Rental Property in your IRA: Turnkey vs DIY
Rental property is one of the best assets to protect and grow your retirement savings. The principal of your IRA or 401(k) investment is secured by a real asset. There is the potential for income from adding value, appreciation over time, and regular cash flow. Real estate is not correlated to the news cycle volatility of the stock market and therefore represents a great diversification play. Rental property has potential for boosted returns via leverage with the use of non-recourse mortgage financing. As you can see, there are a lot of benefits to holding income property in your self-directed IRA or Solo 401(k) plan.
But, it takes work to identify properties, prepare a property for rental use, screen tenants, and maintain a property. Not everyone has the time and expertise to successfully pursue an income property investment strategy.
Deciding whether to leverage the services of a turnkey property provider or directly manage your own rental portfolio merits consideration. Let’s take a look at some of the advantages and disadvantages of each approach.
What is Turnkey Property Investing?
There are several different types of services that could be considered “turnkey” rentals.
If you choose to go this route, deciding which level of involvement is best for you will be a good starting point.
Ready-to-Rent At this basic level, the provider is simply selling a property that is rent-ready. Tenant selection, property management, and ongoing maintenance are up to you. You can choose to do these things yourself of select your own vendors. Managed Rentals With this more full-service offering, and investment sponsor is providing a rent-ready property as well as ongoing property management and maintenance. Rehab + Rental When buying a rent-ready property, you are likely paying list price. Some investors want to participate in the potential upside of acquiring distressed property at discount and adding value to make it suitable for rental. Some firms offer to help find and rehab a property, and then may hand it off to you to run as a rental or include ongoing management.
Advantages of Turnkey Investing
The main advantage of investing in turnkey rentals is the hand’s off nature of the transaction. Rather than do all the work of identifying property, overseeing repairs to get the property ready to rent, finding a suitable tenant, and then managing the property over the long term, you can delegate those tasks.
Some investors may not have the time or skill to pull off such a project or may not live in a market where rental properties are affordable or produce meaningful cash flow.
Some of the key advantages include:
Hand’s off Investing IRS rules require that you stick to basic administration of your plan’s investments. Most turnkey arrangements are going to fit well with the arm’s length nature of investing with an IRA or 401(k).Time Savings You will need to identify and vet a turnkey operator, select the right property in the right market, and oversee operations of your property. This is still going to be a lot less work than a DIY project. Access to National Markets While you can certainly invest on a turnkey basis in your own back yard, being able to choose a remote market can have advantages. For investors who live in high-priced tech hubs or coastal cities local property may not be affordable or produce cash flow. Some localities are more landlord friendly than others. Leverage Other’s Expertise There are a lot of skills that go into the rental property business. Mastering all of these can be difficult. Whether you opt for a fully managed project from end-to-end or only choose to use a provider for some portion, being able to rely on experts who are good at what they do can be an advantage. Legal Shielding While in some respects you as the property owner are ultimately responsible, using professionals who have the correct licensing and are familiar with local laws can help ensure your project is run in a compliant fashion that can limit liability. Market Diversification If the capital available to your plan is sufficient, you can spread investments across several markets. This minimizes risk relative to economic or climate events in any one city.
Disadvantages of Turnkey Investing
Giving up control is the trade-off you make when choosing the turnkey route. Depending on the level of service you choose, this could mean entirely relying on the investment provider and their team, or just in one or more areas of the project. Buying turnkey also usually means paying a premium for a rent-ready property.
Premium Pricing If the turnkey operator has identified and rehabbed a property to get it ready for rental, they are going to want to get paid for this effort. That usually means paying at or even above market value for a property. When you pay full price that reduces your potential return as compared to buying a property and adding value yourself. Property Condition While most rent-ready properties may look good, a business that is trying to identify and sell as many properties as possible in the least amount of time may not perform the same updates you would choose. Pretty properties may attract renters, but if core systems such as HVAC or roofing end up needing repairs that can really eat into the returns your IRA or 401(k) will receive. Tenant Quality Many properties are sold with tenants already renting, which can boost the sales price of the property. Some unscrupulous operators will stick any old tenant into a unit that is willing to pay maximum rent, whether they will be a good long-term tenant or not. Not being able to choose and screen your own tenants may be a problem for some investors. Property Management Finding and fixing properties requires very different skills than being an effective property manager. Some operators do both, and may not be that great at property management as a result. In some cases, there may be an affiliation between separate property dealers and managers. Making sure you have quality management in place that is responsive to your needs and protecting your investment is key. Competition for Deals A quality provider is going to have a solid network of investor buyers. They will gravitate towards volume buyers who don’t ask a lot of questions and make decisions quickly. As a new investor, this can make it challenging to gain complete confidence before moving forward.
In general, you have less control over the process and need to rely on your ability to select and manage one or more providers to operate the investment. There are certainly ways you can protect yourself against known risks, but it takes learning the ropes and staying engaged.
Contrary to the name, this type of investing is not entirely turnkey.
Comparing Turnkey to DIY
When you directly manage a project, you simply have more control. You can select the property that best suits your investment goals, make sure it is in the operational condition you prefer, screen tenants, and be more directly involved in all facets. By taking control you eliminate a lot of 3rd party risk.
Nobody is going to be more engaged and focused on protecting your retirement plan’s investment than you, after all.
The downside is that it takes a lot of expertise and a considerable investment of time to be successful with income properties. Not every investor can pull it off.
Even if you have the ability to be effective, you may not live in the best market for your IRA or 401(k) to invest in.
Hybrid Approaches
There are several pieces to the property puzzle. There is no rule that says you have to either fill all the roles or delegate everything out. With some effective networking and team building, you can choose to handle those things that best align with your abilities and hire professionals to handle other aspects of the project.
You might find a realtor or wholesaler that is good at identifying properties suitable for rental, then oversee the rehab yourself, and finally hand off property management to a licensed professional.
Perhaps screening and managing tenants is your strong suit. You could purchase a turnkey property from a provider, then do your own property management.
There are a lot of ways you can design a best-in-class approach that will suit you situation and needs, while providing a solid investment for your self-directed retirement plan.
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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.
