Yes, in most cases. Retirement money can go into a private real estate offering through a self-directed IRA, or through a solo 401(k) if you are self-employed. The account makes the investment, and the property’s income and sale proceeds flow back into the account. Ordinary brokerage IRAs usually can’t hold private offerings, and the rules on taxes, distributions and who you can deal with are stricter than most people expect.
Our retirement mistakes series flagged IRA rules as one of the six planning mistakes. This post walks through how the process actually works, from opening the account to what happens when the deal pays out.
Which retirement accounts can invest
Account | Can it hold a private real estate offering? |
|---|---|
Traditional or Roth IRA at a self-directed custodian | Yes. This is the most common route. |
Traditional or Roth IRA at a typical brokerage | Usually not. Most brokerages only hold publicly traded assets, so the money would move to a self-directed custodian first. |
SEP or SIMPLE IRA | Often yes, at a custodian that allows alternative assets. Check the plan’s rules first. |
Solo 401(k) (self-employed, no employees other than a spouse) | Yes, if the plan document allows it. |
401(k) or 403(b) at a former employer | Not directly, but it can usually be rolled into a self-directed IRA. |
401(k) or 403(b) at your current employer | Rarely. Most plans limit you to their own fund menu and only allow in-service withdrawals after a set age, often 59½. |
The account type you start with mostly decides how many steps it takes to get the money to a custodian that can hold the investment.
How the money actually moves
The investment is made by the account, never by you personally. In practice it runs in five steps:
- Open a self-directed IRA with a custodian that holds alternative assets. The custodian keeps the records and signs on the account’s behalf. It doesn’t judge whether the investment is any good.
- Fund it. Ask for a direct transfer from your current IRA custodian, or a direct rollover from an old 401(k). Direct trustee-to-trustee transfers don’t count toward the IRS limit of one 60-day rollover per 12 months, and they avoid the risk of a missed deadline turning the money into a taxable withdrawal.
- Send the subscription documents to the custodian. You fill them out, but the investor of record is the IRA, usually written as “[Custodian name] FBO [your name] IRA.” The custodian reviews and signs them, then wires the funds to the offering.
- Hold the investment inside the account. Every distribution, refinance payout and sale proceed goes back to the IRA, never to your personal bank account. Any expense the investment requires also has to come from the IRA.
- Report its value each year. The custodian will ask for a year-end value of the investment, which the sponsor usually provides, so it can report the account’s fair market value to the IRS.
Expect each step to take longer than a brokerage trade. Custodians review paperwork by hand, and a funding deadline that feels comfortable for a personal check can be tight for an IRA.
Traditional, Roth, or taxable money
The account you invest from changes who benefits from the deal’s tax features.
Traditional IRA | Roth IRA | Personal (taxable) money | |
|---|---|---|---|
Distributions from the deal | Stay in the account, untaxed until you withdraw | Stay in the account; qualified withdrawals are tax-free | Taxed each year, often partly sheltered by depreciation |
Depreciation and paper losses on your K-1 | Stay inside the IRA; you can’t use them on your personal return | Same | Can offset other passive income, subject to the passive-activity rules |
Profit at sale | Taxed as ordinary income when eventually withdrawn | Tax-free if withdrawn under the qualified-distribution rules | Generally taxed at capital gains rates, with depreciation recapture |
Required minimum distributions | Yes, generally starting at age 73 | None during the owner’s lifetime | None |
Two things tend to surprise people. Depreciation, often the headline tax benefit of real estate, is largely wasted inside an IRA. And a Roth IRA can make the most sense for an investment you expect to grow, because the gain is never taxed if the withdrawal rules are met.
Accredited-only offerings generally look through the IRA to you, its owner, so the sponsor will verify your own status. The SEC’s accredited investor page has the current definitions.
When an IRA owes tax anyway
An IRA is tax-deferred, but it can still owe tax on certain income. Rent and gains from real estate are generally exempt. Two kinds of income are not:
- Debt-financed income (UDFI). If the property carries a mortgage, the share of income and gain that the debt financed can be taxable to the IRA. Most private real estate deals use a loan, so this is the case that matters most.
