 3rd parties to lock up a deal before your plan is in place and funded. But this approach can be stressful, and could weaken your ability to make a strong offer.
In a Checkbook IRA, the LLC/Trust is the purchaser of the property and will be on the title. You can execute the contracts in your role as manager of the LLC/Trust.
With a Solo 401(K), the 401(K) Trust is the purchaser of the property and will be on title. You may sign contracts as the plan trustee.
Any sales-related expenses, like earnest money deposits or inspections, must be paid from the retirement plan bank account. You can write a check, get a cashier’s check, or wire funds as necessary. However, you can’t use personal funds or funds belonging to a disqualified party to your IRA.
Be sure your real estate agent is familiar with these requirements before they start writing offers. You never want to write an offer in your own personal name or use personal funds if you intend to have the plan held by your retirement plan.
Closing on the Property
As the signatory for your Checkbook IRA or Solo 401(k), you can directly handle the real estate closing process, and are not required to submit documents to a 3rd party custodian for review and execution.
This makes the closing process very simple:
- The IRA owned LLC/Trust or Solo 401(k) trust will be on title
- You can execute the paperwork
- You can fund the transaction directly from your plan account
- Be sure the plan tax ID is associated with the transaction
You’ll then retain any transaction associated records like closing statements or the deed. There’s no need to forward those records to a 3rd party.
Expenses & Income
All expenses associated with your plan-held property must be paid directly from the plan account. This includes regular and predictable items like insurance, HOA fees, management, and property taxes, as well as any costs for maintenance, repairs, and landscaping.
You may use most any method of funding such as checks, wires, debit cards, etc., so long as all transactions flow directly through the plan held bank account.
Never use personal funds or funds belonging to a disqualified party, even if you plan to reimburse yourself. This could be viewed as co-mingling of funds, which is a prohibited transaction.
All income from the rental of a property must be deposited to the plan account. Your tenants can make payments to the LLC/Trust or 401(k) trust account using checks or direct deposit.
Whether the funds are delivered to you or directly to the bank doesn’t matter, as long as the funds are issued to the plan and not to you personally.
Rent can be paid to your property manager if you’re using one. The property manager can forward the net amount after expenses are paid to the plan.
All income produced by the investment is tax-sheltered to the retirement plan. Because none of the income is taxed as it’s earned, there are no deductions against taxation in the form of depreciation or other write-offs.
Investing in real estate with an IRA or 401(k) is as simple as income – expenses = return on investment. From an income and tax perspective, real estate in your IRA is no different than owning a dividend producing stock in your IRA.
Property Management
You can self-manage your IRA’s rental properties, or choose to hire a professional property manager.
Using a 3rd party manager is typically a best practice, as that person or team will have the necessary expertise to ensure compliance with state and local regulations. They’ll also have experience with finding, screening and managing tenants over time.
With a property manager, you can also reduce your risk of being seen as self-dealing or providing services to your plan.
A hired property manager is simply a vendor providing services to the plan. Those services should be paid by the plan account, or deducted from rental income.
If you choose to self-manage your account, you’ll need to be sure to act in accordance with IRS guidelines. IRS rules prohibit any direct or indirect benefit between a plan and a disqualified party, in either direction.
As the signatory for the plan, you’re allowed to administer investments. This includes executing contracts, selecting vendors, paying expenses and receiving income on behalf of the plan. But you can’t compensate yourself for these administrative activities.
Maintenance & Repairs
Any time your plan-held property needs maintenance, you’ll need to hire an outside vendor who isn’t a disqualified party.
IRS rules prohibit you from providing benefit to the plan by providing services or furnishing goods or materials. This means you shouldn’t perform work on a property, including repairs, maintenance, or landscaping.
Your time has value. If you gift that value to the IRA, that’s seen as making undocumented contributions to the plan, and artificially inflating the tax-sheltering as a result.
Insurance
It’s important to have the right kind of insurance in place for your IRA or 401(k) held property.
