Maximizing Solo 401k with REIT Investments

Building long-term retirement savings typically means choosing accounts with high contribution limits and flexible investment options. A Solo 401k offers both. This retirement plan is designed for business owners with no full-time employees, allowing you to contribute as both the employer and the employee. 

One way to potentially enhance your Solo 401k strategy is by investing in Real Estate Investment Trusts (REITs). These companies own or manage income-generating real estate and are generally required to distribute a large portion of their earnings to shareholders. For long-term investors, REITs can provide a combination of dividend income and diversification—two valuable features for a retirement portfolio.

In this guide, you’ll learn how REITs work, how they compare to direct real estate ownership, and how to include them in a Solo 401k without triggering unnecessary taxes. You’ll also find strategies to help manage risk and align your REIT allocation with your long-term retirement goals.

📌 Also Read: How to Invest in Real Estate With a Solo 401k

Why REITs May Be a Smart Fit for Your Solo 401k

Real estate exposure can add meaningful diversification to a retirement portfolio, but managing properties directly isn’t always practical, especially inside a retirement plan. That’s where Real Estate Investment Trusts (REITs) come in. For Solo 401k account holders, REITs may offer a simple way to access real estate–based income while keeping your investments tax-deferred and low-maintenance.

What Are REITs and the Different Types?

REITs are companies that own, operate, or finance income-generating real estate. To maintain their tax-advantaged status, they are generally required to distribute at least 90 percent of taxable income to shareholders in the form of dividends. This structure makes them appealing for retirement accounts focused on income and long-term growth.

There are two main types of REITs to know:

✅ Equity REITs: These REITs own and manage physical properties such as office buildings, apartments, warehouses, or shopping centers. They generate income from rent and, in some cases, property appreciation.

✅ Mortgage REITs (mREITs): These REITs do not own real estate directly. Instead, they invest in mortgages and mortgage-backed securities, earning income from interest payments.

Each type has its own risk and return profile. In many Solo 401k portfolios, equity REITs are more common due to their direct exposure to real assets and steady rental income.

REITs vs. Direct Property Ownership

REITs offer several advantages over buying and managing real estate yourself, especially within a retirement account:

✅ Liquidity: Publicly traded REITs work like stocks, which means you can buy or sell shares quickly without needing to list or manage property.

✅ Diversification: One REIT fund may include exposure to dozens—or even hundreds—of properties across different regions and industries.

✅ Lower Effort: Property operations, maintenance, and tenant management are handled by professionals. You benefit from the income without the day-to-day responsibilities of being a landlord.

For Solo 401k investors, these features make REITs a practical way to add real estate to your portfolio without the time, capital, or administrative complexity required by direct property ownership.

How to Add REITs to a Solo 401k Plan

To include REITs in your Solo 401k, you’ll first need a plan provider that allows the type of REITs you want to invest in. Not all Solo 401k custodians offer the same investment flexibility—some limit your options to publicly traded securities, while others allow alternative assets like private REITs.

📌 Also Read: What Can I Invest in Through a Solo 401K?

Choosing a Custodian That Supports REITs

Your Solo 401k must have a qualified custodian or trustee to hold and manage plan assets. The type of provider you choose directly affects what kind of REITs you can access.

✅ Brokerage-based Solo 401k providers: These typically support publicly traded REITs and exchange-traded funds (ETFs). They offer simplicity, lower fees, and fast trade execution, but they generally do not allow investments in private REITs or other alternative assets.

✅ Self-directed Solo 401k providers: These allow more flexibility, including access to non-traded REITs, private placements, and even real estate LLCs. However, they often come with higher setup costs and annual maintenance fees.

✅ Private REIT access: If you plan to invest in non-traded REITs, make sure the provider handles key requirements like subscription agreements, valuations, and compliance disclosures.

✅ Plan flexibility: Consider whether the provider supports functions like in-plan Roth conversions, rollovers from other accounts, and quick settlement of REIT share purchases.

📝 Important note: Before choosing a provider, review the fee structure, investment restrictions, and whether they offer support for the specific REIT strategy you have in mind. Not all custodians treat REITs equally, especially when it comes to private placements.

What to Look for When Evaluating REITs

Not all REITs are built the same. Some offer reliable income and long-term potential, while others carry more risk or lower transparency. These metrics can help you compare options:

✅ Dividend yield and payout history: REITs are required to distribute at least 90 percent of taxable income, but high yields aren’t always a sign of strength. Evaluate whether the dividend is consistent and backed by strong cash flow.

✅ Funds From Operations (FFO) and Adjusted Funds From Operations (AFFO): These are industry-specific earnings measures. FFO adjusts for non-cash expenses like depreciation. AFFO goes further by subtracting recurring maintenance costs, offering a more accurate view of cash available for dividends.

✅ Net Asset Value (NAV): This tells you the estimated value of the REIT’s holdings, minus liabilities. If shares are trading below NAV, there may be value upside. But if they’re above, it’s worth asking why.

Public vs. Private REITs: Pros and Cons

Understanding the differences between public and private REITs can help you match your investments with your timeline, liquidity needs, and comfort with complexity.

