New investor looking for advice on IRA

[Alyxandria Welch]

Hello everyone,

I have a bit of money in an IRA right now that I would like to eventually use towards the purchase of a rental property. I am looking for advice from other investors who have used their IRA money. What did you do? Did you accept the penalty and take the money out? Did you use a self directed IRA? Thanks!

[Brian Eastman]

@Lance Lvovsky  ... and I hear from many CPA's who come from the perspective you state.  To say you do not want "to get into it", but then make a dismissive assumption of my motivations simply because of my role is a little disingenuous. (I forgive you, but cannot just walk past that).

I also am networked with many CPA's and tax strategists who see things differently than you do.  Success comes in many different flavors.  Please read my hopefully friendly background on why I consistently say what I say on this topic.

For a high net worth person with large asset values in both tax-sheltered and non-qualified funds, there is some logic to your approach.  You want to diversify the entire portfolio and seek maximum tax efficiency for the non-qualified funds when doing so.  If the total desired allocation into real estate is met with non-qualified funds, then why overload that asset class by doubling up in the retirement plan?  

However, a blanket statement that real estate does not make sense in an IRA simply because it loses certain tax benefits is just not at all meaningful for most investors.  It is a discussion of tax theory, but does not apply to practical reality.

If one can grow their IRA consistently by 10-12% year in and year out, do they care about theoretical discussions about comparative tax efficiency? No, they do not. They care that they are getting good growth in the value of their IRA.

The tax treatment of the IRA is what it is, regardless of whether it is invested in stocks, metals, venture capital, real estate, or whatever.

Further, is it any less tax efficient from the perspective of the IRA to invest in real estate than something else? No, it is not. To an IRA when viewed on a standalone basis, the relative tax efficiency of the underlying asset class in the separate, non-qualified world is entirely immaterial.

The single question most relevant to most IRA investors is "how can I best protect and grow my retirement savings?" For someone who understands real estate and may have a good network of trusted professionals they work with, real estate meets that need.

We also have many high net worth clients and their CPA's who do find investing in income property or syndications to be a solid play because they understand real estate and can have more control over outcomes. To an IRA investor, It is the outcomes that matter.