You can use your self-directed IRA to purchase Investment real estate. If you’ve been thinking of this possibility after looking at your meager returns sitting in your IRA, it’s something you really should explore.

Obviously you need to speak with your financial planner and accountant about using retirement real estate retirement accountfunds to buy real estate but once you make the decision, you’ll find out it’s much less complicated then you first thought. One thing you will discover at the outset is that once you commit funds all expenses related to the property must be paid for by the IRA, not you directly.

All expenses related to the purchase must be tracked and covered by the IRA. For instance, say you hire a property manager to collect the rent and take care of general maintenance.  Fees for property management must come directly from the self-directed IRA. Property taxes related to the unit must also come from the IRA. Income from the property must go directly back into the IRA and not comingled with any other funds you own.

The transaction must be completely separate from any personal or other business activities. For instance, you’re not allowed to buy an office building with your self-directed IRA and rent office space to yourself. This is called “self-dealing” and can disqualify the transaction and the IRA funds could then be considered an early withdrawal with all the tax and penalty consequences that come with it.

Simply stated, your IRA funds are for retirement and not for active use. Once you’re clear about how the process works, it’s a great way to diversify your portfolio with a secured asset. There are some great resources on this site regarding self-directed IRAs and real estate and we encourage you to take advantage of them. Take a look at your IRA and see if real estate is a good fit. It likely is.