What You Need to Invest in Real Estate in Your IRA

If you are one of the millions of people who have retirement savings in an Individual Retirement Account (IRA), then congratulations! You are on your way to securing your retirement. But if you are not satisfied with simply investing in mutual funds or even individual stocks and would like to invest in other vehicles to build your retirement wealth, then perhaps you should consider what is known as a self-directed IRA.

A self-directed IRA is not that different from any other IRA. A self-directed IRA may be a traditional IRA, meaning that the earnings are tax-deferred, or it may be a Roth IRA, with tax-free earnings. The unique feature of a self-directed IRA is that there are many more investment options available to you. In addition to stocks and mutual funds, a self-directed IRA can have investments in real estate, promissory notes, tax lien certificates, gold bullion, raw land, foreign currencies, judgments/structured settlements, oil and gas investments and limited liability companies, just to name a few. Two important items you cannot invest in with a self-directed IRA are life insurance and collectibles (art, stamps, coins, etc).

If you have never heard of being able to invest in real estate with your IRA, then you are not alone. Most people are not aware that they can have investments other than mutual funds or individual stocks in their IRA. Even when they ask their financial advisor or CPA, they are told that it is not possible. This is simply untrue. It just may not be possible with your current IRA custodian. Only a handful of companies around the country are able to handle a self-directed IRA. One thing to note when doing your research on self-directed IRA custodians is to thoroughly investigate the fees that are charged for the various services that these custodians provide because they will probably differ from those of your typical IRA custodian. However, don't let the fees scare you away from a self-directed IRA. They are necessary because these custodians must handle more complicated investments than your typical stock and mutual funds and may be well worth the additional fees when considering the higher returns you may get from your investments.

The rules governing prohibited transactions for IRAs still apply. You cannot invest in your own business or a business owned by a disqualified person like your spouse, parent, son or daughter. (For more information on prohibited transactions, look at IRS Publication 590 on IRAs in general.) And when making an investment, you are not allowed to do it in your own name - it should be in the name of the custodian for the benefit (FBO) of your IRA. There are other additional rules and complexities when buying investments like real estate in your IRA, particularly if you obtain a loan for the property, so before jumping into this type of IRA for your retirement, be sure to do your homework. Ask the potential IRA custodian all the questions you have - if they can't answer them, then consider going somewhere else.

Self-directed IRAs are not for everyone. If you are the kind of person who would like to "set it and forget it" with regards to your retirement investments, then this is not a viable option for you. If, however, you would like to take charge of your retirement funds, increase the number of investment opportunities available to your IRA and potentially create incredible wealth for you and your family, then consider looking into self-directed IRAs as your retirement vehicle.