Vanguard and other retirement accounts for real estate investing.

[Michael P. Lee]

Wife and I have a few separate retirement accounts throughout the years of working at different places.  None of them have the capability to direct the custodian to use the money for real estate investments.  

1.  How do I go about doing this? 

2.  Is it possible to move the retirement accounts from 2 separate people into one account? 

3.  Will there be a tax penalty or capitals gain tax in doing this?  

4. What happens after the property is sold or refinanced - will we be able to take that money/profit from the retirement account without tax penalty?  

5. What about if we contributed part retirement funds and part cash - how do the profits get sorted out with regards to taxes?

Thanks in advance.  I'm totally new to real estate investing and could really use the help.  thanks

[Brian Eastman]

@Michael P. Lee

A self-directed IRA is simply an IRA with a different capacity for investing. All IRA rules relating to account ownership, tax treatment, timelines, and distributions still apply.

IRAs are individual retirement arrangements, so there is no capacity to combine accounts held by you and your spouse. You could each setup self-directed IRA plans and potentially joint-venture between the plans to pool funds for an investment.

There are no taxes or penalties for moving from one retirement plan to another.

While an IRA may be invested into alternatives such as real estate, it is still all under the umbrella of the IRA. The IRA owns the property, pays all expenses and receives all income (tax sheltered, of course). You may not combine IRA and personal funds to make an investment, nor may you take income from the IRA other than by normal distributions - typically after retirement age of 59 1/2. Distributions prior to age 59 1/2 will be penalized with a 10% tax above and beyond any state/federal income tax on the distribution.