How to Invest in Commercial Real Estate with Your IRA or 401K in Utah

How to Invest in Commercial Real Estate with Your IRA or 401K in Utah

One of the most powerful — and underutilized — strategies in real estate investing is using retirement funds to purchase commercial properties. Self-directed IRAs and Solo 401Ks can hold commercial real estate, allowing your investment to grow tax-deferred or even tax-free.

Here's how it works, what the rules are, and how Utah commercial real estate fits this strategy.

What Is a Self-Directed IRA?

A self-directed IRA (SDIRA) is like a traditional or Roth IRA in every tax sense, but instead of holding stocks, bonds, or mutual funds, it can hold alternative assets — including real estate, private loans, and commercial properties.

The key difference from a standard brokerage IRA: you need a custodian who allows alternative investments. Most major brokerages (Vanguard, Fidelity, Schwab) do NOT allow this. You'll need a specialized custodian such as:

• Equity Trust Company
• Alto IRA
• Rocket Dollar
• Entrust Group

These custodians charge annual fees to hold your account and process transactions.

What Is a Solo 401K?

If you have self-employment income (even part-time), you may be eligible for a Solo 401K — also called an Individual 401K or Self-Employed 401K. Solo 401Ks offer:

• Higher contribution limits than IRAs ($69,000 in 2025 vs. $7,000 for IRA)
• Built-in loan provisions (borrow up to $50,000 or 50% of balance, whichever is less)
• Checkbook control — meaning you can write checks directly without custodian approval on every transaction
• Roth component option

For real estate investors, Solo 401Ks often provide more flexibility than SDIRAs. Talk to a CPA or tax attorney before choosing your vehicle.

The Prohibited Transaction Rules

This is where most first-time investors get tripped up. The IRS has strict prohibited transaction rules under IRC Section 4975. Violating them can disqualify your entire account and trigger immediate taxes plus penalties.

• You cannot personally benefit from the property. You can't live in it, use it, or have your business operate from it.
• Disqualified persons cannot transact with the IRA. This includes you, your spouse, parents, children, grandchildren, and certain business partners.
• All income goes to the IRA. Rent, sale proceeds, and any gains must flow directly back into the account.
• All expenses come from the IRA. Property taxes, maintenance, and improvements must be paid by the account — not by you personally.

These rules make commercial properties particularly attractive for SDIRA/401K investing, since you're unlikely to personally use a strip mall or industrial building.

Best Types of Utah Commercial Properties for IRAs

NNN Lease Properties: These are ideal for retirement accounts. The tenant handles property taxes, insurance, and maintenance — minimizing the transactions that flow through your IRA. You receive rent, that's it.

Vacant Land: Raw land in high-growth Utah corridors (think Eagle Mountain or Herriman) requires no management, generates no taxable income until sold, and can appreciate significantly.

Small Industrial / Flex Space: West Jordan and Salt Lake City's northwest quadrant offer small industrial units in the $300,000–$600,000 range — a natural fit for accounts with moderate balances.

Strip Mall Units: Owning a single unit in a strip mall through an IRA is possible but adds complexity. NNN lease retail is cleaner.

The UBIT Problem

Unrelated Business Income Tax (UBIT) is an often-overlooked complication. If you use debt (a mortgage) to finance a property inside an IRA, the leveraged portion of income is subject to UBIT at trust tax rates (up to 37%).

For most SDIRA real estate investors, the simplest solution is to buy all-cash — which is only feasible for accounts with sufficient balances, or by partnering your IRA with other investors (allowed under specific structures).

Solo 401Ks may have slightly more flexibility here — consult a CPA.

Getting Started in Utah

1. Open a self-directed IRA or Solo 401K with a qualified custodian
2. Fund the account via rollover from an existing 401K/IRA or annual contributions
3. Identify qualifying commercial properties — work with Gurpreet to find NNN leases, small industrial, or land in high-growth Utah corridors
4. Get custodian approval before making an offer
5. Close in the IRA's name — the title will read "XYZ Custodian, FBO Your Name IRA"
6. All cash flows through the account going forward

This process takes longer than a standard purchase — budget 60–90 days for your first transaction.