Self Directed IRA or Cash with tax hit to fund rentals?

[Jacob Harris]

I am debating funding my rentals through my self directed IRA or if I should just cash it (or some out) and take the tax hit to eliminate a lot of the red tape I am seeing with using the IRA?

[Greg Scott]

Personally, I've been liquidating my IRA funds to invest in real estate. I agree there is red tape (and potential land mines) with investing through an IRA. But for me, the biggest reason is that when I start taking money out of the IRA, I get taxed as ordinary income. By investing my funds outside the IRA, I can essentially defer those taxes forever. If I stop investing, I will have some ordinary income, but also a portion will be long-term capital gains.

Ironically, some people will pay more taxes by investing in real estate through their IRA.