Purchasing w/ Self Directed IRA

[Malia B.]

Hi BP. I'm interested in learning about purchasing property with a self directed IRA. I have a 401k from an old job that is sitting, growing slowly. If I can learn how and it makes sense I'd like to use that money to purchase a rental unit so that money can grow faster.

What's it like Turing a 401k into a self directed IRA? How is purchasing property different than using cash savings for a down payment? Who technically owns the property, and it's liabilities? Where does any cash flow go; into my pocket or back to the IRA? Can you 1031 exchange from an IRA?.... so many questions I could go on and on.

Please share your experiences, pros, cons, tricks and tips. 

[Brian Eastman]

@Sam Alomari

While in some respects technically correct, your advice misses the point.

ALL Investments in a retirement plan have the same tax treatment, which is tax-deferral or Roth as the case may be.  This will be different than the tax treatment of an investment made with non-qualified funds in ALL cases.  Yes, you cannot utilize depreciation (nor are you required to recapture such when you sell).  This is because the income is not taxed in teh first place.  You can't take deductions on non-taxed income.  You are comparing apples and oranges.

The correct question to ask when it comes to investing existing IRA or 401k funds is "where can I get the best mix of security of my principal and return on investment over the long term?". Real estate can provide that, as can notes, stocks and a whole range of assets.

When evaluating investment options, ask; "Can my IRA get a better return investing in rental property than it can investing in what it is invested in today?"