You’ll want a commercial landlord & liability policy where the IRA-owned LLC/Trust or Solo 401(k) trust is the named insured.
You shouldn’t obtain a policy in your own name and list the plan as an “additional insured”, as this could be seen as self-dealing. Plus, this type of policy may not provide adequate coverage.
Not all insurance companies can offer such programs. Most retail homeowner-focused insurance agents will likely try to push you towards the additional insured model, which could be problematic. Seek out a commercial provider of landlord insurance. See our vendor resources page for knowledgeable providers for these policies.
Recordkeeping
In your role as the manager of the IRA-owned LLC/Trust or trustee of the Solo 401(k), you retain all records associated with plan transactions.
This involves tasks like keeping an appropriate paper trail of purchases, sales, expenses and income. The details associated with an investment aren’t typically necessary for a tax return. But record keeping helps create an audit trail.
As the person responsible for managing and growing your retirement savings, you might want to produce performance reporting for your own benefit.
The plan will need to perform year-end reporting, and you’ll want to be sure you’re prepared to facilitate that.
In a checkbook IRA, you’ll need to provide to the IRA custodian a statement of fair market value for the LLC/Trust. This statement is a summary number listing the total value of all LLC/Trust held assets. The custodian will then report on the IRA using form 5498.
With the Solo 401(k), you’ll also be summing up the plan value at the end of the year. For Solo 401(k) plans under $250K in value, all recordkeeping and end-of-year valuation is purely internal and for your benefit.
If the total plan value exceeds $250K during the tax year, then a 5500-EZ informational return must be filed with the IRS.
In the case of a property holding, a 3rd party broker price opinion is suitable for most investors. Tax records and internet sources such as Zillow aren’t considered accurate.
A formal property appraisal is only required for investors with an IRA that is subject to Required Minimum Distributions, such as a non-spousal inherited IRA or a tax-deferred IRA for an account holder over age 72.
If you engage a 3rd party vendor to provide services in excess of $600 to the plan, such as a contractor to perform work on a property, the plan will need to issue a 1099-NEC to report that income.
Anyone producing income to the IRA or 401(k) (like a property manager) may issue a 1099-NEC to the plan to report that income. The income needs to be properly reported to the plan tax ID, and not to you personally.
Due to the configuration of the plan tax ID, the IRS will know this income is going to a tax-exempt retirement plan, and won’t expect to see that income on a tax return.
Selling the Property
When a rental property is eventually sold, it’s a non-event for tax purposes. The IRA is simply liquidating the investment and returning to a cash position.
There’s no federal or state income tax associated with the transaction. In some states, there may be a transfer tax that applies to the sale of real estate. Your IRA or 401(k) won’t be exempted from such transfer taxes.
The closing process will result in a 1099-S being issued to your plan. As with all plan transactions, the plan tax ID should be used to ensure that the IRS sees the non-taxable status. Keep this document with your plan records.
Put Your Expertise to Work for Your Retirement
Rental properties are a time-tested vehicle for building wealth. Investing in rental real estate with your self-directed IRA or 401(k) can help you create stable and predictable growth for your retirement savings.
With good planning and an awareness of the IRS rules, you can administer real estate investments for your IRA with confidence and expertise.
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Quick answers to common questions
We’ll take you through a simple, step by step process designed to put your investment future into your own hands…immediately. Everything is handled on a turn-key basis. You take 100% control of your Retirement funds legally and without a taxable distribution.
YES! In 1974, Congress passed the Employee Retirement Income Security Act (ERISA) making IRA, 401(k) and other retirement plans possible. Only two types of investments are excluded under ERISA and IRS Codes: Life Insurance Contracts and Collectibles (art, jewelry, etc.). Everything else is fair game. IRS CodeSec. 401 IRC 408(a) (3)
It’s actually pretty simple. Early on, regulators let the securities industry take the lead in educating the public about retirement accounts. Naturally, brokers and banks promoted stocks, bonds, and mutual funds—giving the impression that those were the only allowed investments. That was never true... and still isn’t. You can probably guess why they kept the rest under wraps.
