Can You Buy Investment Property with a Self Employed 401K |
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Can You Buy Investment Property with a Self Employed 401K

One of the great things about real estate is the diversity. People from every corner of the universe are involved in diverse careers and many are very successful. Not every person that works for a living can fit into the traditional financial mould. There are now more entrepeneurs in the world than ever before. Banks and financial institutions are recognizing this new trend and have updated financial securities. New types of accounts are now available and one is a self employed 401k. You might be aware that you can buy real estate with an IRA and many people contact JWB Real Estate Capital daily to ask can you buy investment property with a self employed 401k. We answer yes.

 

Self Employed 401K for Real Estate

It is no secret to anyone that is self employed that the IRS pays a lot of attention to those that don't work for an employer. The average self employed individual pays 30 percent or higher in combined taxes plus expenses. The ability to save money on annual taxes is one of the benefits to these solo 401k accounts. The 2012 annual contributions for a solo 401k is $17,000 to $22,500. One of the best parts about this is that a self employed person acts as the company and the employee. One side can defer a salary and the other can make a contribution of an amount not to exceed $55,000 in total contributions. The limits range between $50,000 and $55,000 because people over 50 are allowed to contribute higher earnings to "catch up" before they retire. 

An additional advantage to holders of a solo 401k account is the personal loan feature. This can be used in several ways and is generally forbidden with other types of retirement accounts. An amount of up to $50,000 can be borrowed at a low prime interest rate for any self employed person. There are no restrictions on how the funds are used and some people start a new business, earn interest on the loan or buy turnkey investment property. The ability to take $50,000 is a major advantage in this type of retirement account. A window of between 10 and 15 years is given to you if you purchase real estate with the personal loan feature.

There are no annual tax filings required that are separate from your standard 1099 or similar forms. IRA and other retirement accounts could require lengthy annual forms on all retirement money. Unless your account is over $250,000, you will not have to make any specific filing other than what is reported on your standard tax form. This goes for individuals and corporations that own a self employed 401k. 

 

Spousal Contributions to Self Employed 401k

A spouse can generally make contributions to a self employed 401k account but only if he or she receives a W2. Many husbands and wives own businesses or work together. This plan looks out for these couples and makes it easy for each to invest. This means that couples could invest up to $110,000 annually into the account. This is unlike the smaller limits that are placed on Roth IRA and traditional IRAs. A self employed 401k is one of the best ways that you can use to get started as a real estate investor.

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