How to Convert 401k to a Real Estate Investment

Employer-sponsored 401(k) plans have long been a popular retirement savings method. However, their appeal has waned due to factors like market volatility1, high fees and management costs2, changing employment patterns3, and their restrictive nature.

As a result, many with funds tied up in 401(k)s are seeking alternative retirement savings options with greater flexibility and growth potential, such as real estate investments. While 401(k)s typically cannot invest directly in real estate, it is possible to convert a 401(k) to a real estate investment.

Here’s how to navigate the process and make this conversion work for you.

How to Convert a 401k to Real Estate Investment 

401(k) plans offer numerous benefits, but real estate investments provide additional advantages such as stable income, appreciation, tax benefits, and diversification, distinguishing them from traditional 401(k) options. Typically, you cannot invest directly in real estate through a traditional 401(k). However, you can invest in real estate using a specific type of 401(k) called a self-directed 401(k).

A self-directed 401(k) allows for a broader range of investment options, including real estate, giving you more control and flexibility over your retirement portfolio. They also provide you with access to potential benefits such as:

• Stable Returns: Real estate investments can provide consistent rental income and long-term appreciation, offering more stability than stock market volatility.
• Tax Benefits: Real estate investments through a self-directed 401(k) enjoy tax-deferred growth. You don’t pay taxes on income or capital gains until you withdraw funds, potentially in a lower tax bracket during retirement. You can also utilize tax-deferral strategies such as 1031 exchanges to continue growing your wealth.
• Inflation Hedge: Real estate often acts as a hedge against inflation4, as property values and rents typically increase with inflation, preserving the purchasing power of your investment.
• Agency: You have direct control over your investment choices and management strategies, allowing you to leverage your knowledge and experience to optimize returns.
  
  

Here’s how they work.

Important Considerations

Using a self-directed 401(k) to invest in real estate can offer access to potential benefits that traditional 401(k) accounts simply cannot. However, it’s crucial to consider the complexities and regulations involved before investing your 401(k) in real estate.

• IRS Rules and Regulations: The IRS closely regulates 401(k)s, and using your self-directed 401(k) for real estate investment invites greater scrutiny. Understanding and complying with IRS rules and regulations is crucial to avoid penalties. Properly managing your account ensures you maintain its tax-advantaged status while benefiting from real estate investments.
• Custodian Fees: Because you typically need to use a custodian to open a self-directed 401(k), you’ll need to be aware of the fees they charge, which will vary. 
• Investor Responsibility: While 401(k)s are typically managed on your behalf by a plan administrator or financial institution, you are responsible for managing the investments in your self-directed 401(k). This includes selecting and overseeing real estate investments, ensuring compliance with IRS regulations, and handling all property-related transactions.
  
  

It’s important to understand that converting a 401(k) to a real estate investment comes with inherent risks, just like any other investment vehicle. 

Always consult with your financial advisor or tax professional before making any changes to your investment strategy to ensure it aligns with your financial goals and complies with regulations.

Let CVC Handle the Heavy Lifting of Real Estate Investing

Now that you know how to convert a 401(k) to real estate investment, you may be considering your next investment decision. Canyon View Capital offers a path toward real estate investing using your self-directed 401(k).

We manage an extensive portfolio of multifamily rental properties across the Midsouth and Midwest and invite accredited investors to join our real estate investment funds. Investing with us allows you to enjoy passive rental income, passive losses, and tax benefits without the hassle of property management.

With decades of experience and a portfolio valued at over $1 billion, Canyon View Capital is eager to share our expertise. Experience the benefits of real estate investing in a hassle-free package with us. Join us and let us manage the complexities while you enjoy the rewards.