Can you buy a home with your IRA?

You can buy a home with money from your IRA

But it isn’t simple.

How Buying Property With Your IRA Works

First, you need a self-directed IRA fund. As the name implies, all investment decisions using your IRA are made by you, instead of the IRA holder. But while you make all the decisions, you need a custodian to make investments on your behalf. Custodians are companies who  manage the transaction and the paperwork.  Custodians charge fees, of course, and they cannot give you advice, so you need to make yourself an informed consumer.

You aren’t limited to buying a house with your self-directed IRA

Some investment examples of property types include:

  • Vacant lots
  • Parking lots
  • Mobile homes
  • Apartments
  • Multifamily buildings
  • Small businesses
  • Boat slips

Avoid Pitfalls

Self-directed IRAs can get tricky, and if you’re not careful, you can wind up in trouble. For example, don’t expect to live in your property until you retire.  You cannot buy a 2nd or vacation home – think of your purchase as strictly business.  You can’t benefit from the investment until you reach the IRA’s distribution age, and niether can a family member. If you do, you’ll be slapped with a tax penalty and could have your IRA invalidated.

Everything you use to fund an IRA investment property must come out of your IRA. Likewise, money that comes out of the investment property must be given back to your IRA. So if you buy an apartment and rent it out, that rent money must go back into your IRA—not into your bank account.

If your investment property requires repairs—like a new water heater—you need to use your IRA to pay for it. If your apartment isn’t rented for months, you’ll still have to use your IRA to pay for the taxes, so you’re going to need additional funds in your IRA.

Tips

A self-directed IRA can be a great choice for some people—provided you’ve done your homework. Get advice from your financial planner, an attorney, or both before investing in a property. Review all of the most current  rules for the investment and don’t get caught unaware by any applicable taxes or tax implications.

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