How-To Series: Flipping Houses in your Self-Directed IRA
Property flipping is one of the more popular investment interests for those considering a self-directed IRA or Solo 401(k) retirement plan. Over the last several years, the opportunity to flip houses at a considerable profit has remained strong in many local markets.
With the key benefit of a self-directed retirement plan being the ability to have more direct control over investment activities, its no wonder that flipping is so popular.
There are several complexities to flipping houses in a tax-sheltered IRA or 401(k) plan, including needing to remain at arm’s length and potential exposure to UBIT taxation if flipping is conducted on a repeated basis.
We’ve covered those topics in prior articles and would emphasize the importance of fully understanding the potential pitfalls of flipping in an IRA before embarking on this strategy.
For many investors, there is a good opportunity to successfully perform the occasional flip and generate a solid, tax-sheltered profit for their retirement plan.
In light of this popular opportunity, we wanted to take a bit of a nuts-and-bolts view of what a flip transaction looks like in a self-directed IRA LLC. The concepts are similar in a Solo 401(k) trust, but for simplicity, we’ll discuss the IRA LLC structure in our example below.
Understand the Strategy
As is the case with most any investment, a thorough evaluation of the flipping strategy is probably the most critical step in the whole process. You need to be sure you understand the arm’s length restrictions that apply in an IRA, and know what you can and can’t do.
You’ll also want to determine how much flipping you intend to do in your IRA and whether that will create exposure to UBIT. If so, you may want to scale back on frequency, or look into alternative approaches such as private lending to flippers.
Understand your Market
Is flipping the right strategy where you live? It may or may not be, depending on many factors like the age and condition of homes, pricing trends, who is buying currently and more.
Before even considering individual properties as potential flips, you’ll want to be sure that the likelihood of success is there at the big-picture level.
Setup your Checkbook IRA or Solo 401(k) Plan
Your self-directed retirement plan needs to be in place before you start pursuing deals in earnest.
You need to write offers in the name of your plan, and any pre-purchase expenses like earnest money or inspections need to be paid with plan funds.
If you’re planning on purchasing at auction or from a wholesaler, you need to be able to act immediately. Setting up and funding a plan can take 3-4 weeks, so being ready to go in advance is a must. If you find a great opportunity before your plan is in place, it’ll likely become a missed opportunity.
With a focus on flipping, you absolutely need to have a self-directed plan that offers checkbook control such as the Checkbook IRA LLC or Solo 401(k).
Trying to execute such projects with an account held by a self-directed custodian that will serve as your transaction processor is just not practical. Flips involve a lot of transactions, some of which can be very time-sensitive.
You won’t be able to wait 3-5 days for a custodian to review paperwork and fund expenses. Paying all those per-transaction fees will increase your administrative expenses. You need the checkbook in your hand — plain and simple.
Purchasing the Property
Properties to flip can be acquired in many ways; through a standard realtor transaction, from a property wholesaler, or at auction. In all cases, the LLC is the purchaser of property and will be on title.
As the manager of the LLC, you can negotiate the terms of purchase and execute contracts for purchase.
You can also issue funds by wire, ACH or cashier’s check from your LLC-held bank account to fund the acquisition of the property. You have full executive authority for the LLC, and don’t need to obtain 3rd party approval for the transaction.
Insure the Project
Proper insurance is important to protect your IRA investment from hazard losses or potential liability.
Flip transactions produce a lot of potential exposure to risk in both of these areas, and require specialized insurance to guarantee coverage.
Because flip properties are typically vacant and it’s generally obvious when they’re being worked on, they can be prime targets for thieves and vandals. If remodeling supplies or your contractor’s tools are stolen from a job-site, your IRA LLC will need to be covered.
Any policy needs to be in the name of the LLC, and specifically designed for vacant flips. Not all insurers provide such policies. Some that do are listed on our Vendor Resources page.
In addition to property hazard insurance, you’ll likely want to have an appropriate liability and/or umbrella policy for the LLC.
Create your Project Plan
This step may start prior to or after purchase, depending on how the property is acquired. You’ll need to evaluate the necessary repairs and upgrades, obtain quotes from your contractors, and develop a solid project plan for the rehab.
Establishing a scope of work and getting the right team members in place with a workable schedule is critical to a successful flip. If you have the expertise, this is a part of the project you can perform personally in your role as the LLC manager.
You can also choose to hire or partner with a contractor and let them manage the rehab process.
Step Back and be the Fund Manager
As a disqualified party to your IRA, your role in executing the project plan is limited.
You can certainly administer the process and oversee the project. Selecting vendors or materials, checking in on progress, and dealing with the financial transactions of paying for expenses are all within the realm of reason, and wouldn’t be considered providing a benefit to the IRA. Of course, these administrative tasks are performed in your role as the manager of the LLC.
Use the LLC bank account to pay for all expenses, and never mix in personal funds – even if you plan to reimburse yourself.
You shouldn’t become actively involved and add value to the IRA via the provision of goods or services. This means you should not be the person applying for permits or utilizing any personal licensing you may have in relation to the project. You also don’t want to become the delivery person for your contractor and make daily trips to the hardware store.
Performing work on the project is also a major no-no. Your time and energy has value. If you gift these items to the IRA, you are essentially making non-documented contributions to your IRA. IRS rules strictly prohibit this.
The best approach is to think of yourself as a fund manager. Your role is to put the IRA capital to work in a fashion that will produce results.
If you keep to this line of thinking and stay in the background, you’ll be on the right side of the IRS rules. Sure, this can be limiting, but think about it this way: you don’t get to invest your IRA in a publicly traded company and then provide services to that company in return for additional dividends to your IRA. Real estate is no different.
No Credit Accounts
A common question we often hear is whether the IRA LLC can obtain a credit card or commercial account for flip projects.
Using borrowed money, potential access to commercial discounts, and rewards points are all appealing. Unfortunately, this isn’t possible in a self-directed IRA.
You may not pledge a personal guarantee on behalf of any debt instrument utilized by the IRA. As a disqualified party, to do so would violate IRS rules. We’ve yet to find a bank that will issue a credit card to your IRA-owned LLC without such a personal guarantee.
Market the Property
Properly marketing your flip property to potential buyers is an important step to on the path to profit.
Some investors like to get a sign on the property on the day construction starts to create buzz. Alternately, it may make more sense to wait until the project is fully completed and the house is sparkling inside and out to attract the highest quality buyers.
The type of neighborhood, expected time on market, and price point will all be determining factors to help you decide when best to start marketing.
However you choose to approach the timing of your marketing efforts, be sure to do a quality job.
Focus on curb appeal. Have professional photographs taken. It may make sense to lightly stage the property to make it more appealing than an empty space.
Work with your realtor to market your property in its best light, and across as many channels as possible. This will increase interest and may result in a quicker sale or a higher sales price.
If you are a licensed realtor, you should hire someone else to sell your IRA-owned property. Acting as realtor to your IRA is problematic. You can’t receive a commission personally, and to provide your licensed services to the LLC for free would also be a violation of self-dealing rules.
Additionally, any expenses for marketing must be paid via the LLC.
The Sale
As the manager of the LLC, you can negotiate and complete the sales transaction on behalf of the entity.
Be sure that the LLC is listed as the seller of the property and the LLC tax ID is utilized. The title company or attorney will need to issue form 1099-S to report the income to the LLC, which is fine.
The IRS will know that the LLC is wholly owned by a tax-exempt IRA, and not expect this income to show up on a tax return.
When the deal is done, funds are issued to the LLC bank account and the IRA receives its pay day. Your next job is to find a suitable new opportunity in which to put the IRA capital back to work.
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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.
