Your Retirement Money Can Work Harder Than a Target-Date Fund
Most people with old 401ks from former employers do one of two things: leave the money sitting there or roll it into Vanguard, Fidelity, or a similar brokerage. Those are both valid options. But there is a third option that most financial institutions will never mention, because it does not benefit them: rolling those funds into a self-directed IRA or solo 401k and putting the money to work in real estate.
At a recent COIN investor meetup, Suzanne and Sarah brought in Amanda, a 15-plus-year veteran of the self-directed retirement account space, to walk Central Oregon investors through exactly how this works. Here is what she covered.
What "Self-Directed" Actually Means
When a big brokerage tells you that you have a "self-directed" account, what they mean is that you can pick your own stocks and mutual funds from their menu. You cannot hand them a purchase contract on a rental property or a promissory note for a private loan. A true self-directed account, held at a specialized custodian, lets you invest in what you actually know—real estate, private lending, notes, and more. This has been legal since the 1970s.
The account types you can self-direct include:
- Traditional and Roth IRAs
- Inherited IRAs
- Solo 401ks (for self-employed individuals and business owners with no W2 employees other than a spouse)
- SEP and SIMPLE plans
- HSAs (health savings accounts paired with a high-deductible health plan)
- Coverdell educational savings accounts
Old employer plans—401ks, 457s, TSPs, profit-sharing plans—can be rolled into any of these vehicles once you no longer work for that employer. If you still have a current 401k, ask your plan administrator about an in-service rollover. Some plans allow you to roll a portion of your vested balance while still employed, particularly if you are 59½ or older.
The Solo 401k: Why It Stands Apart
For self-employed investors and small business owners in Central Oregon, the solo 401k is the most powerful tool in the lineup. Here is why:
- Tax diversification in one plan. As the employer, contributions go into a tax-deferred bucket that reduces your taxable income today. As the employee, you can contribute to a Roth bucket that grows tax-free forever.
- A restriction-free loan from your own account. The solo 401k is the only retirement vehicle that lets you borrow against your balance and pay yourself back with interest over a five-year period. The IRS caps this at $50,000. That capital can fund a down payment, cover renovation costs, or seed your next deal—and every dollar of interest goes back into your own account.
- Leverage without a punishing tax. When you use a non-recourse loan inside a 401k to buy a rental or fund a flip, you avoid the tax that would otherwise apply when leveraging inside an IRA. Put a tenant in the property and they are effectively paying down a loan inside your retirement account.
- Tax credit for setup. Since 2023, the IRS offers a tax credit—not just a deduction—for setting up a small business retirement plan. For a solo 401k under a certain account value, that credit can effectively offset your setup cost entirely.
No Capital Gains Tax on Flips. No 1031 Required.
This was the moment that stopped the room. When you flip a property inside a retirement account, the profits return to the account. There is no capital gains tax event. There is no need for a 1031 exchange. Everything stays inside what Amanda called "the bubble." In a Roth solo 401k, those profits grow tax-free permanently.
"Take those numbers and put it all tax-free. This is how you make up for lost time."
The same logic applies to BRRRs and rental income. Rents flow back into the account. Refinance proceeds flow back into the account. If the account is a Roth, none of it is taxed on the way out.
Using Other People's IRAs as Private Money
There is a significant amount of money sitting in retirement accounts across the country, and most of those account holders have no idea they can use those funds to lend on real estate deals. As a borrower, this means your network of colleagues, former coworkers, and neighbors may already have capital available to fund your next project—they just do not know it yet.
When a retirement account acts as the lender, the mechanics are straightforward: the account is listed on the note and mortgage as the lender of record, the loan closes at title, and when the property sells or refinances, principal, interest, and any fees wire directly back to the retirement account. In a Roth account, all of that return is tax-free.
Amanda's suggested approach for raising this capital: mention it naturally in conversation. Something like, "We earn double-digit returns in people's retirement accounts by doing real estate right here in our backyard—do you know anyone who might be interested in that?" You are not asking for money. You are opening a door.
The Rules You Must Follow
The IRS does not publish a list of everything you can do. It publishes a list of what you cannot do. Know these before you start:
- No personal use. You cannot live in a property owned by your IRA, stay in an Airbnb it owns, or benefit from it in any way before retirement.
- No sweat equity. You cannot do the physical work yourself on a property your account owns. Hire contractors. You can manage the project; you cannot swing the hammer.
- No co-mingling of funds. If the water heater in your IRA-owned rental needs replacing, the money must come from inside the account—not your personal checking account.
- Disqualified persons. Think of your family tree. You, your spouse, your parents, grandparents, children, and grandchildren are off-limits for transactions. Siblings, cousins, aunts, uncles, and unrelated investors are generally fine. You cannot buy a rental in your IRA and let your child live in it. You cannot borrow from your father's 401k for your deal.
Property managers are actually a natural fit here. When a property is owned inside an IRA, a third-party manager collects rents and remits them to the account, keeping everything at arm's length and in compliance.
Getting Started
The rollover process from an old employer plan to a self-directed account typically takes two weeks or less. Opening the account itself is done electronically. You do not need to move an entire account—partial transfers are allowed, so you can start with a portion and expand as you get comfortable.
Your homework before a first call: gather copies of your most recent retirement account statements. That is it. A good custodian will walk you through what you have, what it can do, and what the costs are—clearly, in plain numbers, before you commit to anything.
Ready to Put Your Retirement Funds to Work in Central Oregon?
This is exactly the kind of strategy we cover inside the PRIMO Private Money Academy—how to structure deals, raise capital, and keep more of what you earn. If you want to go deeper, join us at our next monthly investor meetup where we bring in experts, talk real deals, and help you build a real estate portfolio right here in Central Oregon. Get on our mailing list to receive the Real Deal email every week and be the first to know about upcoming events.
