Investing with Self Directed Retirement Account Funds

[Dustin Faeth]

If I have personal retirement funds in a self directed IRA right now, what options do I have for investing this in real estate? And can I use this money to invest in real estate for my own business (to fund rehab costs for my own project, deposit money on a property, etc.)?

[Jon Holdman]

Sort of. You can use IRA money to invest in anything except life insurance, collectables and shared in S-corps. You have to have the right custodian. A Fidelity IRA might be called self directed, but they still won't let you buy real estate.

Assuming you have the right custodian, your IRA can buy rentals, do fix and flips or whatever. What it can't do is any transaction with you or other disqualified parties. So, the IRA could be a fixer, fund the fixup and sell it. You could not personally benefit from that, nor could you personally contribute money or labor into that project. The funds for the purchase, rehab, and anything else would need to come from the IRA and all proceeds would go back to the IRA.

With active businesses like fix and flipping, you also incur UBIT (Unrelated Business Income Tax). So, you IRA would need to file tax returns and pay this tax.

It is possible, supposedly, to "partner with your IRA". You put in, say, half the money and the IRA puts in the other half. The partnership does a fix and flip. The net profits would then be split 50/50. All the other rules apply, though.