Like many generations of Americans, you’ve probably been told how important it is to save for the future. As fewer contemporary employers offer pension benefits to employees, investing in a trusty 401(k) fund has become one of the most common methods for putting money aside. While these, along with other retirement-focused savings accounts1, have historically provided steady, consistent gains2, recent factors like market volatility and rising inflation3 have cast doubt on their reliability.
Moreover, many folks interested in diversifying their investment portfolios may feel stuck, lamenting that most, if not all of their savings are tied up in a 401(k) or individual retirement account (IRA) until their golden years.
I’ll let you in on a secret, though: most 401(k)s (and some other retirement funds) can be rolled over into real estate investments to help diversify your portfolio, whether or not you’re in your golden years. Adding such variety to your investment strategy could help you target more stable returns, although nothing is ever guaranteed with investing. Below, we’ll discuss how exploring such 401(k) investment options could be the solution you need to augment your portfolio and release you from feeling trapped by a single investment path.
The Importance of Investing for Retirement
When you decide it’s time to stop working, your future will rely on whatever financial security your retirement accounts can provide. It’s difficult to overstate the importance of such assets, though many Americans4 rely — almost unconsciously — on their employer’s plan to set money aside for retirement.
Retirement accounts make sense. Social Security alone is not likely to provide the income level you need to sustain the retired lifestyle you imagine. Instead, you can designate a pre-tax percentage of your paycheck for retirement. Depending on the plan’s details, some employers offer to match your contributions, up to a certain percentage.
Retirement accounts also let you defer paying (income) tax on your contributions until they are withdrawn, which can help reduce your annual tax bill. Some of the most popular retirement accounts include 401(k)s, traditional IRAs, ROTH IRAs (named for late Delaware Senator William Roth), and Simplified Employee Pension (SEP) IRAs. The table below should help you make better sense of this alphabet soup.
|Comparison: Retirement Account Types|
|401(k)||Standard employee savings plan. |
Accessible option that contributes a percentage of each paycheck. Employers may match contributions.
|Traditional IRA||Pre-tax savings plan. |
Similar to 401(k) benefits, but lower contribution limits. More flexible option: offered by banks, brokerages, or investment firms, they can use your savings to invest (in stocks, bonds, or real estate).
Similar to traditional IRA, but with inverse tax benefits.
With traditional, pre-tax IRAs, you only pay tax when you withdraw money. With a ROTH IRA, you pay tax on contributions but can withdraw money without a tax penalty.
|SEP IRA||Simplified employee pension (SEP) IRAs: usually self-employed individuals & small business owners. |
Similar to a traditional IRA, but allows for larger contributions.Employers can contribute up to 25% of an employee’s income (max. $61,000); self-employed can contribute up to 25% of net income.For employers, employees are 100% vested in contributions, unlike 401(k)s.
401(k) Real Estate Investment Options to Consider
If you’re reading this article, chances are you’ve already done the math and realized that relying on a single retirement savings vehicle may not be enough to meet your financial goals — even with the best planning available. Traditional retirement investments are heavily swayed by market factors, therefore it’s nearly impossible to predict what the market will be like when you’re ready to retire and pull those funds out.
If you’ve been contributing consistently, maxed out your allowances, and still haven’t come up with the returns you need to see, these 401(k) real estate investment options could be an alternate path to success.
Roll It Over
Before you start viewing properties to buy, you need to make sure you can access the capital you want to invest. For so many people, that money is just sitting in a 401k — or more than one, if you left one behind with a previous job. That’s why you need to know how to roll your 401(k) account(s) into the more flexible format of an IRA. Since 401(k) funds are essentially fixed in their application, you can’t really move the money around. This is where rollover 401(k)s — 401(k) funds from previous employers — come into play.
When you leave a job or find new employment, the IRS gives you 60 days, starting the day you receive a new IRA or retirement plan, to roll those funds into your new plan, or a different kind of IRA.
