This topic is for people that wish to purchase Real Estate Investments using their IRA or 401K. This type of IRA is called a Self Directed IRAs and have been in existence since the mid 70s. Most of us are familiar with IRAs or 401Ks which can be offered either by your employer or for business owners who fund these themselves. We are also familiar with the investments that most IRAs or 401K are comprised off, typically stocks, bonds or other similar investment products. However, there are no IRS rules that prohibit you from utilizing other investment choices. Enter real estate as an option.
As a note: I wish to emphasize the keyword “invest” as this is related to real estate that you will be using for investment purposes and not for personal use or use by a disqualified person (more on this in a moment).
There are up to 4 parties involved.
Steps involved.
Things to consider:
Disqualified persons are as follows. You can not directly benefit from the investment. What this means is that you can’t use your Self Directed IRA to purchase real estate that you would use. You also can’t sell, lease, rent to nor can it provide a benefit for your spouse, son, daughter, mother, father or grand children. Before you invest in a property using a self directed IRA please check to insure that you understand these IRS rules. The IRA Custodian that you elect can assist with qualification questions based on your investment intentions.
There are also rules associated with who can provide improvements or repairs. This needs to be structured as a pure investment where income comes from other than disqualified sources and expenses can’t be paid to disqualified sources. There are exceptions to what is a disqualified source related to which family members are deemed disqualified.
Other than the normal costs associated with the purchase and sale of real estate investments the only other cost is related to the fee the IRA Custodian charges. A nominal initial setup fee is required along with a yearly fee per account related to the record keeping and filing of documents with the IRS.
If you wish to understand more how this works please contact us to discuss.