Investing in Real Estate with an Individual Retirement Account

Real Estate in your Self-Directed IRA

Over time, real estate investments have afforded many people the powerful combination of appreciation and income. The purchase of real estate through a self-directed IRA is a popular choice for this and other reasons.

For over 7 years, American IRA, LLC has been providing clients with continuing education and seminars to put their retirement plan to work for them through real estate IRAs and self-directed IRAs.

A self-directed IRA or “real estate IRA” gives you the freedom to invest in alternative assets such as single-family and multi-unit homes, apartment buildings, condominiums (leveraged or unleveraged), improved or unimproved land, commercial property, and more.

Financing a Real Estate IRA Purchase

real estate in your IRAIf your self-directed IRA doesn’t have enough money to pay for the entire purchase, you may be able to finance or leverage any income producing property. The property is used as the collateral for the loan. Because the property belongs to the IRA, the debt must be repaid from assets within the IRA, whether those are income from the property, permissible contributions, or other assets in the IRA.

There can be no personal guarantee given by you as the account holder and consequently, there can be no personal recourse against you since the property and the loan are held within the retirement plan.

You also may be able to partner your IRA with other investors as a way to share the ownership of an investment property.

Additional Requirements

Your transaction must flow through the tax-free or tax-deferred retirement account. The escrow must be opened by the account, not in the name of the beneficial owner. Vesting is always in the name of the account.

When purchased, the properties assets of your retirement plan or account.
In addition:

  • You may not personally own property that you intend to purchase with plan funds
  • You must ensure that your intended purchase is not a prohibited transaction.
  • Neither you, your spouse, nor your linear family members may have owned the property prior to its purchase by your plan.
  • Neither you nor your linear family members may live in, lease, or have personal use of the property while it is owned by your plan.
  • Your business may not lease or be located in or on any part of the property while it is owned by your plan.
  • You may distribute without penalty any property from your plan as a normal or required minimum distribution.

Managing the Property

Administration of plan assets does not include property management conducted by the beneficial owner of an IRA or a company owned by more than 50% by the beneficial owner of real or personal property in the IRA.

The recordkeeping and administration fees charged by American IRA, LLC may be paid either directly through the plan or with personal funds, and may be tax deductible.

Title and Escrow Companies

When title and/or escrow companies are involved, proper instructions will be provided to them for all documents regarding your account. American IRA’s expert staff will contact the company and walk them through the smooth closing of your IRA owned property.

At AMERICAN IRA, LLC, we do this every day. We have simplified our processes so that you can quickly and easily take care of your real estate transactions.

Getting started is easy. Please contact our office or click here to open an account.

American IRA, LLC does not offer investment, tax, financial or legal advice to clients. Individuals who believe they need advice should consult with the appropriate professional(s) licensed in that area.

Partnerships & Joint Ventures

Partnerships and joint ventures in your IRA A partnership is a type of unincorporated business organization in which multiple individuals, called general partners, manage the business and are equally liable for the debts of the business.

Other individuals, called limited partners, may invest in the business but are not directly involved in management. Limited partners are only liable to the extent of their investments.
The partnership itself does not pay income taxes, but each partner has to report their share of the business profits or losses on their individual tax return. Estimated tax payments are also necessary for each of the partners for the year in progress.

Here are some general rules regarding self-directed investments in your self-directed IRA:

  • The partnership agreement must permit an individual retirement account or a qualified plan to be a partner.
  • The partnership must comply with the appropriate state law, have a determinate life, and be assignable.
  • The partnership subscription agreement must be signed by you as having been read and approved, and will be executed by AMERICAN IRA for your benefit.
  • Partnerships may be subject to unrelated business income (UBIT) and other taxes. It’s important to consult your tax advisor for proper direction.

American IRA, LLC does not offer investment, tax, financial or legal advice to clients. Individuals who believe they need advice should consult with the appropriate professional(s) licensed in that area.

Notes and Mortgages

A note is a vehicle that is used to extend credit from one or more individuals or entities to another individual or individual’s entity.

Investing in Trust Deeds and Mortgage Notes with a Self-Directed IRA

Invest in Real Estate in your Self-Directed IRATo clear up confusion, trust deeds, deeds of trust, and mortgage notes are largely the same investment, depending on the state in which you reside. Your American IRA self-directed IRA may invest in trust deeds, deeds of trust, mortgage notes, and other interest-bearing notes.
These notes may be either in first or subordinate positions and may be purchased from brokers or private parties. Usually, the documentation is recorded at the county recorder’s offices, and title to the property is insured as instructed.

You may also purchase or sell portions of mortgages. In such cases, your retirement account holds an undivided interest in that portion of the note and receives a proportionate amount of income due under its terms. In addition, you may purchase discounted notes as well as real estate purchase options.

