Investor · Grand Rapids, MI · Member since 2018 · 21 posts · 1 vote
Seeking information on utilizing IRA Money to fund Real Estate. I've heard int mentioned on recent podcasts. What are the restrictions? Has anyone done this? Thanks in advance,
This is a popular topic with many related forum threads here on BP.
The first thing to understand is that one does not use an IRA to fund their own real estate investing. There are what are referred to as self-directed IRA (and 401k) plans that allow the plan to diversify beyond conventional stocks and into real estate and other non-traditional assets.
When an IRA invests in real estate, it is all about choosing the best path to grow the IRA. The IRA is on title to the property, all expenses for acquisition and maintenance are paid by the IRA, and the IRA receives all the income produced. In most cases, such income is entirely tax-deferred to the IRA, just like receiving dividends on stock investments in an IRA. There are exceptions when the IRA uses mortgage financing or for certain types of real estate transactions that are businesses as opposed to passive earnings (i.e. flipping houses).
IRS rules that accompany the tax-sheltered status of the IRA prohibit you and close family from personally benefiting from the IRA - other than by growing your retirement savings. You cannot purchase a property you intend to use personally, be paid by the IRA for providing administrative services surrounding investments or otherwise benefit. You are also prohibited from providing value to the IRA such as working on a property for free.
So, if you understand real estate and can get better results for your savings by investing in real estate, a self-directed IRA may be a better way to invest for your future.
@Brian Eastman gave you a great start of general information. Perhaps you could share some more about what you plan or hope to do? More information will help decide if what you wish to do is prohibited or not.
I am trying to find out if I can somehow use Roth IRA money to some how finance REI activities without all the fees and fines associated with early withdraws. I am not a first time home buyer, the funds would go towards buy and hold or flips. Thanks