Can you use your IRA or 401(k) to buy real estate instead of mutual funds? Many investors don’t realize they can direct retirement money into properties, even though using an IRA and 401(k) for passive investing in commercial real estate has been legal for decades. For high-income earners looking for better control, better tax treatment, and more predictable performance than the public markets, this option can be a significant advantage.
Financial advisors rarely mention that your saving accounts can be used this way because those dollars leave the brokerage platform. When you understand how these accounts work, you can put your capital into stronger assets, reduce friction, and potentially grow tax-free for life.
This article walks through how self-directed retirement accounts work, the differences between IRAs and 401(k)s, what investors often overlook, and how these vehicles can support a long-term commercial real estate strategy.
A Self-Directed Account Gives You More Control Over Your Investments
Most people keep their retirement accounts at large institutions like Schwab or Fidelity because that’s where their employer placed them. Those platforms are designed for stocks, bonds, and mutual funds. You won’t see a button that says “Buy a multifamily deal” even though the IRS allows it.
When you have an old IRA, 401(k), 403(b), or similar account, you can roll it into a true self-directed IRA or a self-directed 401(k). This rollover is not a taxable event. Once complete, you gain the ability to invest in private real estate, LLCs, notes, gold, Bitcoin, and more. The structure puts you in command instead of relying on someone else’s menu of options.
A self-directed custodian holds the account, but you choose the investments. If you stay with the IRA structure, you’ll still need the custodian to sign documents and release funds, which can slow down transactions. Many investors find the process workable but often cumbersome. It’s common for wires to take days and for paperwork to bottleneck when a custodian is involved.
That’s the trade-off with traditional self-directed IRAs: full freedom over asset choice, limited speed in execution. The control is meaningful, but the experience can feel clunky as deal timelines tighten.
Any investor with old retirement funds has the right to self-direct. The only question is which structure sets you up for the most efficient experience.
A Self-Directed 401(k) Removes Friction and Solves Key IRA Limitations
Many investors eventually discover that a self-directed 401(k)—including structures like a Solo 401(k) or EQRP—removes much of the friction found in IRAs. These plans have existed since the early 1970s and are supported by stable, well-defined IRS code.
They are not a new concept, but they are widely under-used because most people have never been shown how they work.
A major advantage is checkbook control. With a properly structured 401(k), you can sign your own investment documents and send wires directly. There is no waiting for a custodian to approve paperwork. If a deal opens today, you can fund it today. For investors accustomed to tight closing schedules, this speed is a substantial improvement.
The next difference is tax treatment on leveraged real estate.
When an IRA invests in a deal that uses debt, the IRS applies a tax called UBIT (unrelated business income tax). Even in a Roth IRA, the portion of the gains associated with leverage can be taxed, sometimes significantly. Many investors only discover this years later, often after receiving unexpected tax notices.
A 401(k) is exempt from this tax. If your passive investment uses debt—which almost all commercial deals do—a 401(k) avoids UBIT entirely. This distinction alone drives many investors to shift from an IRA into a 401(k) structure before a property sells.
Contribution limits are also far higher. IRAs allow modest contributions each year. A Solo 401(k) or EQRP allows much larger annual contributions, enabling high-income earners to shelter more money, more quickly, in a tax-advantaged environment.
Together, these elements—checkbook control, UBIT exemption, higher limits, and long-standing IRS clarity—make the 401(k) structure a strong fit for passive real estate investors who want both speed and efficiency.
Understanding the Rules and Building a Long-Term Strategy
Retirement accounts offer powerful tools, but they come with guidelines that protect the tax-advantaged status. The IRS defines a short list of prohibited transactions to avoid personal benefit.
For example, you cannot use retirement funds to buy a vacation home you plan to use, and you cannot perform labor on a property owned by your account. The investments must remain passive and arms-length.
You also cannot invest your retirement account into a deal where you personally receive fees or active compensation. A general partner cannot place IRA or 401(k) funds into their own deal while also earning active income from it. Keep retirement investments passive, and avoid transactions that provide personal benefit outside the account.
Within those guidelines, investors use these accounts for a wide range of commercial real estate opportunities. Multifamily syndications, storage facilities, debt notes, and other passive structures fit well because they meet IRS requirements and offer clear, predictable tax reporting.
Some investors even establish Roth accounts for parents as part of long-term legacy planning. When structured properly, these accounts can pass to heirs tax-free and grow for decades. It’s a straightforward way to protect wealth from future taxation while supporting generational planning.
For those who value liquidity, a 401(k) adds another tool: the ability to borrow up to $50,000 from the account for any purpose, then repay it over time with interest. While the account’s purpose remains long-term growth, this feature offers flexibility without tapping high-interest credit lines.
Looking Ahead to Stronger Retirement Planning
Using your IRA and 401(k) to passively invest in commercial real estate gives you more control, better tax efficiency, and the ability to align your portfolio with assets that perform differently than the public markets.
It brings the opening question full circle: yes, you can direct retirement money into private deals, and the IRS has allowed it for decades.
If you want to build predictable long-term wealth, understand the options available to you. The more you know about self-directed structures, the better decisions you can make about where your capital lives and how it grows.
If you’d rather watch how this works, I made a video on the topic on YouTube here. Give it a watch. Thanks for reading, and I’ll see you next time.
Michael Blank