- Business income (UBTI). Income from running an active business through a partnership, such as a hotel or a development-for-sale venture, can be taxable to the IRA as well.
How it works in practice:
- The first $1,000 of this income each year is exempt.
- Above that, the custodian files Form 990-T for the account, and the tax is paid from IRA funds.
- The IRA pays tax at trust rates, which rise quickly. For tax years beginning in 2026, the top 37% rate applies above $16,000 of taxable income (IRS Rev. Proc. 2025-32).
- Your K-1 from the deal reports the amount. Send it to your custodian when it arrives.
A solo 401(k) has an advantage here. Under Internal Revenue Code section 514(c)(9), qualified plans can generally invest in leveraged real estate without owing tax on the debt-financed share, as long as the deal meets several conditions. IRAs don’t get this exception. For someone who is self-employed, it can be a reason to invest through a solo 401(k) instead.
This tax rarely makes a deal a bad idea. It does reduce the after-tax return, so ask the sponsor whether the property uses debt, and ask your CPA what the 990-T cost would look like.
The rule that can undo the whole account
An IRA’s investments have to stay at arm’s length from you and your family. The IRS calls dealings between the account and these “disqualified persons” prohibited transactions.
Disqualified persons include you, your spouse, your parents and grandparents, your children and grandchildren, and their spouses. Anyone who manages the account or advises it for a fee counts too. Siblings, aunts, uncles and friends are generally outside the list, though deals with them can still raise questions.
Examples the IRS gives include:
- Borrowing money from the IRA
- Selling your own property to the IRA
- Using the IRA as security for a loan
- Buying property with IRA money for your own use, now or later
For a passive investor in a private offering, the risk usually shows up in two places: investing the IRA in a deal that you or a close relative controls, and personally guaranteeing or paying for something the investment needs.
The penalty is severe. If you engage in a prohibited transaction, the account stops being an IRA as of January 1 of that year. The IRS treats the full balance as distributed to you on that date, and the taxable amount goes on your return.
Withdrawals, valuations and fees
Required minimum distributions. Traditional IRA owners generally must start RMDs at age 73, and the amount is based on the account’s total value, including the private investment. A deal held for seven years doesn’t pause that clock. Keep enough cash or liquid assets in the IRA to cover several years of RMDs, or plan to take part of the investment out in kind with your custodian’s help. Roth IRAs have no RMDs during the owner’s lifetime.
Annual valuation. Your custodian reports the account’s year-end value to the IRS, so it will ask for a value of the private investment every year. Sponsors usually supply one, but it can arrive late, and the custodian may hold paperwork until it does.
Fees. Self-directed custodians charge their own fees, often a setup fee, an annual fee and per-transaction fees, on top of anything the investment charges. On a smaller investment these can take a noticeable share of the return, so compare a few custodians before you open an account.
Questions to ask before you move any money
Ask the sponsor
- Does the offering accept IRA investors, and which custodians have you worked with?
- Does the property use debt, and roughly what share of the capital stack is borrowed?
- Do you expect the deal to generate business income, and will the K-1 show it?
- When do you deliver K-1s and year-end valuations?
Ask your custodian
- What are your setup, annual and per-transaction fees?
- How long does it take to review and fund a private investment?
- Do you file Form 990-T for the account, and what do you charge for it?
Ask your CPA or advisor
- Is a traditional IRA, Roth IRA, solo 401(k) or taxable money the best source for this investment?
- If I’m close to RMD age, how will I cover distributions while the money is tied up?
- Is anyone involved in the deal a disqualified person for my account?
This article is for educational purposes only. It is not an offer to sell or a solicitation of an offer to buy any security, and it is not investment, tax or legal advice. Tax rules for retirement accounts are complex, change often and depend on your circumstances. Private real estate investments are speculative and illiquid and involve risk, including the loss of your entire investment. Talk with your own financial, tax and legal advisors before making investment decisions.