Can Someone Like Me Buy Real Estate With My IRA?

Can you use IRA money to buy real estate? That’s a pretty common question. The answer is “yes”, but there are some guidelines that you must follow.

Your first job is to find an account custodian or trustee that offers the option. Brokers usually stick with stocks, bonds and mutual funds. Banks tend to stick with certificates of deposits.

All of those may be good investment options. But, in order to offer the most diversity, there are a few companies that allow you to use IRA money to buy real estate and other less traditional investment vehicles.

Now, there is another important question and also one that is commonly asked. Can you use IRA money to buy real estate that is intended for personal use, either now or in the future?

The answer is “no”. That would be considered self-dealing or an “indirect benefit”. Government regulations regarding retirement accounts are specific. They want your investment choices to be wise enough to benefit you in the future, but not directly in the present.

You and your close family members are prohibited from living in a house owned by the account. Close family members are sons, daughters, their spouses, your parents, your grandparents and your spouse.

Another question is can you use IRA money to buy real estate that you intend to use for commercial purposes or to conduct your own business in. The answer is again “no”.

If the account owns an office complex, you may not rent an office there. Your family members are also prohibited from doing so. You might wonder why. As long as someone is paying rent, what difference does it make?

No matter how honestly a person conducts their affairs, there could be a tendency to charge less rent to one’s family or oneself. That would affect the account’s income and could risk your ability to support yourself after you retire. The government offers the tax benefits that accompany individual retirement accounts specifically to encourage people to save for their future.

Can you use IRA money to buy real estate and then resell it for a profit? Yes! And, there are some big advantages to doing so.

First of all, there are no immediate taxes. You will pay neither income, state, local, federal or capital gains taxes on profits returned to the account. That could mean a savings of as much as 50%.

Depending on the type of account that you have, you might never pay any taxes on those profits, at all. In a Roth, for example, your contributions to the account are taxed as regular income, but qualified distributions are non-taxable.

Other advantages of using IRA money to buy real estate include compound interest and asset protection. Compound interest is simply interest paid on interest earned. It is compounded interest that allows the account to grow so quickly.

You achieve asset protection, simply by not investing everything in one market or “diversifying”. If you rely solely on the stock market to fund your retirement, you could end up with a lot less money. So, if anyone asks, “can you use IRA money to buy real estate”, now you know the answer.

Real Estate With Roth IRA Funds? Some Tips to Mistake Free Investing

If you are thinking of buying real estate with Roth IRA funds, let me give you a little advice. Choose the right custodian. There are many examples of a roll over IRA buying real estate, successfully, but the fees charged by various custodians can make a big difference.

#1 – Un-invested Cash Balances

Once you begin buying real estate with Roth IRA funds, you will almost always have some cash in the account. In fact, you need to have some cash there, because all of the costs associated with maintaining the property must come from the account.

Don’t think that custodians don’t know this. They take advantage of it. There is one big company that takes away 45% of your earned interest on un-invested cash balances every year. They call it a maintenance fee, but there is no extra maintenance involved. It doesn’t matter what is held within the account, the same type of maintenance is necessary.

#2 – Additional Charges

When it comes to a roll over IRA buying real estate, you’ll have to have a self-directed account. You tell your custodian to write a check for a purchase. Some companies charge for writing checks. They charge for transferring titles and deeds or mortgage notes. They charge a fee every time that you use the account to make a purchase or sell a holding. All of these fees can add up to thousands of dollars in a year’s time.

When speaking of a roll over IRA buying real estate, one of the biggest advantages for investors is the ability to keep more of their profits, due to the tax-free environment of the account. But, if a custodian charges numerous fees, you aren’t keeping as much.

Similarly, one of the biggest advantages to buying real estate with Roth IRA funds is that you will “never” pay taxes on those earnings. Your contributions are taxed as regular income. There are no capital games or income taxes on earnings made within the account. Qualified distributions are never taxed.

#3 – Annual Maintenance Fee and Reasonable Set-up Charge

If you have a roll over IRA buying real estate can only be accomplished if you choose a custodian that offers the option. Those companies that are currently offering “free and easy set-up” do not offer the option. They are stock brokers and they charge large fees for buying and selling stocks.

A reasonable set-up fee is $50. The annual maintenance fee depends on the total value of the account. If you’re like me, you’re shooting for a million dollars or more by buying real estate with Roth IRA funds. Believe me, it’s not an impossible dream.

#4 – Get An Education

If you are inexperienced when it comes to a roll over IRA buying real estate, get some education and information first. There are a small number of companies that offer “hands-off” investment options. That could be the best choice at this time.

As you learn more about buying real estate with Roth IRA funds, you will be able to do more. But, start out slowly, just to be safe.

Buying Real Estate With Roth IRA Funds

Buying real estate with Roth IRA funds is fairly simple and a good idea for several reasons. With a roll over IRA buying real estate is also possible and can be a good way to diversify your portfolio. In both cases the first thing that you will need is a self-directed account and the right trustee.

Many of you may be accustomed to having someone else make your investments for you; a brokerage, your trustee or account custodian. While that is the simplest way to grow your retirement account (and maybe the safest, depending on your investment knowledge), there are only so many types of investments that can be made on your behalf, typically, stocks, mutual funds, certificates of deposit or bonds.

With a self directed account, you have more investment options. With certain trustees, you have even more options. There are only a few types of investments that are prohibited by law. Investing in life insurance is one. Buying real estate with Roth IRA or traditional IRA funds is allowed, but most brokerages do not offer their clients that option.

In a roll over IRA buying real estate is also allowed. You just have to follow the rules. The rules are the same regardless of what type of IRA, you have. Usually if you have a roll-over IRA, it means that your funds were originally in another type of account, a 401-K for example. Once you have transferred the funds from one account to another, the fact that it is a roll over account is irrelevant, when it comes to rules and regulations regarding investments.

The regulations that apply to buying real estate with Roth IRA or traditional self-directed retirement accounts are fairly simple and straight forward. You cannot buy houses or land for your own personal use. Neither you, nor your family members can live in a house that is deeded to your IRA. Real estate deals must be made for investment purposes only and can only be of benefit to your retirement account.

Any funds that are needed for repairs, upgrades, remodeling or general maintenance must come out of the IRA and any profits (rental or resell income) must go back into the account. You must avoid making any purchase that could be considered “self-dealing”. A knowledgeable (and honest) custodian can fill you in on the legal details and complete information about buying real estate with Roth IRA funds.

If you are just about to transfer funds into a roll over IRA buying real estate with the account will only be possible if you a)get a self-directed account and b)find a trustee or brokerage that offers you that option. The Equity Trust Company is a good choice for a self directed IRA custodian. Now remember that they can only do what you ask them to do and insure that your transactions are legal. They cannot help you find the right deals. That is up to you.

If you are not an experienced investor, you can still profit from buying real estate with Roth IRA funds, if you get the right help. There are a small number of experienced real estate investors that are willing to help people grow their retirement wealth. It’s always a good idea to ask for help.