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Greg is a licensed attorney and nationally recognized public speaker focusing on the topics of business formation, estate planning and retirement planning strategies.


  1. Laurie Morgan on


    While I agree it is always good advice for people to educate themselves about IRS rules, I am a nonetheless a little rankled by your post.

    In my experience, more people are being harmed by incorrect information about what they CAN’T do with their IRAs than what they CAN. In particular, “advisors” who are really sales reps and the big mutual fund companies and brokerages touting “self-directed” IRAs that really aren’t are doing a lot more damage to more people’s financial well-being. These firms perpetuate the incorrect notion that “self-directed” means you can invest in “any public stock or fund WE offer.” This is denying people the right to truly diversify their retirement portfolios — something we now all know all too well is crucial.

    It’s also not reasonable for people to expect their custodian to take on liability for investors’ decisions in the first place. Their job is to maintain custody of assets — not provide legal advice. As with any other tax decision — be it deductions, corporate formations, paying your nanny or utilizing IRA funds — American citizens are responsible for knowing the law themselves.

    Many people today have the majority of their non-home assets tied up in retirement accounts, so being aware of what is possible and legal — and making sound choices — is absolutely key. I believe more people are being harmed by failing to pursue diversification and the best investment opportunities because they’ve accepted bad/biased information about what is not permitted than are making the kind of mistakes you describe.

    Bottom line: we all have a stake in getting the RIGHT information out to everyone, to level the investing playing field. It shouldn’t be the case that only the most wealthy people with the best attorneys and CPAs can tap the benefits of diversification — or investing in real estate (or real estate related vehicles) at a time of unusual bargains.

  2. You dont need a complex answer, here is a very simple one. If you take money our of an IRA to use for a business, that will create a taxable event, and if you are under 59.5 years, you will have to pay a penality, around 10%. You can transfer a 401k into an IRA and you will not own any tax. But if you take that money out of the IRA, the tax man will get his tax for sure.

  3. I agree with Laurie, individual investors should be responsible for their own investment decisions…

    As for real estate and IRAs, I too have run across a number of sites touting various strategies. My question has less to do with CAN or CAN’T I buy real estate in my IRA, but WHY buy real estate in your IRA… Can anyone enlighten me?

    As I see it, the real advantage of an IRA is tax deductibility and tax-free growth. And while the purchase of a rental property isn’t tax deductible, the income is tax-free if offset by depreciation, and I never pay capital gains if proceeds from the sale are used to buy a new property.

    So other than a few thousand dollars in annual tax deductibility, what’s the advantage in buying real estate with an IRA? Wouldn’t an IRA be put to better use investing in assets which are more often subject to taxation?

  4. Laurie,

    I appreciate the feedback and I wholeheartedly agree that investors need to have options. However, investors need to be cautious and realize that if they act on incorrect information provided by their paid custodian there is a risk of potential negative tax consequences. Investors must do their own due diligence in order to work with a reputable company.

  5. Michelle,

    You are correct, however there is a way around the 10% early withdrawal penalty if you are under 59.5. If you need money out of your IRA prior to age 59.5 you can take a 72(t) election and distribute funds in substantial and equal distributions in order to avoid the 10% penalty.

  6. Greg, your article did not lead me to believe that I should invest my money in one type of market over any other, simply that there are aspects of IRA real estate investing that must be addressed so as to avoid costly penalties. I’ve found that that most Americans with an IRA or 401k are unaware that they have options at all, and so I can see Laurie’s point that showing the different ways they CAN use those hard-earned dollars is key.

  7. If you worked for a company and had IRA money to manage after let’s say an early retirement, you may wish to manage some of this money to invest in RE. As one asked why would one want to use there IRA money to do such a thing. Many have already increased there net worth by making smart moves investing in RE in there self directed IRA’s . Although it is indeed harder today there are some rules to follow going forward. Only purchase property that is below replacement cost. A good rental area, maybe around a hospital. You can not take depreciation on the RE within your IRA. Only the value and rent income is counted. You can furnish & rehab the property. If you are over 70 1/2 and still have your IRA invested in RE waht stops one from living in the property, charge yourself the amrket rent for the area and claim that as your minimum distribution? Self directed IRA’s are good for those who need to still manage that money. Here you can also invest in GOLD & SILVER, A business, a race horse etc. Stocks and bonds may be one way but is not the only way to still manage your IRA money until you are able to begin distribution. These are just some of the ways you can take advantage of these rules.

  8. Greg,

    You are correct that the IRS is looking for people who are engaging in prohibited transactions through the use of an LLC. Just like they are looking for people who are engaging in prohibited transactions through the use of a custodian.

    The way you make the statement is nothing other than a scare tactic to keep people away from setting up an IRA LLC. Take it from someone who has talked to the IRS about the subject, there is nothing prohibited about setting up an IRA LLC for real estate investment purposes.

    Lets call this article what it is, a shill.

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