IRA into physical real estate

[Chris Sukala]

Could some help me out to understand this. I saw somewhere in one of the forums last night about this. Correct me if I am wrong but you use you IRA or 401k as collateral without actually move monies from it?

[Doreen Chaisson]

No, that is not correct. You would instruct your IRA custodian to purchase a piece of real estate using funds from your IRA, much the same way you would use IRA funds to purchase stocks, bonds or mutual funds. Money comes out of the IRA and goes to the buyer, the title to the property is transferred to your IRA. The property is now owned by the IRA, titled as, for example "Acme Trust Company, Custodian FBO (for the benefit of) Chris Sukala IRA". All expenses for the property - taxes, repairs, HOA fees, utilities,etc are also paid with IRA funds, and any rental income generated flows back to your IRA. You cannot buy from yourself or any disqualified parties (your parents, your spouse, your children), nor can you let any of those people live in the property. You also can't put any personal "sweat equity" into the property - you can't go mow the lawn or change a lightbulb or make a repair. You must hire outside, unrelated 3rd parties to perform these tasks. If you buy the property outright with 100% IRA cash. then when the property is sold, proceeds return to the IRA - tax deferred until retirement, or even tax free if in a Roth.