Real estate assets are among the most popular investment opportunities in self-directed retirement accounts. These investments grow tax-free in a Roth IRA or tax-deferred in a Traditional IRA. Here are some common types of investments real estate investors purchase with their IRAs:
Most custodians or big banks that you may be familiar with do not offer this type of investment freedom. They offer the traditional assets such as stocks, bonds, and mutual funds. In order to make these types of investments in an IRA, you must open a self-directed IRA with a trust company or IRA custodian that specializes in these types of transactions.
Our process is simple and we help you every step of the way. Once you have made the decision to invest in real estate with IRA funds, here is what you need to do:
It's important to make sure that your self-directed IRA has enough funds to cover the purchase, closing costs, etc. You also need to keep cash in the IRA to cover expenses like taxes, utilities, repairs, etc. You cannot pay for these from your personal accounts. That violates IRS prohibited transactions rules covered in section below.
All expenses for the real estate IRA must be paid from the IRA. All income generated from the property must go back to the IRA. See examples below:
If this should happen, there are several things you can do:
Learn more about how to get more funds into your account as needed.
While your account is being funded, you can strategize on how you will purchase the property. There are several ways your IRA can buy real estate regardless of the size of your IRA.
Here are the most common strategies of how IRAs purchase real estate:
There are many ways you can structure your deal, you just can't engage in a transaction that benefits you directly. When putting together your strategy make sure that you familiarize yourself with IRS Code 4975 that covers prohibited transactions. See section below. You don't want to break the rules. We can assist you with this process by discussing these strategies in detail. Get in touch with us.
IRAs are in a tax-deferred environment—that’s what makes them such a great way to build your retirement savings with alternative investments. The investment decision is yours, but there’s a catch: For the investment to remain tax-deferred, you must follow IRS rules and guidelines regarding prohibited transactions in retirement plans. Ignoring these rules or breaking them can result in significant tax consequences to the account holder.
Top 5 Real Estate IRA Rules
The IRA owner cannot take any indirect benefit or cannot:
These are just some of the most common prohibited transactions that we come across.
Visit the IRS website for more detailed information about prohibited transactions and disqualified persons.
For more than 20 years, IRA Resources has been helping clients invest in real estate with IRAs. Contact us to learn how you can do the same. Working with IRA Resources is fast, friendly, easy, and cost effective.