01-13-15 - RealEstate-IRAInvesting in real estate has long been considered a great way to generate income and build wealth. Whether investing in real estate full time, or just as a side job, we all have found this market a great investment venue. When it comes to retirement planning however, real estate investment is still a new thing. Most investors do not realize that there are certain self-directed retirement plans that are allowed to hold real estate. In fact, the Solo 401k rules not only permit but also make it easier to invest in this promising market.

Solo 401k rules allow real estate investment

The Solo 401k rules allow real estate among other non-traditional investment options. That includes almost any type of real estate assets, such as investment properties, rental homes, house flipping, trust deeds, mortgage notes, tax liens and tax deeds. Each real estate investor can certainly find ways to make her niche work for the retirement plan.

Powerful leveraging tool

While using financing to purchase real estate is not possible without tax charges with an IRA, it is perfectly fine to use non-recourse financing with a Solo 401k plan. As long as the loan is non-recourse, the Solo 401k plan will not be charged with any penalty or tax for using leverage.

Different ways to fund the account

Real estate investments often require more capitals. To fund the account before investing, account holders have many options. They can contribute directly to the account with a very generous yearly contribution limit. The Solo 401k rules also permit rollover of funds from almost any qualified retirement plan, except for Roth IRA.

Checkbook control and self-directed investments

With traditional retirement plans, all investment decisions will be left to a custodian or fund manager. If the plan holder wants to invest in something, he or she would have to talk to the custodian and get approval before making any move.

This will hardly work with real estate investment for different reasons. First of all, the custodian does not necessarily have the expertise or experience with real estate investment, and hence will be reluctant to make the call. The delay often deters investors from time-sensitive opportunities. Plus the custodial fee will add to the transaction cost and cut into the actual return.

The Solo 401k rules allow plan holders to act as the plan trustee, and effectively remove the role of a custodian. With one less step to complete before an investment, plan holders can be in charge of their investments, while saving on time and cost to complete a transaction. In fact, with the checkbook control feature, they can fund a purchase as easily as writing a check.

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