How do I purchase real estate with my self-directed
IRA?
The process of purchasing real estate with your IRA is very similar
to purchasing other conventional investments with your IRA, with a few
exceptions. Once your account has been established with a Trust Company
of your choice and properly funded, you will instruct your Trust Company,
as Custodian for you IRA, to purchase the specific investment property.
To make the investment, a Real Estate Direction of Investment Form must
be submitted to your Trust Company.
What are the differences between buying real estate for myself
personally and purchasing investment real estate for my IRA?
1. TITLE: When purchasing an investment for your IRA
it is imperative that it is properly titled in your IRA’s name,
the Trust Company as the Custodian, For the Benefit of (FBO) Your Name
IRA. The Trust Company will not accept any investments that are not
properly titled.
2. FUNDING: When purchasing an asset for your IRA,
needed funds must come directly from your IRA. Thus, your selected Trust
Company will send the funds directly to the title company/closing agent/attorney
per your instructions.
3. EXPENSES/PROFITS: An expense or income associated
with an IRA investment must be originated or remitted to your IRA.
4. SIGNATURES: Documents regarding IRA investments
must be signed by your Trust Company/ Securities acting as Custodian
on behalf of your IRA.
Can I transfer funds from an existing IRA, 401K, or 403B to
a self-directed IRA at my Trust Company, for the purpose of investing
in real estate?
Yes, Clients can chose to transfer all or portions of their previous
retirement funds to self direct them in investments where they have
knowledge and expertise.
I plan on purchasing a property with my IRA that will generate
rental income. Does the rental income have to go back in my IRA?
Yes, all income generated by a property owned by your IRA must return
to your IRA, in order to retain the tax deferred or tax free status.
What if I do not have funds in my IRA to purchase a property
outright?
In general IRA investments should be bought outright as any use of debt
financing might incur the production of unrelated income tax. If debt
financing is used it must be in the form of a non recourse loan, meaning
that if your IRA fails to make payments, the only collateral the lending
institution can come after is the property itself and not the IRA.
Can my IRA purchase real estate that I own presently?
No. This is considered a prohibited transaction. You may not purchase
a property or interest in a property which is presently owned by a disqualified
person. Disqualified persons would include yourself and family members
of linear descent.
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