How to Invest in Real Estate with a Self-Directed Solo 401(k)

For entrepreneurs, consultants, and small business owners, the Self-Directed Solo 401(k) has become one of the most powerful wealth-building tools available. Unlike traditional retirement accounts that limit investments to stocks and mutual funds, a properly structured Solo 401(k) allows you to invest directly in real estate while preserving the full tax advantages of a retirement plan. When executed correctly, it combines high contribution limits with investment control, enabling business owners to grow assets faster and more strategically than most people realize.

The Solo 401(k) is built specifically for self-employed individuals. It provides the same retirement benefits that large corporations offer executives, without the bureaucracy and restrictions that often limit flexibility.

What Is a Solo 401(k)?

A Solo 401(k), also called an Individual 401(k), is a retirement plan for self-employed individuals or businesses with no full-time employees other than a spouse. Eligibility is straightforward: if you own or operate a business, generate earned income, and do not employ W-2 workers outside your household, you likely qualify.

Unlike an IRA, where contributions are made only as an individual, a Solo 401(k) allows you to act as both employee and employer. This distinction is powerful because it lets you make employee salary deferrals while also contributing as the business owner, resulting in significantly higher contribution limits than any IRA could offer.

Not All Solo 401(k) Plans Are the Same

Many entrepreneurs assume that opening a Solo 401(k) at a large brokerage firm gives full investment flexibility. Unfortunately, that is rarely the case.

Brokerage firms operate product-driven platforms. They earn revenue by selling investments, managing assets, and collecting fees tied to account balances. As a result, their Solo 401(k) plans are often limited to publicly traded securities and managed portfolios. While these may work for some investors, they do not allow direct ownership of real estate or other alternative investments.

Companies like IRA Financial operate differently. They focus on creating plan structures, managing compliance, and providing administrative and legal expertise. This open-architecture design gives clients full control over where and how their money is invested. With the right plan documents, investors can hold real estate, cryptocurrencies, private companies, precious metals, and other IRS-approved alternative assets.

The Power of Contribution Limits

One of the defining features of the Solo 401(k) is how much you can contribute.

As an employee, you may defer salary into the plan each year.

• 2025: $23,500 under age 50, $31,000 if over 50, $34,750 for ages 60–63
• 2026: $24,500 under age 50, $32,500 if over 50, $35,750 for ages 60–63

The business can also contribute up to approximately 25 percent of compensation, or roughly 20 percent of self-employment income.

Combined, total annual contributions reach remarkable levels:

• 2025: $70,000 under 50, $77,500 for over 50, $81,250 for ages 60–63
• 2026: $72,000 under 50, $80,000 for over 50, $83,250 for ages 60–63

For real estate investors, this means faster deal flow, larger capital reserves, and the ability to scale portfolios more rapidly than with an IRA.

Borrowing From Your Own Plan

The Solo 401(k) allows participants to borrow against their account balance.

• Borrow up to 50 percent of your balance, capped at $50,000
• No taxes or penalties if repayments follow IRS rules
• Interest goes back into your account
• No credit check or lender approval required

This feature provides liquidity for high-opportunity moments while maintaining tax-deferred growth.

The Mega Backdoor Roth Strategy

A properly structured Solo 401(k) allows contributions beyond Roth IRA limits and conversion to Roth.

• 2025: $70,000 total contributions can convert to Roth
• 2026: $72,000 total contributions

High-growth real estate investments benefit enormously from Roth treatment. All future income and appreciation can become completely tax-free.

Simplicity in Administration

Despite its power, the Solo 401(k) is simple to manage.

There is no Form 5500 filing obligation until plan assets exceed $250,000. There are no nondiscrimination tests, no required third-party administrators, and no mandated annual valuations.

This makes the plan highly efficient for solo operators.

Checkbook Control and Real Estate Execution

In a Self-Directed Solo 401(k), you are the trustee of the plan. You open the bank account, control transactions, sign contracts, and receive income directly.

There is no custodian approval required for each transaction. No paperwork delays. No middlemen.

For real estate, this level of control is critical. Competitive markets reward speed, and checkbook control allows investors to act without hesitation.

Why Real Estate Works Well Inside a Solo 401(k)

When held in a retirement account, real estate income is sheltered, and appreciation compounds.

• Rental income reinvests tax-deferred or tax-free
• Capital gains are eliminated
• Inflation protection is built in
• Diversification reduces exposure to Wall Street volatility

This makes the strategy financially productive and structurally resilient.

Using Leverage Without UBIT

Unlike IRAs, Solo 401(k) plans are exempt from UBIT when using non-recourse leverage under IRC Section 514(c)(9).

This allows investors to finance real estate while avoiding taxes that could reach 37% under IRA rules. This is a major advantage over Self-Directed IRAs.

Prohibited Transactions and IRS Rules

The IRS prohibits:

• Self-dealing or personal use of the property
• Transactions with disqualified persons (family members, related entities)
• Personally guaranteeing loans

Violations can disqualify the plan, so professional guidance is critical.

Investors can perform activities such as:

• Finding and analyzing deals
• Hiring third-party contractors for improvements
• Approving and documenting expenses
• Monitoring work completion

The Cherwenka case provides guidance for permissible actions when using a retirement account for real estate.

Using a Roth Solo 401(k) for Real Estate

Not all custodians allow this, but IRA Financial permits Roth Solo 401(k) funds to invest in real estate.

• Contributions with after-tax dollars
• Tax-free growth of income and gains
• Tax-free qualified withdrawals in retirement
• Ability to turn real estate profits into tax-free retirement income

How to Open a Solo 401(k) for Real Estate

1. Open Your Account: Easily open online with IRA Financial. A tax specialist helps customize your plan.
2. Fund Your Plan: Roll over pretax retirement funds or contribute self-employment income. Roth contributions are also supported.
3. Invest in Real Estate: Purchase directly with checkbook control.
4. Perform Due Diligence: Research properties, neighborhoods, and market trends. IRA Financial ensures compliance but does not give investment advice.

Why IRA Financial

IRA Financial is the national leader in Self-Directed Solo 401(k) plans, serving over 27,000 clients and managing more than $5 billion in assets.

Founded by Adam Bergman, a published self-directed retirement attorney, IRA Financial provides:

• Customized plan documents
• Roth conversion options
• Checkbook control
• Loan structures
• Compliance support

The company allows clients to invest in real estate, cryptocurrencies, private businesses, precious metals, tax liens, and other alternative assets without charging asset-based fees.

Conclusion

For real estate investors, no retirement vehicle offers more power than a Self-Directed Solo 401(k). It combines high contribution limits, loan access, Roth strategies, leverage advantages, and direct control. Paired with IRA Financial, it provides institutional-grade tools without institutional restrictions.

With proper planning and a trusted custodian, a Solo 401(k) makes real estate investing in a tax-advantaged retirement account accessible, strategic, and highly effective.