IRA and 401K Basics

In 1974 Congress enacted the Employee Retirement Income Security Act which allowed taxpayers the opportunity to invest a portion of their earnings for retirement and reduce their taxable income by the amount of their contributions. This opened the door to what we today call Individual Retirement Accounts or IRAs.

In January 1980 the Revenue Act of 1978 gave employees a tax-free way to defer compensation from bonuses and stock options under section 401(k). In 1981, the IRS issued additional rules that allowed employees to contribute to their 401(k) plans through salary deductions, which jump-started the widespread roll-out of 401K plans as we now know them.

Since that time, investors have been leveraging both IRAs and 401K plans to save for retirement while simultaneously easing their tax annual tax burden (up to allowable amounts).


IRA and 401K for Real Estate Investing

However, traditional IRAs and 401K plans have been limited to investing in stocks, bonds, mutual funds, ETFs, etc. Some investors have searched for opportunities to diversify their investments beyond the market, giving rise to Self-Directed IRAs (SDIRAs). SDIRAs open up a large universe of potential investments, including real estate investing.

401K plans, as employee-sponsored programs, are limited in scope and don’t allow investing in real estate.  However, employees can convert (or roll over) their 401K investments from a former employer into an IRA which can be structured as a Self-Directed IRA with the assistance of special firms that offer SDIRA custody services.


SDIRA Limitations

Of course, there are limitations on SDIRAs as well. For example, you can’t hold life insurance, S Corporation stocks, any investment that constitutes a prohibited transaction (such as one that involves “self-dealing”) or collectibles.

Self-Directed IRA Benefits

  • Diversify your retirement investments beyond stock market into real estate and other categories
  • Continue to invest a percentage of your earnings in a tax-sheltered manner (up to allowable limits)
  • Give yourself maximum flexibility for investing in projects that align with your areas of interest and investment philosophy

To learn more about investing in real estate with your 401K or Self-Directed IRA,
talk to one of our Partners

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EquityDoor isn’t affiliated with any traditional bank or financial institution. We’re not backed by wealthy insiders, developed by software wiz-kids in the silicon valley or created for the select few.

But we are tech-savvy, and we’ve been buying, selling, flipping, renting, developing and financing residential and commercial investment properties for decades – and we know firsthand how complex, costly, and difficult traditional real estate financing has been.

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