So, this question came about because I was playing thought games. It is my understanding that a 401k isn't really an account type, but a thing with the tax code. Most employer sponsored 401k accounts have a limited number of investment options and are managed through an employer-chosen broker. However, it is possible to roll old 401k accounts in to the one with your current employer. So here's the train of thought...that seems to either result in a really nice benefit (loop hole?).

  • Roll 401k in to a self-directed setup
  • Purchase house within the 401k
  • Rent house to yourself (possibly at a below-market rate)

This would obviously require enough money in the 401k to cover the cost of the house as (I'm assuming) this would preclude getting a mortgage. However, it seems like a way to essentially use the money in the 401k without needing to technically withdraw it. An amount for rent could be set to be more than enough to cover expenses related to maintaining the house (which an individual owning the house would be responsible for anyway) and yet be significantly lower than the cost of renting the same house from a regular landlord. Meanwhile, the house will appreciate in value (over enough time).

Drawbacks would be that you need enough money in the 401k to buy the house without a loan, but also enough going in so that you can still retire on the remaining amount.

To be clear, if this looks like it is entirely a scheme to pay less in taxes, that's because it is. It is also entirely hypothetical. At the moment, I don't see any benefit other than taxes to doing such a thing.

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    relevant xkcd xkcd.com/1494
    – fectin
    Commented Dec 21, 2023 at 13:17
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    @fectin Unlike the xkcd though there are a lot of IRA hacks that do work. I wish I learned about the 'backdoor roth' trick years before I did.
    – Chuu
    Commented Dec 21, 2023 at 17:04
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    @Chuu: In fairness, prior to 2018, backdoor Roth was in a legal grey area. It was a possible violation of the step transaction doctrine (you can't combine a series of legal steps to achieve an outcome that would be illegal if performed in a single step), even if no one was ever prosecuted for it. The TCJA of 2017 (effective 2018) explicitly made it legal. So if you were playing it safe, it backdoor Roth wasn't an option until 2018 anyway. Commented Dec 22, 2023 at 18:45

2 Answers 2


No - you cannot directly or indirectly benefit from the assets in an IRA, which is most pertinent for a self-directed IRA where you can own real assets like rental property. Neither can your spouse, descendants, parents, grandparents, or their spouses, or any company or entity that is owned by one of them. You can't live in the house, rent it to family, take any rental income out of the IRA, pay your daughter to redecorate the house, etc. You can't even do repairs "for free" because you indirectly benefited from not having to pay for the repairs out of the IRA.

The IRA needs to be completely isolated from any "disqualified persons" or you risk having the entire IRA classified as a disbursement and subject to taxes and penalties.

You basically need to treat the account and anything owned by the account as completely off-limits until you retire. Which is why they are very often handled by a custodian who can guide you to make sure you don't run afoul of the IRS regulations (but in the end it's your responsibility, not theirs).

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    Which is a very awkward way to view an investment. Totally useless until inflation has already absorbed the majority of its value.
    – pygosceles
    Commented Dec 21, 2023 at 19:25
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    It's not useless - you can still rent it out to qualified people and benefit from increase in value, but all of that has to stay within the IRA until retirement. It's essentially an arms-length investment that is an alternative to traditional investing.
    – D Stanley
    Commented Dec 21, 2023 at 19:36
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    @pygosceles Inflation only absorbs the value of an investment if the investment appreciates slower than the inflation rate. In other words, compounding interest works the same way whether you're talking about inflation or an asset (e.g. stock market; real property).
    – jpaugh
    Commented Dec 22, 2023 at 23:05
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    @jpaugh If I knew of any investment that could outpace inflation, I would be all over it.
    – pygosceles
    Commented Dec 22, 2023 at 23:41
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    There are lots of investments that outpace inflation on average, but will have some good and some bad years. You might also look into inflation-adjusted treasury bonds (I-bonds) that adjust based on one measure of inflation.
    – D Stanley
    Commented Dec 23, 2023 at 16:19

This is called "self-dealing" and is not allowed. See the list of prohibited transactions here.

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