Begin With the Account You Actually Have
A current employer's 401(k) generally offers the investment menu and distribution options stated in its plan documents. Many plans do not permit direct ownership of private real estate interests. An in-service distribution or rollover may be unavailable or limited by age, contribution source, employment status, or other plan terms.
A former employer plan may present additional choices, such as leaving assets in the plan, moving them to a new employer plan that accepts rollovers, or completing an eligible rollover to an IRA. None should be selected only to reach one investment.
A Self-Directed Account Is Still a Retirement Account
Certain custodians administer IRAs that can hold permitted alternative assets. The custodian handles account ownership and transactions but does not automatically evaluate investment quality. The retirement account, not the individual, generally must own the interest, send funds, receive proceeds, and pay permitted investment expenses.
Restrictions and Tax Questions Remain
Transactions involving the account owner and other disqualified persons can create prohibited-transaction risk. Personal use, improper benefits, guarantees, compensation, or dealings with related parties may be restricted. Debt-financed or operating income can also create unrelated business tax issues in some structures.
Custodian fees, valuation requirements, illiquidity, distribution needs, required minimum distributions when applicable, and delayed tax reporting should be evaluated before funding.
Use a Three-Professional Check
Confirm plan and rollover rules with the plan administrator or custodian. Review tax consequences with a tax adviser experienced in retirement accounts and private real estate. Review the offering and prohibited-transaction concerns with qualified counsel. Lova and an operating partner should not replace those advisers.
What to Remember
- A 401(k) cannot be assumed to hold any investment you choose.
- Current-employer and former-employer plans can have different rollover options.
- A self-directed custodian administers the account but does not validate the deal.
- Prohibited-transaction, UBIT, liquidity, valuation, and fee issues require independent review.
Questions to Ask
Does my plan permit an eligible distribution or rollover?
Ask the plan administrator and obtain the answer from current plan documents.
Can this exact entity be held by the custodian?
Confirm asset acceptance, titling, funding timing, fees, valuations, signatures, and cash-flow procedures before subscribing.
Could the investment create UBIT or a prohibited transaction?
Have a qualified tax or legal adviser review the financing, ownership, parties, compensation, and intended activity.
This lesson is for general educational and informational purposes only. It is not investment, legal, tax, accounting, retirement-plan, or financial advice and is not an offer to sell or a solicitation to purchase any security. Examples are simplified and hypothetical. Private real estate investments are speculative, illiquid, and involve substantial risk, including possible loss of principal. Rules and individual circumstances vary. Review definitive offering documents and consult your own qualified advisers.