“My CPA Said the IRS Prohibits my 401K from Investing in Real Estate!”


This was a recent comment made regarding a soon-to-be client after visiting with their CPA.  While we do not hear this comment as much as we used to, we still do hear it.  Whether it is our CPA, financial adviser or broker, the mantra can be the same:  “The IRS doesn’t allow you to invest in assets like real estate.”  But, is this true?!  I mean, let’s face it…while the market has been doing well recently, does anyone trust its continued performance?  Even if the market was performing well, aren’t there individuals who might be interested in investing in other assets…as long as they followed the rules for their IRAs or 401Ks?!  I would guess…yes!

Which leads to the question…..what does the IRS say about investments in assets outside the “traditional” investment world of stocks, bonds and mutual funds?”  Here is a quote from the IRS website:

“…..because of administrative burdens, many IRA trustees do not allow IRA owners to invest IRA funds in real estate. IRA law does not prohibit investing in real estate but trustees are not required to offer real estate as an option.”

Okay, fair enough…I think that has been satisfactorily addressed.

So, folks it is about education.  I think we have established that and IRA (or 401K) can be established so that you have the ability to invest in assets outside the stock market.  Now, your job is to decide is you want to invest in what is referred to as “non-traditional” assets (e.g., real estate).  But, IF you could invest in both “traditional” and “non-traditional” assets from one account with possibly NO custodian fees, is that something you might want to consider?!

The fact of the matter is….no matter what you invest in, it should be a decision that you make and not your broker.  Take the time to study your choice of investments and make the decision that is best for you and your retirement, not the commissions received by your broker or financial planner.