Should You Use a Retirement Account to Invest in Real Estate Syndications?

December 2025

Many investors are surprised to learn they can use retirement accounts – such as self-directed IRAs, Roth IRAs, and Solo 401(k)s – to invest in real estate syndications.

The ability to invest through a retirement account does not mean it is always the most effective structure.

The account structure you choose materially affects after-tax returns, risk, and flexibility. This article provides a practical, LP-friendly framework for deciding when taxable accounts, Solo 401(k)s, or SDIRAs make sense – and when they don’t.

The Answer Up Front: What Account Structure Is Usually Best?

For most passive investors, the answer is straightforward.

Best structure for value-add real estate equity: Taxable accounts

Because:

• Depreciation shelters income

• Passive losses can offset other passive real estate income

• Capital gains are taxed favorably

• Refinances are typically tax-free

• No exposure to UBIT

Best retirement structure (when available): Solo 401(k)

Because:

• Generally exempt from UBIT on leveraged real estate

• Clean tax-deferred or tax-free (Roth) growth

• More efficient for real estate than most IRAs

When SDIRAs may make sense (selectively):

• Limited taxable liquidity

• Low-leverage or no-leverage deals

• UBIT impact is limited

• After-UBIT returns still exceed alternative IRA investments

For high-leverage, value-add equity, SDIRAs are rarely the optimal structure.

Why Retirement Accounts Complicate Real Estate

Real estate syndications behave differently than stocks or bonds.

Most deals:

• Use leverage

• Generate depreciation and passive losses

• Produce taxable income that does not align neatly with cash flow

Inside retirement accounts, some of these features can work against investors.

UDFI and UBIT – The Core Issue

When an IRA invests in leveraged real estate, the portion of income attributable to debt is treated as Unrelated Debt-Financed Income (UDFI). UDFI can trigger Unrelated Business Income Tax (UBIT).

Key points:

• UBIT is paid by the IRA itself

• It is taxed at trust tax rates, which escalate quickly

• This reduces the effective tax advantage of the account

Solo 401(k)s are generally exempt from UBIT on leveraged real estate, which is why they are often the preferred retirement structure when available.

How the Same Deal Can Behave Very Differently by Account Type

The same syndication can produce very different after-tax outcomes depending on where it is held.

• Taxable accounts benefit from depreciation, tax deferral, and favorable capital gains treatment

• Solo 401(k)s can preserve tax deferral while avoiding UBIT in many cases

• SDIRAs may lose depreciation benefits and incur UBIT on leveraged income

This is why headline returns alone are not sufficient – account structure matters.

(For background on depreciation mechanics, see Depreciation, Cost Segregation & Depreciation Recapture.)

When Each Structure Makes Sense

Taxable Accounts

Often the best choice when:

• Investing in value-add or equity-heavy real estate

• Depreciation is expected to be meaningful

• Building a multi-deal portfolio over time

• Seeking flexibility around refinances and exits

Taxable accounts tend to maximize real estate’s built-in tax advantages.

Solo 401(k)

Often the best retirement structure when:

• You are eligible (self-employed or business owner)

• Prioritizing long-term retirement growth

• Investing in stable or moderately leveraged real estate

• Wanting to avoid UBIT on leveraged real estate

When available, Solo 401(k)s are typically the most efficient retirement wrapper for real estate.

Self-Directed IRAs (SDIRAs)

Most appropriate when:

• Taxable liquidity is constrained

• Leverage is minimal or absent

• UBIT exposure is limited

• After-UBIT returns still exceed alternative IRA investments

SDIRAs are niche tools, not default solutions – particularly for high-leverage, value-add equity deals.

A Simple 3-Question Decision Framework

When deciding where to place a syndication investment, start here:

1. Do you have taxable liquidity available?
   → If yes, taxable accounts are often preferred.

2. Do you qualify for a Solo 401(k)?
   → If yes, this is often the most efficient retirement structure.

3. What type of deal is it?

   • Low-leverage or debt-light → SDIRA may be acceptable

   • High-leverage value-add → SDIRA only if returns clearly justify UBIT

This framework won’t cover every edge case, but it reflects how most experienced LPs approach account selection in practice. Ultimately, the most effective account structure is the one that aligns with how a specific deal generates returns and how it fits within your broader financial plan.

Note: This material is for educational purposes only and is not intended as tax, legal, or investment advice. Tax outcomes can vary significantly based on individual circumstances. Investors should consult with a qualified CPA or tax professional regarding their specific situation.

Continue Learning

→ Start from the beginning here: Passive Real Estate Investing Learning Guide

→ Next recommended read: 1031 Exchanges & Alternatives for Syndication Investors