To properly complete a transaction, you will need to complete a Buy or Sell Direction Letter. It is important to follow the guidelines provided on these forms to avoid any unnecessary delays and costs.

As with real estate purchases, these retirement investments entail specific requirements that are critical to the smooth completion of the transaction. To find out more about these types of transactions, please contact our office.

American IRA, LLC does not offer investment, tax, financial or legal advice to clients. Individuals who believe they need advice should consult with the appropriate professional(s) licensed in that area.

Frequently Asked Questions

If you would prefer to speak to one of our team members about your question, please contact us at or feel free to call our office at 1-866-7500-IRA(472).

What is an IRA (Individual Retirement Arrangement)

An IRA is a tool that many individuals use to supplement their retirement income. These accounts are generally available to anyone who receives taxable earned income throughout the year. For more information on IRAs please see: IRS Publication 590

Traditional IRA

A Traditional IRA account allows all contributions and profits to be tax-deferred until money is withdrawn. The tax rates of the withdrawal are based on your tax rates and age at the time of the withdrawal.

Roth IRA

A Roth IRA is funded with after-tax funds. The advantage to this type of IRA is that, so long as certain requirements are met, withdrawals from a Roth IRA are tax-free, including profits earned.

Simplified Employee Pension (SEP) IRA

A SEP IRA is plan that allows small companies and self-employed individuals to make tax-deductible contributions to their SEP IRA. More information about eligibility can be found at: IRS Publication 590 and IRS Publication 560.

Coverdell ESA (Education IRA)

A Coverdell ESA allows you to create an on-going tax-free educational savings funds for your family. As long as it is used for educational purposes, withdrawals remain tax-free in much the same way as a Roth IRA does. The contributions to this account; however, do not have to consist of the child’s own earned income and can be made as soon as the child is born. For more information see: IRS TAX TIP 2008-59

Why haven’t I heard about this?

A lot of individuals, including some financial experts, are under the misconception that IRA accounts can only invest in stocks, CD’s, and mutual funds. They are not aware that the changes in the IRS and ERISA have allowed broader investment options since 1975. These narrow investment options (stocks, CD’s, and mutual funds) may be right for some-still others prefer the freedom that self-directed qualified retirement plans offer. A truly self-directed retirement plan allows you the freedom to invest in many types of assets that are not prohibited by the IRS and ERISA.

Are there lots of people who have self-directed IRA accounts?

Currently only about 5% of the 46 plus million retirement accounts are held in nontraditional assets. Still this number is expected to grow as they are anticipating more than a trillion dollars to enter the market in the next two years.

Is there a way I can take my 401(k) plan with my former employer and convert it to a self-directed account?

Yes, you can roll those funds over into a self-directed Traditional IRA or a self-directed qualified plan (if you are eligible to have a qualified plan). The best way to get started is to contact your previous employer and find out what their procedures are. Our staff provides personalized service, so please feel free to contact our office about any questions you may have.

How much can I contribute tax-free or tax-deferred?

This depends upon your age and the type of retirement plan you have. For the complete list of contribution limits, please refer to IRS Publication 590 and IRS Publication 560

Is my contribution tax deductible?

In some cases, contributions to a Traditional IRA may be tax deductible. All Roth contributions are taxable. Please consult your tax adviser for details. For more information please see: IRS Publication 590 Section: How Much Can You Deduct?

What should I do if I made an excess contribution to my IRA?

Consult with your tax adviser any time you have a question about excess contributions. The IRS will require you to take a distribution from your account in order to remove the excess. Your tax adviser will help you determine any tax liabilities and/or penalties involved in this situation. For more information please see: IRS Publication 590 Section: Excess Contributions

What do I need to know about distributions?

Required Distribution age is 70 1/2 The year you turn 70 1/2, you must start taking distributions (this applies to all IRA account except the ROTH). Beginning at 70 1/2, you are required to take the minimum distribution (RMD) amount from your IRA. Your tax adviser can help your determine what your minimum distribution amount is. Keep in mind that if you fail to take the minimum distribution amount, you may be subject to substantial penalties. Always consult with your tax adviser if you have questions about distributions. We will issue you a 1099 at the end of the year to show the cumulative distributions value reported to the IRS. Normal distribution age for Traditional IRAs is 59 1/2 At 59 1/2, you may begin to take normal distributions from your account. These normal distributions are taxable at the time of the withdrawal and penalty-free. As with all distributions, you need to complete a Distribution Request form to withdrawal funds from your account. Early distributions before 59 1/2 from Traditional IRAs Distributions taken before age 59 1/2 are subject to tax and sometimes are subject to early distribution penalties. Please consult with your tax adviser before taking an early distribution. For more information please see IRS Publication: Distributions from my Roth IRA You may withdrawal annual contributions tax-free and penalty free by the due date for the tax year in which the funds were contributed. In order for these distributions to be exempt from taxes and penalties – your Roth must be established for 5 years and your distribution must be for one of these reasons:

  • You are at least 59 1/2
  • Your are disabled and have provided the required supporting documentation
  • You are a first-time homebuyer (maximum $10,000 may be withdrawn for this reason)

Is the IRS notified of my transactions?