It is possible to use funds from most types of retirement accounts:
- Traditional IRA
- Roth IRA
- SEP IRA
- SIMPLE IRA
- Keogh
- 401(k)
- 403(b)
- Profit Sharing Plans
- Qualified Annuities
- Money Purchase Plans
- and many more.
It must be noted that most employer sponsored plans such as a 401(k) will not allow you to roll youraccount into a new Self-Directed IRA plan while you are still employed. However, some employers will allow you to roll a portion of your funds. The only way to be completely sure whether your funds are eligible for a rollover is by contacting your current 401(k) provider.
A Solo 401(k) requires a sponsoring employer in the format of an owner-only business. If you have a for-profit business activity – whether as your main income or as a side venture – and have no full-time employees other than potentially your spouse, your business may qualify. The business may be a sole-proprietorship, LLC, corporation or other entity type.
A self-directed retirement plan is a type of IRA or 401(k) that gives you greater control over how your retirement funds are invested. Unlike traditional accounts held at banks or brokerage firms that limit you to stocks, bonds, and mutual funds, self-directed plans allow you to invest in a wide range of alternative assets including real estate, private businesses, precious metals, cryptocurrency, and more.
These plans still follow the same IRS rules and maintain the same tax-deferred or tax-free benefits as conventional retirement accounts. The difference is simply in how and where you choose to invest.
No. Moving to a self-directed IRA or Solo 401(k) does not trigger any taxes, as long as your funds are eligible for rollover.
Self-directed retirement plans maintain the same tax-advantaged status as traditional plans offered by banks or brokerage firms. The key difference is flexibility—our plans are designed to give you greater control and allow for a wider range of alternative investments beyond stocks, bonds, and mutual funds.
A prohibited transaction is any action between your retirement plan and a disqualified person that violates IRS rules and can lead to serious tax consequences. Under IRS Code 4975(c)(1), prohibited transactions include:
- Selling or leasing property between your plan and a disqualified person Example: Your IRA cannot purchase a property you already own.
- Lending money or extending credit between the plan and a disqualified person Example: You cannot personally guarantee a loan your IRA uses to buy real estate.
- Providing goods or services between your plan and a disqualified person Example: You can’t use your personal furniture to furnish a rental property owned by your IRA.
- Using plan income or assets for the benefit of a disqualified person Example: Your IRA cannot buy a vacation home that you or your family use.
- Self-dealing by a fiduciary (using plan assets for their own benefit) Example: Your CPA shouldn't loan your IRA money if they’re advising the plan.
- Receiving personal benefit from a deal involving your IRA's assets Example: You can’t pay yourself from profits your IRA earns on a rental.
If a transaction doesn’t clearly fall within the allowed guidelines, the IRS or Department of Labor may review the situation to determine if it qualifies as a prohibited transaction.
Disqualified persons are individuals or entities that are prohibited from engaging in certain transactions with your IRA or 401(k). Doing so could trigger a prohibited transaction, which may result in taxes and penalties.
Here’s who is considered a disqualified person:
- You (the account holder)
- Your spouse
- Your parents, grandparents, and other ancestors
- Your children, grandchildren, and their spouses
- Any advisor or fiduciary to the plan
- Any business or entity owned 50% or more by you or another disqualified person, or where you have decision-making authority
These rules exist to prevent self-dealing and ensure your retirement plan remains in compliance with IRS regulations.
(Reference: IRC 4975)
Understanding and following these rules can be tricky, but it’s very doable. The best way to stay compliant is to work with professionals who specialize in self-directed retirement plans. They can help you navigate IRS guidelines and avoid prohibited transactions.
If an IRA holder is found to have engaged in a prohibited transaction with IRA funds, it will result in a distribution of the IRA. The taxes and penalties are severe and are applicable to all of the IRA’s assets on the first day of the year in which the prohibited transaction occurred.