Rolling 401(k) funds into a self-directed IRA generally gives you greater flexibility in deciding how to use them. If, for example, you opt to use the capital from your former 401(k) (from a previous employer) for real estate investments, it could untether you from your current financial plan, so be sure that step is right for you.
Such alternatives could allow you to diversify your investments and also hedge against the potential volatility of other investment options. You could benefit from having a more diversified portfolio rather than keeping all your (nest) eggs in one basket.
It’s important to remember that if you’re thinking of investing your 401(k) in real estate, you’ll need to roll it over into a self-directed IRA and there are rules you must follow. Make sure you do your own research, and discuss your plans with your financial advisor.
If we have your attention, but you’re hesitant about trusting someone you don’t know with your life savings, that’s good! You should always be careful about making such big decisions.
That’s where Canyon View Capital comes in.
Our principals have been investing in real estate for over 40 years now. While other investment managers may list similar options, the descriptions below summarize the real estate strategies CVC has developed.
Our private real estate investment strategies are specifically designed to make use of beneficial tax laws while investing in multi-family real estate properties that enjoy moderate investment income. CVC also offers an option for experienced, sophisticated investors, to accommodate your self-directed IRA, should you wish to use it for real estate.
While many private investment strategies might be invested in an array of financial vehicles, including equity funds, bond funds, money market funds, and hedge funds, CVC relies on real estate. Generally, CVC seeks real estate investments that increase the potential for:
- Steady cash flow
- Capital appreciation
- Equity growth
One of the biggest challenges in the world of investing is the difficulty of predicting market forces and determining what the economic future may bring. Investing in real estate can help buffer public market uncertainty5 by increasing diversification and spreading the risk of an investment portfolio.
Canyon View Capital Works With You
Now that you know some of the 401(k) real estate investment options that are available, you’ll want to partner with professionals that can help you get your foot in the door. At Canyon View Capital, we have over four decades of real estate investment and property management experience, with properties in markets throughout the US Midwest and Midsouth.
CVC professionals are focused on providing top-notch advice on real estate investing — but that’s not all. We also have a deep understanding of different aspects of real estate, accounting, and taxes. Our goal is to relieve you from the intricacies of real estate investing so that it’s as easy as it is effective. Then, on an ongoing basis, we do the heavy lifting of property management to remove one of the major burdens of real estate investing.
Our goal is to help you enjoy the highly sought-after benefits of real estate investing without the hands-on responsibilities. It’s sort of like having your cake and eating it too!
New to real estate investing, but want to learn more about 401k real estate investment options?
1Shunsuke Managi, Mohamed Yousfi, Younes Ben Zaied, et al., “Oil price, US stock market and the US business conditions in the era of COVID-19 pandemic outbreak,” Economic Analysis and Policy, Vol. 73, 2022, pgs. 129-139. ISSN 0313-5926. https://doi.org/10.1016/j.eap.2021.11.008.
2Mateo Tonello, Stephan Rabimov, “The 2010 Institutional Investment Report: Trends in Asset Allocation and Portfolio Composition,” for The Conference Board. https://ssm.com/abstract=1707512
3Monthly 12-month inflation rate in the United States from February 2020 to February 2023. Statista.com. Accessed April 13, 2023.
4US Bureau of Labor Statistics. “67 percent of private industry workers had access to retirement plans in 2020.” March 1, 2021, www.bls.gov.
5Gary Beasley, “Real Estate Offers A Powerful Hedge Against Market Volatility” for Forbes. Jan 2, 2020, Forbes.com. Accessed April 25, 2023.
6$1B figure based on aggregate value of all CVC-managed real estate investments valued as of March 31, 2023.
Gary Rauscher, President
When Gary joined CVC in 2007, he brought more than a decade of in-depth accounting and tax experience, first as a CPA, and later as the CFO for a venture capital fund. As President, Gary manages all property refinances, acquisitions, and dispositions. He works directly with banks, brokers, attorneys, and lenders to ensure a successful close for each CVC property. His knowledge of our funds’ complexity makes him a respected executive sounding board and an invaluable financial advisor.