How to Set Up a Real Estate IRA

If you have real estate, you have potential income. That’s the simple proposition that leads so many investors to enjoying real estate for retirement. Real estate can be a way to reliably bring in money that doesn’t revolve around the stock market. But did you know you can hold real estate in a Self-Directed IRA? The arrangement, known as a Real Estate IRA, can  be as simple as holding a Self-Directed IRA and purchasing real estate within it. Yet there are complications you might want to avoid, too. With that in mind, let’s explore what you’ll need to know when setting up a Self-Directed Real Estate IRA for yourself:

Choosing a Self-Directed IRA Custodian

The first step in setting up a Real Estate IRA? Selecting the right custodian. A custodian is a financial institution that holds and manages the assets within your Self-Directed IRA. Not all custodians offer Self-Directed IRAs, after all. So it’s important to choose one that specializes in these accounts and has experience with real estate investments.

When evaluating potential custodians, consider their fees, customer service, and track record. A custodian’s fee structure can vary significantly, so you’ll want to understand all associated costs, including setup fees, annual fees, and transaction fees. Additionally, good customer service can be invaluable, especially if you’re new to Self-Directed IRAs and real estate investing. Research and read reviews. Gauge the experiences of other investors.

Opening and Funding Your Self-Directed IRA

Once you’ve chosen a custodian, the next step is to open your Self-Directed IRA. The process for opening an account is straightforward. You’ll need to complete an application—and your custodian will provide this.

Funding your Self-Directed IRA can happen in several ways. You can transfer funds from an existing IRA or rollover funds from a 401(k) or other retirement plan. Or you can make contributions according to the annual limits set by the IRS. Work closely with your custodian during this process to ensure compliance with IRS regulations—they may help you avoid any tax penalties.

Investing with Your Self-Directed IRA

With your Self-Directed IRA funded, you’re ready to pick your investments. This step requires careful planning and due diligence to ensure your investments align with your retirement goals and comply with IRS rules. Here’s how to proceed:

  • Identify properties: Begin by researching potential real estate investments. These can include residential rental properties, commercial properties, land, or even real estate notes. It’s crucial to evaluate the potential for income and appreciation, as well as any associated risks.
  • Do your homework: Investigate each property before making a purchase. This includes inspecting the property, reviewing financial statements, and getting a low-down on the local real estate market. Need more help? You may also want to consult with real estate professionals or financial advisors to ensure the investment makes sense for your portfolio.
  • Purchase the property: Once you’ve selected a property, your custodian will handle the transaction. It’s essential to remember that the property must be titled in the name of your Self-Directed IRA, not in your personal name. Additionally, all expenses related to the property, such as maintenance, repairs, and property taxes, must be paid from your Self-Directed IRA. Similarly, all income generated by the property must be deposited back into the IRA.
  • Manage the investment: Ongoing management of the property is key, particularly separating yourself from the personal management of the property. This will involve hiring a property management company to handle day-to-day operations. That’s particularly helpful if you own rental properties.

Ready to start the process of a Real Estate IRA for yourself? For more information on setting up a Self-Directed Real Estate IRA, call 866-7500-IRA.

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