Buying a DST Inside a Self-Directed IRA or Solo 401(k)

The custodian, not you, signs the subscription, and only certain custodians can

Section 408(a)(2) requires an IRA's trustee to be a bank or another person who has satisfied the IRS that it will administer the account properly, and Reg. section 1.408-2(e) spells out what a nonbank trustee must prove: fiduciary experience, the capacity to account for many accounts, a minimum net worth, annual valuation of assets and an annual audit. The Form 990-T instructions treat a custodian as a trustee for these purposes.

In practice that means the DST subscription agreement is signed by the custodian for the benefit of your account, the wire comes from the account, and distributions go back to the account. A custodian that will not hold private placements cannot hold a DST, so the first call is to the custodian, not the sponsor.

Your own role is limited to directing the investment. You cannot sell a property you already own to the account, lend to it, guarantee anything for it or receive any part of the trust's income personally. Section 4975(c)(1) lists those prohibited transactions and section 4975(e)(6) extends the circle to your spouse, parents, children and their spouses; under section 408(e)(2) one prohibited transaction ends the account's IRA status as of the first day of that year. The wider comparison of the two wrappers is in self-directed IRA real estate versus a 1031.

A mortgage inside the trust turns part of the account's income into unrelated business taxable income

An IRA is exempt from income tax under section 408(e)(1), but the same subsection keeps it subject to the tax on unrelated business income in section 511. Section 512(b)(3) excludes rents from real property and section 512(b)(5) excludes gains on sale, which is why an all-cash trust produces no tax inside the account. Section 512(b)(4) takes both exclusions away for debt-financed property.

Section 514(a)(1) includes gross income from debt-financed property in the ratio of average acquisition indebtedness to the property's average adjusted basis, and the same fraction applies to gain when the trust sells. Because Rev. Rul. 2004-86 treats each beneficial owner as owning a share of the trust's real estate, the trust's mortgage is the account's acquisition indebtedness for this purpose.

The account, not you, files the return. The Form 990-T instructions require the trustee of an IRA with $1,000 or more of gross unrelated business income to file by the 15th day of the fourth month after year end, each account separately under its own employer identification number, and section 512(b)(12) allows one $1,000 specific deduction per account. The tax is computed at the estate and trust brackets in Rev. Proc. 2025-32, which reach 37 percent above $16,000 of taxable income in 2026, and it is paid from the account's cash.

A solo 401(k) can sidestep the debt rule; an IRA cannot

Section 514(c)(9) removes acquisition indebtedness on real property for a qualified organization, and the statute's list of qualified organizations includes any trust that is a qualified trust under section 401. A solo 401(k) is such a trust; an IRA is not on the list. That one difference is why a self-employed investor who holds both accounts often puts a financed trust in the plan and an all-cash trust in the IRA.

The exception has conditions. The purchase price must be fixed when the property is acquired, the debt and its payments cannot depend on the property's income, and the seller or a related party cannot provide the financing. Whether a particular DST's loan satisfies every condition is a question for the plan's tax adviser with the loan documents in hand.

Plan-asset rules explain why sponsors ask how much of an offering retirement money represents. Under 29 CFR 2510.3-101, when benefit plan investors hold 25 percent or more of any class of an entity's equity, the entity's underlying assets become plan assets, and the term benefit plan investor includes plans described in section 4975(e)(1), which covers IRAs. A trust near that line may decline further retirement-account subscriptions.

Required distributions, the age 59 and a half rule, and an asset that cannot be sold in slices

Publication 590-B requires the first distribution by April 1 of the year after you reach 73, and imposes a 25 percent excise tax on any shortfall, cut to 10 percent if corrected within the correction window. A DST interest has no public market and the trust sells only when the sponsor decides, so an account holding nothing but a DST can be unable to pay its RMD in cash.

The publication's aggregation rule is the practical fix: you compute the RMD for each traditional IRA separately but may take the total from any one or more of them. Keep enough liquid assets in another IRA, or in the same account, to cover several years of distributions before the account buys an illiquid interest. Whether your custodian will distribute part of a DST interest in kind is a question to ask before subscribing; the publication does not address it.

Age 59 and a half limits what comes out, not what the account buys. The 10 percent additional tax described in Publication 590-B applies to amounts withdrawn before that age, and a purchase inside the account is not a withdrawal. Roth IRA owners owe no lifetime RMD under the same publication, but the section 514 analysis is identical for a Roth, so a financed trust in a Roth still files Form 990-T.

Worked model: $200,000 of IRA cash in a financed trust against an all-cash trust

Hypothetical, round numbers. Your IRA places $200,000 in a trust whose property is half financed. Average acquisition debt over average basis is 50 percent, so half of the account's share of the trust's net income is debt-financed. If that share is $10,000 in a year, $5,000 is unrelated business taxable income; after the $1,000 specific deduction, $4,000 is taxed at the 2026 trust brackets, $330 on the first $3,300 and 24 percent on the rest, about $500 for the year, paid by the account on its own Form 990-T.

At sale the same fraction reaches the gain, and section 514(c)(7) measures it by the highest acquisition indebtedness in the 12 months before the sale, so a loan paid down shortly before closing does not help. On a $60,000 share of gain, $30,000 is taxable to the account at trust rates.

The same $200,000 in an all-cash trust produces no unrelated business income, no return and no deduction. Either way the interest is an illiquid private placement, distributions can be reduced or stop, and the account can lose its principal. Test the figures against your own account and the trust's loan terms with your CPA before the custodian wires anything.

The path for retirement-account buyers

The short answer page can I buy a DST in my IRA or 401(k) covers the yes-or-no. Accreditation still applies, because the account's status follows yours under the accredited investor rules, and DST illiquidity and exits explains why the account should never need the money back early.

• Confirm the custodian holds private placements and ask what it charges to value and report the position each year.
• Ask the sponsor whether the offering admits IRAs and solo 401(k)s, and whether the trust carries debt.
• Prefer an all-cash traditional DST for an IRA; consider a financed trust only in a qualified plan that can use section 514(c)(9).
• Keep RMD cash elsewhere in the account, or in another IRA you can aggregate with.
• Agree in writing who prepares Form 990-T if one is needed, the custodian or your CPA, and how the tax gets paid.