Yes. While self-directed retirement plans allow for a wide range of investments, there are a few important restrictions.
You cannot invest in collectibles or life insurance contracts, and you must avoid prohibited transactions—activities that benefit you personally rather than the retirement plan. These include things like buying or selling property to yourself or family members, using plan assets for personal gain, or self-dealing in any way.
Violating these rules could cause your entire IRA to lose its tax-advantaged status. To protect your account, it’s essential to work with professionals who understand IRS regulations and can help you stay compliant.
This is a common misconception. In many cases, professionals may simply be unfamiliar with self-directed retirement plans, as they fall outside their usual scope of work. CPAs and tax preparers are trained to file taxes, not necessarily to advise on alternative retirement strategies. Financial advisors and brokers often work for firms that focus on traditional investments like stocks and mutual funds—and may not benefit from or support alternative options like real estate or private lending.
Self-directed retirement investing is legal under IRS rules—but like any specialized area, it requires working with professionals who understand how it works.
The IRS has rules in place to make sure your IRA is used only for the exclusive benefit of the retirement account—not for personal gain or to help family members. These rules can get complicated because there are many ways a conflict of interest can occur, even unintentionally.
For example, if your IRA buys a house and rents it to your mother, you might be reluctant to evict her if she stops paying rent. That emotional connection creates a conflict between what’s best for your IRA and your personal relationships, something the IRS aims to prevent.
These rules help ensure your retirement account stays compliant and protected. (See IRC 408)
Yes. Most tax-deferred retirement accounts—such as Traditional IRAs, old 401(k)s, 403(b)s, and TSPs—can be rolled over into a self-directed IRA or Solo 401(k), depending on your eligibility. Roth IRAs cannot be rolled into these accounts.
You can contribute directly from earned income, subject to annual IRS contribution limits. The method and amount depend on the type of plan you have (e.g., Solo 401(k) vs. IRA).
To take a distribution, you'll request funds through your custodian or plan administrator. Distributions may be taxable depending on your account type and age. Early withdrawals may be subject to penalties.
For 2025, the Solo 401(k) max contribution limit is $81,250 if age 60-63, $77,500 if age 50-59 or 69+, and $70,000 if under 50. Traditional and Roth IRAs have a limit of $7,000 ($8,000 if age 50+). Limits are subject to IRS adjustments.
Yes. IRA contributions are typically due by your personal tax filing deadline (e.g., April 15). Solo 401(k) contributions follow your business tax filing deadline, including extensions.
IRS reporting requirements vary depending on the type of self-directed retirement plan you have. Here’s a quick breakdown of what you need to know
Please note: Our team can help you understand what’s required for your specific account, but we don’t provide tax or legal advice. We always recommend working with a qualified tax professional to ensure full IRS compliance.
Self-Directed IRA (Traditional or Roth)
- Form 5498 – Filed by your custodian each year to report contributions, rollovers, and the fair market value (FMV) of your account.
- Form 1099-R – Issued if you take a distribution or move funds out of your IRA.
- Annual Valuation – You'll need to provide updated FMV for any alternative assets held in the account, such as real estate or private placements.
Solo 401(k)
- Form 5500-EZ – Required if your plan assets exceed $250,000 as of year-end. Must be filed annually by the plan participant.
- Form 1099-R – Required if you take a distribution or roll funds out of the plan.
- Contribution Tracking – Keep records of employee and employer contributions. These are not filed with the IRS but may be needed for tax reporting or audits.
SEP IRA
- Form 5498 – Filed by your custodian to report contributions and FMV.
- Form 1099-R – Filed by your custodian. Issued for any distributions.
- Employer Contributions – Must be reported on your business tax return (and on employee W-2s, if applicable).
Health Savings Account (HSA)
- Form 5498-SA – Filed by your HSA custodian to report contributions.
- Form 1099-SA – Filed by your HAS custodian. Issued for any distributions.
- Form 8889 – Must be included with your personal tax return to report contributions, distributions, and how funds were used.
