Help!-Want to learn about Self-Directed IRAs

[Scott Kim]

Hi BP-

I am really interested in learning more about Self-Directed IRAs. 

From what I gather, this is a tax savings account (like a 401k), but the advantage of having this IRA is you can purchase a property with it.

My question is:

1.   Is this true?

2.   How do I get started?

3.   How much can I contribute towards it?

4. Is there an income limit restriction (i.e. if you make over certain amount per year, you can't put your money towards it)?

Here's my goal: I want to save money to towards a down-payment. and I want to keep my money protected and still purchase properties with it. Please, if you are familiar with self-directed IRAs, help answer above questions and how I go about starting it. 

Really looking for specific examples. Thanks!

- Scott

[Dmitriy Fomichenko]

@Scott Kim There are many discussions on BP on Self directed IRAs. Do some research here and you will find a lot of insights from fellow investors who have gone the same route.

1. It is true that with a self directed IRA, you have the tax benefits plus the ability to invest in real estate, including properties and notes.

2. To get started, you will need to talk to a self directed IRA provider. They will help you set up the IRA. You can then fund it with a rollover from a 401k with a previous employer, or from a regular IRA. You can also make contributions to the account. Once the fund is in the IRA, you can start investing.

3 &4. A self-directed IRA has the same contribution rules as a regular IRA, same contribution limits, etc.

One thing to note about investing in a self-directed IRA is that the investments have to be at arm's length. Meaning all income and expenses related to your IRA investments have to go in and out of the IRA only. You cannot combine IRA and personal funds on an investment. That would be a prohibited transaction.

Another note is that if you are self employed, you may want to consider having a Solo 401k instead, which allows higher contribution limits and no UBIT tax for leveraging real estate purchases.

There are quite a few things to learn, but investing with a self-directed IRA/401k is a great strategy. If you have any question, feel free to post here or reach out to me.