Financial Intel Monthly


Sep 4, 2013 7:44:00 PM / by The Retirement Group (800) 900-5867

With investment property priced to move,

some IRA owners are making this move.

You can use IRA assets to invest in real estate. Did you know that? Most people don’t. Not everyone can do it; not everyone should do it. However, some people are doing it – particularly high net worth IRA owners who see great deals in a buyer’s market.

Everyone assumes IRA assets have to be invested in securities, but it is fully possible to invest in real estate with retirement funds. IRS Code Section 401 IRC 408(a)(3) prohibits life insurance contracts from being held in IRAs, and IRS Publication 590 states that your IRA will be hit with additional taxes if you invest in collectibles.1,2 Those warnings aside, IRA assets may be invested in other options, such as real property.

But you can’t do this with just any IRA. You have to create a self-directed IRA or an IRA LLC. You also have to find an IRA custodian that will let you make non-traditional investments. This custodian has to be a registered trust company. If you set up an IRA LLC, you retain control over the invested IRA assets held with said custodian – that is, you have “checkbook” control and don’t need IRA custodian approval to make the real estate investment.3,4

Why are people doing this? Asidefrom the appreciation potential of real estate, the keywords to remember are “tax-deferred growth” (traditional IRA) and “tax-free growth” (Roth IRA). Many kinds of IRAs can be converted to self-directed IRAs.4

The self-dealing test. If you are going to invest in real estate with IRA assets, the IRS wants your investment to be for the benefit of your IRA and not for your personal benefit. Does that sound like a fine line?

Well, the IRS offers some guidelines. In IRS Publication 590, you’ll run across a list of prohibited transactions involving IRAs. These transactions amount to “self-dealing” – that is, they are judged to explicitly benefit you rather than your retirement account.

According to Publication 590, you cannot a) sell property to your IRA, b) purchase property for personal use (present or future) with IRA funds, c) receive unreasonable compensation for managing your IRA, or d) use your IRA as security for a loan. If you, your fiduciary, or your relatives/heirs commit such violations, the account stops being an IRA in IRS eyes as of the first day of the year in which the violation occurs.2

An opinion counts. An opinion letter, to be precise. Real estate and legal professionals often recommend two steps when it comes to investing in real estate with a self-directed IRA:

• Creating an LLC

• Asking an attorney to provide you with an opinion letter stating whether the transaction is legal or prohibited

The bottom line: proceed carefully, and with the right minds advising you.

If you’d like to learn more …. talk to a financial advisor who can link you to the right legal, tax or trust resources that can counsel you if you wish to make a non-traditional investment with IRA funds.

These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice.  If other expert assistance is needed, the reader is advised to engage the services of a competent professional. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. Please consult your Financial Advisor for further information.

The Retirement Group is a Registered Investment Advisor not affiliated with  FSC Securities and may be reached at


1 [1/3/07]

2 [2008]

3 {6/9/09]

4 [3/20/06]

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Tags: Early Retirement, Economy, Financial Planning, Lump Sum, Option 1 Withdrawal, Retired, Retirement Planning, The Retirement Group, The Retirement Group LLC, 401k

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