How to use Real Estate in your IRA

Are you looking for other ways of diversifying your retirement account? We all know that we can invest in stocks, bond and mutual funds with your IRA, but there are other investment choices available. Real Estate, Currencies, and Precious metals, are just a few examples of outside the box type investments to add to your portfolio. But today we want to focus on using Real Estate as an IRA asset.

The number one alternative investment people use in their IRA would probably be real estate. And when I say real estate I’m not referring to a REIT, or real estate investment trust or a real estate mutual fund. I’m talking about buying an actual property with your IRA funds.  If this sounds like something you should be doing in your retirement account then the first thing you need to do is find a custodian that will allow you to invest in this type of asset and set up an IRA account with them.  Typically, most banks and brokerage firms limit your investment choices to the usual stock market based products.  But the Internal Revenue code allows individual investors to purchase land, residential property, condos any type of real estate you would like to invest in.

Real estate and other alternative investments can be used in your retirement account.  But we must remember that certain kinds of investments are prohibited in IRA plans. Such as artwork, gems, stamps, antiques and coins that are considered collectibles are a few examples of items that cannot be part of your retirement investment portfolio.

We know that real estate is not a prohibited investment, it is important to know what can cause a prohibited transaction when investing in real estate.

A prohibited transaction occurs when we engage in a transaction with our IRA in certain ways. Here are some of the things we are not allowed to do.  Account holders can’t sell properties to their IRA, or buy from their IRA. Account holders cannot lend money to the IRA or borrow from the IRA. No extending credit to your IRA or getting credit because of your IRA.  And your IRA cannot do business with anyone related to your IRA. That includes you and your spouse and your children and grandchildren and your parents and your grandparents and all of their spouses.  And you cannot engage in a transaction with a business owned by one of these individuals that owns more than 49% of that business.

If you are going to invest in real estate within your IRA it is your responsibility to know these rules and to follow them.

Remember to continue your education about self directed IRAs.

Timothy Schubert

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