It is possible to invest your IRA in real estate, but there are some things you should consider. The IRS does not allow investing your IRA in life insurance or collectibles such as art work, memorabilia or gems. Using your IRA to invest in real estate is possible, but not necessarily easily done.
First off, you need to create a self directed IRA. You also need to get an independent custodian for that IRA. There are trust companies, brokerages and other financial institutions that will do this, so check around.
Doing a web search for “self directed IRA custodians” can help you locate some. Check into their services and fees so you know exactly what you will be getting. Make sure to find out what their insurance coverage is – you want your assets to be protected!
Many of these kinds of custodians can also invest in other items such as stocks and bonds and mutual funds. Make sure you know the rules. Make sure you know exactly what they will be providing for their services.
Some custodians will offer rent collection and other services. Others won’t and you’ll need to make other arrangements. You should probably avoid high maintenance real estate for this kind of investment.
Don’t forget there are other things to consider as well. Your IRA can’t buy any property that will be used as your residence or as your vacation home. You also can’t rent, buy or lease any property from your spouse, parents or children.
For mortgaged property, most of your gains will still be taxable.You will probably lose any tax break advantages given to homeowners as well. Make sure to consult a tax professional about these matters.
When considering the benefits of investing your self directed IRA in real estate, remember to include the cost of the custodian fees and property management fees, as well as the tax situation. If you are close to retirement, or will soon need to withdraw your money, this option may not be the best for you. Look at it from all sides before making any decision.
As a leading provider of self directed IRA and self directed 401k products, administrative and custodial services, NAFEP focuses on helping you succeed.