Self-Directed IRA

What Investors Should Know Before Investing in Real Estate Through a Self-Directed IRA

Putting money aside for retirement is a no-brainer. People know they have to save. The question isn’t whether to do it, but how to do it. For many investors, that means investing in Real Estate. Real Estate has a long tradition of holding on to its value, as well as generating extra income through the collection of rent. Many older investors often rely on Real Estate for their income when they no longer work. For that reason, many people turn to a Self-Directed IRA so they can hold Real Estate within a retirement account and enjoy the tax benefits of doing so.

In a recent post at Lifehacker, the website looked at how property investment through an IRA works. And that got us thinking: are there some issues that investors aren’t aware of before they consider a Self-Directed IRA for Real Estate?

Getting the Basics Down First

As Lifehacker did, it’s important for us to get the basics out of the way. If you’re considering a Self-Directed IRA because you believe that you can live in a home that is also in your retirement account and enjoy tax benefits, unfortunately that’s against the rules. That would mean you were getting an immediate benefit from your retirement property, which means it’s no longer retirement property. It’s a personal investment. If you were to do that, you would run afoul of the regulations, and may have to pay taxes and penalties you otherwise wouldn’t have to pay.

As the post at Lifehacker notes, you first need a Self-Directed IRA before you invest in Real Estate with retirement funds. This means working through a third-party custodian, or a financial institution that will help you adhere to the regulations and administer the paperwork. From there, you can direct the custodian to file the paperwork necessary to make the investments you decide.

These two key facts are at the core of what investors will need to know before investing in a Self-Directed IRA. For example, if your plan was to buy a piece of property within a retirement account, rent that to someone known as a “disqualified person” (such as a parent or son/daughter), you would be getting personal benefit from the investment. That would mean it’s no longer a valid retirement investment, requiring you to pay taxes and penalties.

Once you know that, you’re free to go about researching Self-Directed IRAs, as well as potential properties you may one day invest in.

What are the Benefits of Self-Directed IRAs and Real Estate?

There are separate benefits to each, which investors can join together when using a Self-Directed IRA. For example, one benefit of Real Estate can be the confidence it gives an investor in knowing that they have a real asset in their portfolio. But within a Self-Directed IRA, an investor can add confidence to the tax benefits that come from having the income from a rental property go to an IRA, which can potentially grow tax-free until the investor hits retirement age. This is what Lifehacker addressed, but it’s something that many investors need to know about if they’re going to get more out of their retirement. It can be an interesting way for many investors to get the most out of their retirement investment money, if that’s what they choose.

There’s also the issue of control. Investors using a Self-Directed IRA can practice more control over their retirement investments. Interested in learning more about Self-Directed IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Download our free guides or visit us online at