Can I build a house using an SD IRA?

[Dan G Tecuci]

I have a question for which I could not find a complete answer here or via Google: does an SD IRA allow building a house (using a builder) that is intended as an investment? E.g. will be sold after it's ready.

I understand there are "self-dealing" restrictions on work done by me on the house. I do no intend to do any work, i am just asking whether I can finance the development of a property via an SD IRA. Thanks!

[Michael Plaks]

@Dan G Tecuci

I don't think you're giving us full details of your plan, so we have to fill the gaps with guesses. 

1. Building a house for resale is not "an investment." Investment is something you acquire and hold, not something you create/build. 

2. This next point is a grey area, subject to interpretation. It is possible that your plan will constitute "running a trade or business" - something notoriously not well defined in the tax law. In this case, your SDIRA will be subject to UBIT - unrelated business income tax. It's a significant tax if it will apply to you.

3. Remember that the profit from the sale will stay locked inside the SDIRA. You cannot touch it without triggering a taxable retirement distribution and potentially a penalty.

4. Despite hiring a builder, you still have to be careful with the prohibited transactions rules. Even if you merely inspect the stages of construction to release draws to the builder, it's potentially risky. So is interviewing/hiring the builder. So is participating in selling the finished house.

5. There're ways to grow your SDIRA without these concerns and hassles and with a more certain outcome. For example, private lending.