Real Estate in an IRA: Getting Started with Self-Directed Retirement Plans – Part 1

Kevin M CollinsReal estate in an IRA is one of the most popular assets people choose to build income toward retirement. Self-directed IRAs are retirement accounts that individuals use to acquire such investments as these accounts give owners total control managing their own investment funds. While self-directed plans are able to hold the traditional stock, bond, and mutual fund, account owners are more interested in the ability these plans have to hold a myriad of alternative investments which often have the potential to build wealth at a faster pace than the more traditional options.

Getting started self-directing your retirement funds can be quite easy—but there are critical aspects one must be aware of when choosing to self-direct. With the freedom to choose your own investments comes a great responsibility of due diligence in exploring your options, making sure the assets you consider are legitimate and viable, and learning what rules and regulations govern these accounts.

Relative to real estate investments, you want to be sure the property you are interested in is in a location that best suits your intentions. Rehab and flips can be profitable if the location and buying price is right and the amount spent on renovations is not excessive. Rental properties, whether single or multi-family dwellings, can also be lucrative provided that you can attract and keep tenants. Many investors have success drawing retirement income from commercial property dealings, as well.

Once you have decided what types of real estate investments you want to acquire, you need to find a self-directed plan administrator such as AdvantaIRA, who allows real estate assets in IRAs. Not all custodians allow the same types of holdings and it is important that choose one that administrates the investments you wish to obtain. Many people prefer administrators who do not sell or even promote investment opportunities. AdvantaIRA, for example, neither sells investments nor gives investment advice, but does provide weekly educational events designed to teach people about all aspects of self-directed accounts and alternative investment options.

You also have several different types of plans to choose from. Traditional, Roth, SEP and SIMPLE retirement plans are examples of accounts that can be self-directed. Different plans offer different benefits. For example, Roth IRAs contributions are made after tax and are therefore not taxable upon distribution at retirement age, while traditional IRAs offer pre-tax contributions but incur tax at the time of distribution. Additionally, there are yearly caps on contributions for these two accounts—around $5500 each year. SEP and SIMPLE IRAs have much higher contribution ceilings—capping at $51,000 a year depending on your income, which may be beneficial in terms of having the cash flow on hand in your IRA to make real estate investments.

In terms of cash flow, your self-directed IRA is able to partner with qualified individuals and entities to pool income to invest in real estate. The critical key here is to fully understand and operate within the regulations that govern disqualified persons and prohibited transactions otherwise your IRA could suffer heavy penalties or even disqualification.

Your IRA can also obtain a mortgage to help facilitate the purchase of the investment. Although many people perform this action understand this: income gained in your IRA is tax-free or tax-deferred only when that income is generated by investments purchased with the IRA’s funds. If you use a mortgage to help purchase an investment the income gained from that portion of funds is subject to unrelated business income tax (UBIT). Be sure to consult a knowledgeable tax professional to assist you in navigating this process.

Once you’ve chosen your self-directed IRA administrator and the type of plan you want, it is time to fund the account. Doing so is simple—you can roll over funds from another retirement plan into your new self-directed account or just make a contribution. Now you are ready to begin searching for real estate investments. You might consider joining a real estate investment club to network and learn from others how you can be successful. Attend some of AdvantaIRA’s free educational events that provide knowledge in all areas of self-direction and real estate investments. The more you know, the better your chances are of success.

Look for the second article in this two-part blog series, Real Estate in Your IRA, Part 2: Managing the Assets in Your Self-Directed Retirement Plan, to be published next week. Part two addresses the rules that govern real estate IRAs, delves into disqualified persons and prohibited transactions, and outlines what you can and cannot do with the real estate in your IRA.

If you have questions about this article, please contact Kevin Collins at AdvantaIRA Trust by calling 617-830-1070 or emailing For a full listing of AdvantaIRA’s educational events, visit our event calendar.


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