Articles on Self Directed IRAs

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Buy Property with Self Directed IRAs

By: Barry Waxler

The self directed IRA is popular because of the flexibility it gives you. In fact, many people will buy property with their self directed IRA.


One of the advantages of a self directed IRA is the ability to invest in rental properties and such. This is an attractive investment for several reasons. Property has a history of being a very secure and stable investment. There is a long history of the purchase and holding of land being one of the most secure long term investments. This tradition of property ownership runs deep in the soul of many Americans and the ability to have your individual retirement account funds invested in it is very satisfying.


A Traditional IRA and an employer sponsored 401k plan will not have property investment as one of its options. The main reason for this is that the administrators of these plans are usually banks or brokerage houses. They will tend to make investments in areas with which they are familiar. They tend to stay with what are considered their products such as certificates of deposit or stocks and mutual funds. It is through a self directed IRA that property becomes an investment option.


There is one major restriction that must be considered when you buy property with a self directed IRA. The property that you purchase can not be used for your own personal residence. If you do use it as a personal residence, it is treated like an early withdrawal of your funds and is taxed and penalized accordingly. This restriction applies to your spouse, your children, and even your great-grandmother. There is really no way around it.


Of course, after you retire you are allowed to receive distributions from your IRA accounts. If you happen to find the perfect dream retirement property and purchase it for your IRA account, you can rent it until you retire and move into it then. The purchase of rental properties is one of the things that are allowed. The rents represent earnings and can be deposited into your IRA as such.


Recently, some people have been forming LLCs, or Limited Liability Companies, to manage their self directed IRA. This method is ideal for buying property for the self directed IRA. The rules that govern this idea can get a bit tricky and there is some unresolved tax implications that further complicate the subject, but overall it is growing in popularity and is certainly worth consideration. The LLC acts as the holding company for the property and also the property management company. This does not alter the restriction against private use of the property, but does create a viable management tool for property investment as part of an overall self directed IRA investment strategy.

Get more IRA information at UFCAmerica.com.