Can I buy investment real estate with my ira funds?

[Tim B.]

is there a way to take some of the $ out of my ira & use it to pay cash for an apartment building without causing a taxable event?

if so, can i stick the cashflow generated from the apartment building into my general living expenses account or would it have to be deposited back into my ira account?

note 1: i have a 7 figure ira & this purchase would only represent a 37% withdrawal from it.

note 2: i also own 21 other rental properties (with another house & another duplex in contract to buy & offers on two more that i want to buy, all with cash.)

note 3: i retired last december at 49 & am living very well off the cashflow generated by my rental properties.

note 4: my vanguard funds have been totally flat for the last year. havent made a penny on them, but my real estate holdings have exploded in value & the rents have all been raised, fantastic cashflow even after all expenses

[Jay Hinrichs]

I believe this would be very possible we see it every day.

you need to be with a custodian that allows self directed purchases.

I do believe you can't work on it etc..

there are some very good IRA set up companies here In Oregon.. that could assist you with this.

One thing when buying RE in your IRA though is to make sure you have Ample reserves if you have a big fix or bummer situation you can't take your personal funds and comingle with your IRA asset.. I believe that is true.

You could send me a PM if you would like a referral to someone here in Oregon that can get this done for you, top notch folks.

[Tim B.]

email sent to you jay hinrichs

[John Duffy]

@ Tim B There are many custodians of 'self directed' ira's to chose from. All self directed ira's can be used to purchase real estate; be fully educated on what you cannot do (by law) when using self directed funds to purchase real estate. EX: have your brother-in-law who is a carpenter, do work on the property....

[Tim B.]

does that mean that i could not paint or do small repairs myself?

[Thomas Guertin]

You should talk to a very good tax advisor about this. I wonder if you are better to take the 10% penalty and pay the tax before you invest the money. The reason is, an investment in real estate is a tax shelter because of depreciation and you don't get that benefit inside your IRA. By taking it out, you don't have to worry about the rules and the income it generates will be offset by the depreciation.

It doesn't seem that you even need the IRA at this point and you would make more that the 10% back on your money. If you have a Roth IRA, you can withdraw the principle without any penalty but you didn't mention a Roth so I am assuming it is a traditional IRA.

The other reason you may want to take the penalty is because you want the income.  Unfortunately inside the retirement account all the income has to stay in there.  There will be no immediate financial benefit to you.

Tom

[Dmitriy Fomichenko]

@Tim B.

You can buy real estate in your retirement account, but in order to do so you need a 'self-directed' IRA or 401k. Once such account is established, you can rollover funds from your current IRA and new IRA would be the owner of the property. Since the property owned by the IRA, all income belongs to the IRA and all expenses must be paid from the IRA.

Since there are no tax benefits when you own RE in your IRA, you may want to consider other alternative investments such as private lending.

[John Stewart]

Check out Pensco.com. They have Hugh amt info and may serve as custodians. Also look into UBIT which may be triggered if you borrow money in IRA

[Gail Bray]

you can borrow from your IRA without much penalties and less penalties if you pay it back to the IRA in 60 days.

[Justin Windham]

@Gail Bray Unlike with a 401k, you cannot borrow from an IRA. The 60 day distribution window is not intended to be a loan policy.

[Doreen Chaisson]

If you purchase a piece of property with your IRA funds, you cannot do any of the maintenance or repairs yourself. You can''t buy a piece of property that your or any disqualified parties currently own, have ever owned, live in or plan to live in. You must hire 3rd parties to perform maintenance & repairs. They must be paid for their work out of the IRA. Similarly, you cannot pay for any repairs personally and then expect to be reimbursed by your IRA. Any expenses related to the IRA-owned property, including insurance and property taxes, must be paid with IRA funds. Hence it's important to have either a good cash reserve in the IRA or to be sure the property is reliably income-producing. All income produced by the IRA-owned property must flow back to the IRA, you cannot make any personal use of these funds, as it would be considered a taxable distribution from your IRA, also subject to early withdrawal penalties.

[Dan D.]

Originally posted by @Dmitriy Fomichenko:

@Tim B.

You can buy real estate in your retirement account, but in order to do so you need a 'self-directed' IRA or 401k. Once such account is established, you can rollover funds from your current IRA and new IRA would be the owner of the property. Since the property owned by the IRA, all income belongs to the IRA and all expenses must be paid from the IRA.

Since there are no tax benefits when you own RE in your IRA, you may want to consider other alternative investments such as private lending.

I didnt understand the last statement. Are there tax benefits to private lending out of an IRA that are not available when owning RE? Can you clarify?

[Dmitriy Fomichenko]

Originally posted by @Dan D.:

Originally posted by @Dmitriy Fomichenko:

@Tim B.

You can buy real estate in your retirement account, but in order to do so you need a 'self-directed' IRA or 401k. Once such account is established, you can rollover funds from your current IRA and new IRA would be the owner of the property. Since the property owned by the IRA, all income belongs to the IRA and all expenses must be paid from the IRA.

Since there are no tax benefits when you own RE in your IRA, you may want to consider other alternative investments such as private lending.

I didnt understand the last statement. Are there tax benefits to private lending out of an IRA that are not available when owning RE? Can you clarify?

Dan, when you buy rental property in your own name you can take advantage of the depreciation deduction, which is a paper loss, to offset income from other sources. Since IRA is tax-deferred vehicle - you will not get the same benefit by buying rentals in your IRA.

On the other hand if you have personal savings and start doing private lending - the interest income you generate would be taxed at your top marginal tax rate.

Therefore, generally, it is better to buy rentals in your own name and invest in trust deeds with your retirement funds. Now, every situation and every investment is different so you need to evaluate your particular situation and make the decision that is best for you.

[Dan D.]

Ok; yes I understand now.  Thank you.

[Account Closed]

@Tim B.

About six years ago I rolled over my ROTH IRA into a self-directed account with some help from @Jay Hinrichs.  So glad I did.  I since rolled over my 401k and been loaning funds to partners on their flip projects.  My principal on these projects are covered between 200-300%, i.e. if project gets foreclosed my principal is covered up to 3x.  These projects are in the Portland OR metro area, yielding 15-19% a year, and the note is recorded via Trust Deed.  Before I was using custodian affiliate note investing outfit that did not work out that well for me and did not have returns that justified the risks IMHO.  

[Juan Deshon]

You can purchase property with the use of a Self-Directed IRA. You would be required to move those funds to a self-directed custodian. However, if you plan on keeping it within the IRA to not cause a taxable event expenses and cash flow must be handled by the IRA. You personally would want to keep an "arms length" transaction to not cause a prohibited transaction and risk the entire 7 figure IRA from being distributed to you. I would consider consulting with your Tax advisor to determine what direction you should take.