✅ Public REITs: These are traded on major stock exchanges. They offer daily liquidity, price transparency, and standardized financial reporting. They’re typically easier to manage inside a Solo 401k.

✅ Private (non-traded) REITs: These are not listed on exchanges and may come with lock-up periods, higher initial yields, and less frequent valuation updates. Some focus on niche areas like industrial parks or senior housing.

Key trade-offs: Public REITs tend to be more liquid and easier to research. Private REITs could offer higher yields but require more due diligence. Fees, redemption restrictions, and limited pricing transparency are common in private options.

📝 Tip: If you’re considering private REITs, ask for all offering documents and understand the sponsor’s track record. Make sure you’re comfortable with the risks and limitations before committing.

Strategies To Maximize Returns and Manage Risks

REITs can be a powerful addition to your Solo 401k, but like any investment, they come with tax considerations and risks. Structuring your portfolio carefully, diversifying across property types, and maintaining a clear allocation plan can help you get the most out of your REIT investments while minimizing surprises.

Understanding Tax Rules and UBTI Risks

Solo 401k plans are tax-deferred vehicles, but they are not immune to certain tax liabilities, especially when it comes to Unrelated Business Taxable Income (UBTI). UBTI may arise if your plan invests in an entity that is considered to be running an active business. This often happens when the Solo 401k holds ownership in a pass-through entity like an LLC or partnership that generates business income instead of purely passive income.

If your plan generates gross UBTI over $1,000 in a tax year, the IRS requires you to file Form 990-T, and any tax owed must be paid directly from your Solo 401k funds—not your personal funds. Failure to comply could result in penalties or disqualification.

Publicly traded REITs typically do not generate UBTI, because they distribute passive income such as dividends and capital gains. These forms of income fall under exemptions outlined in IRS Code Section 512(b). This makes exchange-listed REITs a convenient choice for Solo 401k investors who want to avoid triggering extra tax filings or administrative work.

However, private REITs and alternative real estate structures can be more complex. UBTI risk may arise if you:

Before moving beyond publicly traded REITs, it’s important to understand how your custodian handles UBTI reporting and whether additional disclosures or tax documents are required. When in doubt, speak with a tax professional familiar with Solo 401k investments.

📌 Also Read: What Is the UDFI Exception for Solo 401k Plans?

Managing Risk Through REIT Diversification

One of the biggest advantages of REIT investing is the opportunity to spread your exposure across different property types and markets. This can help reduce volatility and limit the impact of underperformance in any one area.

✅ Sector and geographic diversification: REITs cover a wide range of sectors, such as residential, office, industrial, data centers, healthcare, and retail. They also operate across different geographic regions. Spreading your investments across multiple sectors and locations can help smooth out returns over time.

✅ Avoiding overconcentration: To manage risk, consider capping any single REIT holding to a reasonable portion of your Solo 401k portfolio, typically no more than 5 to 10 percent. This reduces the chance of one underperforming REIT having an outsized impact on your account.

✅ Balanced portfolio benefits: REITs generally have a low correlation with traditional stocks and bonds. Including them in your retirement plan may improve overall diversification and could help hedge against inflation, especially since many REITs adjust rental pricing with market rates.

Setting a Strategic REIT Allocation Plan

Your REIT strategy should reflect both your investment timeline and risk tolerance. Different types of REITs serve different purposes, and their role in your portfolio may shift over time.

✅ Time horizon and risk tolerance: Investors with longer timelines may prioritize growth-oriented REITs, such as those focused on logistics, data infrastructure, or specialty sectors. Investors closer to retirement might lean toward REITs that emphasize stable, income-generating assets like healthcare facilities or residential apartments.

✅ Rebalancing your Solo 401k: It’s a good idea to review your asset allocation at least once a year. If your REIT holdings drift more than 5 percent from your target, consider rebalancing. This helps enforce discipline and keeps your portfolio aligned with your original plan.

✅ Income vs. growth focus: Early in your career, you might favor REITs that reinvest most of their earnings to grow property portfolios and increase long-term value. As retirement approaches, you may want to shift toward REITs that offer consistent dividend payouts to support predictable income in retirement.

📝 Note: Careful planning not only helps protect your portfolio from unexpected tax issues. It also keeps your retirement strategy aligned with your long-term goals.

Wrapping Up: Is a REIT Strategy Right for Your Solo 401k?

REITs may offer an easy way to gain real estate exposure without the effort of managing property. They typically provide income through dividends and can help diversify your retirement portfolio.

Before adding them to your Solo 401k, make sure your custodian allows the type of REITs you plan to invest in. It’s also important to understand how UBTI rules might apply and to build a mix that fits your overall goals and time horizon.

If you value liquidity, income, and low involvement, REITs could be a useful addition to your Solo 401k. Still, it’s a good idea to review your options carefully and speak with a professional if you’re unsure which strategy is right for you.

📌 Looking to learn more? Explore our other Solo 401k articles for deeper guidance on contribution rules, investment options, and tax strategies.

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