Yes, we report a summary of your yearly transactions to the IRS via a form 1099-R. We also mail you a copy of the 1099-R by January 31st of each year. Additionally, if applicable, clients also receives a form 5498. We will mail the 5498 to you by May 31st for the preceding tax year. Please consult your tax adviser for questions on how your transactions are reported and/or visit the IRS website

Are conversions reported to the IRS?

Yes, your conversion from a Traditional IRA to a Roth IRA will be reported on Form 1099-R to the IRS. The value on the form will be reported as the fair market value, determined by a qualified third party of your choice. Taxes will be due on the converted amount. Please consult your tax adviser for questions on how your conversions are reported and/or visit the IRS website

What is the difference between a transfer and a rollover?

In a transfer, you are simply moving the funds from one institution to another. You never take possession of the assets, there is no tax reporting required, there are no taxable consequences, and there is no limit to the number of transfers you are allowed to do. A rollover is when you take a distribution from your IRA and then return it to another IRA within 60 days. It is also considered a rollover when you move assets from a qualified retirement plan into a Traditional, Roth, or SEP IRA.

What is a Qualified Retirement Plan?

Money purchases, 401K’s, 403B’s, Profit Sharing, Pension, Keogh, ESOP, Defined Contributions, Defined Benefit, and others are considered Qualified Retirement Plans.

Is it possible for me to move funds from my Traditional IRA to a Roth IRA?

Yes, if you meet IRS eligibility requirements, all or part of your Traditional IRA can be converted to a Roth IRA. Please consult your tax adviser for questions on how your conversions are reported and/or visit the IRS website

Is it okay if I change my Roth IRA into a Traditional IRA?

Yes, changing your Roth IRA to a Traditional IRA is called a recharacterization. A recharacterization may be done as a conversion, a contribution, or both. Both of these IRAs must be established with American IRA to allow us to move the funds. Certain IRS rules and regulations apply. Please consult your tax adviser for questions.

Is it really legal to purchase non-traditional assets using my IRA?

Absolutely Yes! The Employee Retirement Income Security Act (ERISA) provides individuals a chance to direct their retirement funds are invested. Instead of stating what is allowed, the IRS states which investments are not allowed. Under both ERISA and the IRS, there are very few types of investments not allowed (i.e. life insurance contracts and collectibles). For a complete list of what is prohibited, please see the Internal Revenue Code Section 401 (IRC 408(a) (3)).

What’s the difference between a rollover and a transfer?

A rollover is when you have already received the funds from your previous employer or IRA provider and are opening a new account within 60 calendar days. A transfer is movement of funds from one IRA, Roth IRA, SEP, or SIMPLE account to another with the movement being handled by your custodian’s. In a transfer…you do “not” take physical possession of your funds. American IRA, LLC does not offer investment, tax, financial or legal advice to clients. Individuals who believe they need advice should consult with the appropriate professional(s) licensed in that area.

Private Placements


Private Stock

Defer Taxes with Private Stock in a Self-Directed Individual Retirement Account

Private stock in your Self-directed IRAPurchasing nontraditional assets with a self-directed IRA can help you diversify your investments, which may guard your portfolio against economic changes. Private Stock is one of the many options available with your self-directed Individual Retirement Account.

Private or closed corporation stock offerings are not available to the public on the open market. Normally, they are made to pre-qualified individuals. These offerings must comply with the securities Blue Sky laws in the state in which the offering is made. The number of individuals included in the offering cannot exceed the maximum stipulated by state law.

These offerings, usually made by corporations seeking capitalization, can be in any class of stock described in their prospectus. Many corporations act as their own registrar as well as transfer agent. They may or may not use market makers for their offerings. Purchases and sales are described in their offering materials, which you should study closely.

Partnerships and small businesses have been the backbone for our nation’s economic growth. Companies such as HP, Merck, IBM, Disney and GE were once private entities that went on to become pillars of the American business landscape.

Getting started is easy. Please contact our office for additional information. [For forms for Private Placements please click here]

American IRA, LLC does not offer investment, tax, financial or legal advice to clients. Individuals who believe they need advice should consult with the appropriate professional(s) licensed in that area.

