Hold Your Investing Profits Here: Consider Three Powerful Accounts

One wrong move with your investment account, and your real estate returns could shrink faster than a lease in a downturn.

You may not be the one signing leases or managing tenants, but as a passive real estate investor, where your money lives still matters.

Whether you're investing through a syndication, fund, or fractional partnership, the account that holds your capital plays a big role in what happens to your returns. Tax liability, income flow, and long-term wealth preservation all depend on how those assets are structured.

Many investors start with retirement accounts like Solo 401ks or Self-Directed IRAs to grow wealth in a tax-deferred or tax-free way. But there’s a limit to how much you can contribute. Once those accounts are maxed out or once estate planning becomes a priority, your strategy needs to evolve.

So how do you decide where to park your real estate earnings next?

Let’s compare three structures that passive investors frequently use: the Solo 401k, Self-Directed IRA, and Living Trust.

Learn More About Real Estate Investing Structures

If you're still wrapping your head around how to build passive income, protect your legacy, or invest smarter in commercial real estate, you're not alone. The RockStep Capital Learning Center offers beginner-friendly articles and free e-books on ownership structures, tax-efficient strategies, and retirement planning.

You can also head to the RockStep Capital YouTube channel for short videos, property tours, and advice from CEO Andy Weiner that breaks it all down in plain English.

Solo 401k for Passive Real Estate Investing

A Solo 401k is a tax-advantaged retirement plan for self-employed individuals or small business owners with no full-time employees other than a spouse. While originally designed for active business income, it can be a powerful tool for passive investors with qualifying income streams who want to invest in real estate through tax-sheltered accounts.

If you're earning consulting income, 1099 commissions, or small business profits on the side, you may qualify. A Solo 401k gives you the flexibility to invest in real estate funds or syndications while maximizing annual contributions.

Why Passive Investors Use Solo 401(k)s

• High contribution limits: Up to $69,000 in 2024 ($76,500 if age 50 or older)
• Roth or Traditional options: Choose between tax-deferred or tax-free growth
• No UBIT with leverage: Unlike IRAs, leveraged deals don’t trigger extra taxes
• Full control: Checkbook-style access if set up with the right custodian

Example: An investor earning side income from freelance marketing sets up a Solo 401k and contributes $60,000 annually. She invests passively in a commercial real estate fund, allowing earnings to grow tax-deferred and free of the drag of unrelated business income tax (UBIT).

What to Watch Out For…

• You need qualifying business income, not just investment income
• Administrative setup and IRS filings apply
• You cannot personally benefit from the investment before retirement

Self-Directed IRA for Real Estate Syndications

A Self-Directed IRA (SDIRA) allows retirement investors to hold alternative assets such as real estate funds, private placements, or direct real estate partnerships inside a tax-deferred or Roth account.

It’s ideal for passive investors who are rolling over old 401(k)s or IRAs and looking to grow real estate wealth in the long term.

Why Passive Investors Use Self-Directed IRAs

• Invest in real estate: Easily invest in syndications or REIT alternatives
• Tax-deferred or tax-free growth: Choose Traditional or Roth
• Wider accessibility: No self-employment income required
• Use rollover funds: Transfer funds from old workplace plans

Example: A former engineer rolls over a $200,000 401k from a previous employer into a Self-Directed IRA. She then invests in a syndication of a multi-tenant shopping center. All income and appreciation stay inside the SDIRA until retirement, growing tax-deferred.

What to Watch Out For…

• UBIT applies if your deal uses leverage
• Strict rules prevent self-dealing
• Lower contribution limits than a Solo 401k ($7,000 in 2024 or $8,000 if age 50 or older)
• You’ll need a custodian, which can slow down deal execution

Living Trusts for Taxable Real Estate Wealth

Here’s the truth. Many investors have already contributed the maximum allowed into their tax-advantaged accounts. Once your Solo 401k and SDIRA are topped out, taxable investing becomes the next logical move, especially when estate planning is on your mind.

A Living Revocable Trust does not offer tax deferral, but it gives you control, flexibility, and a smoother transfer of assets when the time comes. Passive investors often use Living Trusts to hold LLC interests in real estate partnerships or syndication income.

Rather than routing all real estate income through retirement accounts, many seasoned investors direct a portion of their income into a Living Trust. This structure keeps that income accessible and positioned for legacy planning.

Why Passive Investors Use A Revocable Living Trust

• Avoids probate: Transfers assets to heirs or partners smoothly
• Preserves control: You decide what happens and when
• Pairs well with LLCs: Can hold partnership or fund interests
• Keeps income accessible: No age restrictions or penalties

Example: A passive investor receives quarterly distributions from several retail real estate funds. Instead of routing the income through an IRA, she directs it into a Living Trust. Upon her passing, the successor trustee continues to manage the accounts and direct cash flow to beneficiaries without going through probate.

What to Watch Out For…

• No tax advantages by default
• The trust must be properly funded and updated
• Not a retirement savings vehicle, but ideal for estate and income planning

Can You Combine These Structures?

Yes, and many experienced investors do.

You might use a Self-Directed IRA to grow long-term wealth through syndications, a Solo 401k for current contributions from qualifying income, and a Living Trust to receive and manage taxable income while planning for your estate.

By combining structures, you gain flexibility to:

• Maximize contributions to tax-advantaged accounts
• Receive real estate income in a taxable but accessible format
• Create a clear estate plan using a Living Trust
• Balance control, access, and long-term growth

Each account has its role. Used together, they build a more resilient and strategic foundation for your portfolio.

Comparison Chart: Solo 401k vs. Self-directed IRA vs. Living Trust 

Which Account Should Real Estate Investors Use?

There’s no one-size-fits-all solution, but there is a smart fit for your financial goals, tax needs, and stage in your investing journey.

Use a Solo 401k if you have qualifying self-employment income and want to make large, tax-advantaged contributions while actively growing retirement savings through passive real estate.

Use a Self-Directed IRA if you’ve rolled over funds from a previous employer’s plan and want to invest those dollars in real estate syndications or private funds, without touching your taxable accounts.

Use a Living Trust when you want flexibility, estate planning protection, and continued access to your real estate income, especially once your retirement accounts are fully funded.

Many passive investors use two or even all three of these vehicles together. At the end of the day, it’s about creating a structure that balances tax efficiency, access to income, and long-term control.

Invest for the Long Term, Structure for the Future

For passive real estate investors, how you structure your accounts is just as important as where you invest, because smart returns start with smart planning.

In summary:

• Use a Solo 401k to maximize tax-deferred contributions if you have qualifying income.
• Use a Self-Directed IRA to roll over existing retirement funds into real estate deals.
• Use a Living Trust to receive income, plan for your legacy, and keep assets out of probate.

The smartest investors do not just focus on returns. They focus on what happens next.

Because at the end of the day, it is not just about where your money goes. It is about where it stays, how it grows, and who benefits from it now and into the future.