Using an IRA to Buy Real Estate

If you want to retire safely, a regular saving to your IRA will do the trick, but if you are wiser and use the money to invest in real estate instead, you could retire richer than planned. Investing your IRA funds in real estate is a very good way to turn your money into tax-deferred or tax-free assets.

Here are few basic things that you should keep in mind if you want to make use of this golden opportunity:

  1. As with any other investments of IRA funds, all the taxable income is deferred until withdrawal. In case of Roth IRA, all the investment gains accumulate and can be withdrawn free of tax.
  2. Your IRA has to be self-directed. It has to be independent of any brokerage that could make decisions on your behalf.
  3. Your IRA owns the property, not you. All costs associated with the property have to be paid with IRA funds, and all the income go to the IRA funds.
  4. You can only buy a business property. And the property can’t be used as a residence by you and your family. It is meant for investment purposes only.
  5. The property cannot be mortgaged.

How to do it?

Open a custodial account and transfer money from your IRA to that account, and then buy a property under the IRA account name. The whole transaction and paperwork will go through a custodian, which will keep you from violating the strict rules about this kind of investments.

However, the job of the custodian is only to handle the transaction properly. He won’t advise you on anything else, so make sure you consult a lawyer who is an expert in this field and will take care of all the other details.