Can You Use a 401(k) to Buy or Manage Property?
David Moore opened the conversation by asking the core question: since the rules prevent direct purchases or sales between an individual and their 401(k), is there any legal way to make it work? Tom Moore explained that while there is no way to move a property directly between a personal account and a retirement plan, investors might be able to set up a new structure so both can participate together.
How a New LLC Could Help
Tom Moore described a possible path. If a 401(k) plan owns a property, the investor and the plan could create a new LLC or partnership. Both the individual and the 401(k) would become members of this new entity.
- 401(k) plan contribution: The 401(k) plan could contribute the property it already owns and possibly some cash.
- Individual contribution: The individual could contribute cash for their share of the LLC.
With cash and property inside the new LLC, the LLC can use cash to pay off any debt on the property. The result is an entity that owns the property outright or with much less debt, and both the 401(k) and the individual hold ownership shares in the LLC.
Important Limitations
Tom emphasized that once this structure is set up, neither the 401(k) nor the individual can buy the property from the other. The property must remain inside the LLC until the retirement plan eventually takes a distribution in the future.
A Useful but Limited Strategy
David Moore and Tom Moore made it clear that while this method may help in certain cases, it does not fully solve the issue of mixing retirement funds with personal ownership. It is a creative way to manage property related problems, but investors need to understand the long term limits.
If you are considering using a 401(k) or 1031 Exchange for property investments, don’t go it alone. Contact the Equity Advantage team to find out how their expertise can help you structure a compliant and effective investment plan.
The Guys With All The Answers…
David and Thomas Moore, the co-founders of Equity Advantage & IRA Advantage
Whether working through a 1031 Exchange with Equity Advantage, acquiring real estate with an IRA through IRA Advantage or listing investment property through our Post 1031 property listing site, we are here to help Investors get where they want to be. Call them today! 503-635-1031.
