It Pays to Know Your Options in Using Retirement Accounts for Real Estate Investing

I’m surprised by the number of full-time real estate investors who rely entirely on the stock market for their retirement portfolio despite driving higher returns by renting, rehabbing or lending. I field questions every day from savvy clients about investing into real estate within self-directed IRAs, and many people inquire about using an LLC or a land trust as the entity that owns the real estate. As self-directed IRAs have increased in popularity, real estate investors have searched high and low for additional and creative ways to accumulate wealth by investing in real estate on a tax-advantaged basis.

Few people take advantage of their ability to move their investments away from the stock market and into real estate, but even fewer know of their options beyond a self-directed IRA.


For example, did you know that if you have a high-deductible insurance plan, you can use a health savings account to partner with your self-directed accounts to invest into physical real estate, to lend money, and more? Once you attain the age of 65, this account can be used for nonmedical expenses without penalty. It’s almost like a traditional IRA that gives the additional benefit of tax-free distributions for medical purposes.

Have a child that you anticipate sending to college someday, but you’re not thrilled about a 529 college savings plan or some of the other alternatives? Good news—you can contribute to an Educational Savings Account that can be invested in tax-advantaged real estate.


One of the most exciting accounts that has tremendous benefits is the Solo 401(k). For any self-employed person who has earned income and no common-law employees, up to $59,000, depending on income, can be set aside each year on a tax-deferred and partially tax-free basis. In addition to having the broadest possible scope of investment options and a provision for taking a loan, this type of account gives the owner the ability to use leverage to invest in real estate without incurring a little-known tax called unrelated debt-financed income tax, or UDFI.

One problem that many people are lucky to have is that their income is high enough that they’re precluded from making contributions to a Roth IRA. It’s a shame that so many people forgo tax-free growth in their Roth. Just because they aren’t allowed to contribute directly to a Roth IRA doesn’t mean there aren’t ways to ultimately fund an account that will grow without any tax consequences. Whether they make a nondeductible contribution to a traditional IRA and convert to a Roth or convert all or a portion of their existing retirement portfolio to a Roth, there are always ways to get some of your money growing without having to pay taxes in retirement.

I spend an ample amount of time each month teaching continuing education courses, and most people are excited to learn of the different types of creative real estate deals that can be done with various types of retirement plans. I also have learned a lot as a student in many classes where the subject matter has been on creating deal-flow or transaction engineering. All too often, the curriculum lacks any training on how to effectively employ some of the strategies outlined above.

Most of our clients have a clearly defined set of parameters that guides their investment decisions. Clients go to great lengths to do their due diligence before making an investment. However, they often fail to spend 15 to 30 minutes determining what type of investment vehicle would be most advantageous for accumulating wealth over the long run.

It’s a shame, but it’s not uncommon to speak with a person who prematurely withdrew money from his or her 401(k) and incurred taxes and penalties in order to buy a piece of property. These investors had no idea they could’ve invested directly inside an IRA and avoided paying an enormous sum to the IRS.

While taxes are the result of making money, I don’t want to pay a penny more than my fair share. With April 15 behind us, now is the time to come up with a game plan to ensure your investment strategy has taken into consideration all of the account options that give you the ability to keep more of your hard-earned money.

Whether you’re a seasoned investor or a beginner—whether you’re interested in notes, commercial real estate or any other type of “alternative” investment—I encourage you to become an informed investor.

Learn about your options and seek the guidance of an expert. You’ll be thanking yourself come April 15, 2017.

  • Tyler Carter

    Tyler Carter lives in Orlando, Fla., and works for NuView IRA. He has 10 years’ experience in the financial services industry, holds Series 7 and 66 licenses and is passionate about alternative investments of all types. Contact him at or 407-716-3636.

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