Prohibited Transactions

What Triggers a Prohibited Transaction?

The IRS may assess a prohibited transactions tax if they learn that you have made a prohibited investment, or if your IRA has engaged in a transaction with a prohibited individual.

Prohibited investments include the following assets:

  • Life insurance
  • Certain kinds of precious metals
  • Art
  • Alcoholic beverages
  • Collectibles
  • Using the IRA or assets within it as collateral for a loan (other than a non-recourse loan within your IRA)

Additionally, you must comply with the following restrictions on prohibited individuals:

  • Neither you, your spouse, your descendants or ascendants, nor their spouses, nor any entities they control can lend to your IRA, nor borrow from it.
  • No prohibited individual can buy assets from or sell assets to your IRA, nor may any entity they control.
  • No prohibited individual can buy or sell services directly from or to your IRA, nor may any entity they control.
  • Neither you nor any prohibited individual can use IRA assets for their own benefit. For example, they cannot stay overnight in a property owned by your IRA, even if they pay rent.

For more information, the following links will open in a new window to information on the IRS website.

Note: The IRC materials linked to below are provided as a public service by The Legal Information Institute of Cornell University Law School, not the IRS.
TITLE 26 > Subtitle D > CHAPTER 43 > § 4975
IRC § 4975. Tax on prohibited transactions

American IRA, LLC does not offer investment, tax, financial or legal advice to clients. Individuals who believe they need advice should consult with the appropriate professional(s) licensed in that area.

IRS Resources

The links and information on this page are intended as a resource to help find specific information as it relates to Self Directed Retirement Plans.

Clicking on the links below will open a new window to the IRS website.

Retirement Topics

Correction to 2010 Publication 590, Individual Retirement Arrangements (IRAs) — 14-FEB-2011

 — 14-FEB-If you downloaded the 2010 Publication 590 before February 5, 2011, please note the following changes.

In the What’s New for 2011, on page 57, under Modified AGI limit for Roth IRA contributions increased, the amount in the last sentence of the 2nd bullet should be $122,000 (not $120,000).  The 2nd bullet should read:

Your filing status is single, head of household, or married filing separately and you did not live with your spouse at any time in 2011 and your modified AGI is at least $107,000. You cannot make a Roth contribution if you modified AGI is $122,000 or more.

The amount should also be changed in the 3rd bullet in the paragraph under Table 2-1 on page 58.  The 3rd bullet should read:

Your filing status is different than either of those described above and your modified AGI is at least $107,000. You cannot make a Roth IRA contribution if your modified AGI is $122,000 or more.

The corrected version of the 2010 Publication 590 is now available for download.

Pensions/Annuities/Retirement Plans (i.e., 401(k), etc.)

Top Frequently Asked Questions for Pensions/Annuities/Retirement Plans (i.e., 401(k), etc.)

  1. This is the first year that I received a distribution of benefits from my retirement plan. Are any of my benefits taxable?
  2. What is the maximum amount that I can contribute to my 401(k) plan?
  3. If taxes are withheld from a distribution from a 401(k) plan, am I required to include the amount of the distribution as income and also pay the 10% additional tax?
  4. Can I withdraw my elective contributions to a 401(k) plan penalty free to build or purchase my first home?
  5. If I retire or leave my employer for any reason (including due to being laid off) before I am age 59 1/2, can I withdraw my vested benefits under that employer’s 401(k) plan, without having to pay a 10% additional tax? What if I were 55 or older when I separated from service with my employer?
  6. How long do I have to roll over a retirement distribution?
  7. I am a plan sponsor. Where can I find additional information on retirement plan document design requirements and the IRS Determination Letter Program?

Frequently Asked Question Subcategories for Pensions/Annuities/Retirement Plans (i.e., 401(k), etc.)

  1. General/Taxability Issues including Distributions, Early Withdrawals, 10% Additional Tax, Defaulted Loans
  2. Rollovers – Pensions/Annuities/Retirement Plans (i.e., 401(k), etc.)
  3. Types of Plans
  4. Plan Operations
  5. Plan Design
  6. Correcting Plan Errors

Invest in LLC’s With a Self-Directed IRA


Use a Self-Directed IRA to Invest in Limited Liability Company (LLCs)

Invest in LLC'sAn LLC is a legal organization that provides the advantages of a partnership while limiting legal liability of the individual partners the same way a corporation does. LLCs can be a great way to partner to purchase investments, and you can use a self-directed IRA to invest in LLCs. LLCs are considered securities in some states and may be required to meet the standards of securities offerings.

LLCs Can Be a Great Way to Partner to Purchase Investments