Real estate IRAs are a favored strategy investors use to build tax-sheltered retirement income. Individuals who aren’t familiar with self-directed retirement plans are often excited to learn an IRA can own real estate. And, depending on what type of plan you use, you can earn tax-deferred income (traditional IRA) or tax-free income (Roth IRA) to reach your retirement income goals. Interested? Read on to learn 5 steps to set up an IRA to buy real estate.
How to Open and Use an IRA to Buy Real Estate
Open a Self-Directed Retirement Plan with Advanta IRA
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- Work with your representative at Advanta IRA to choose a self-directed plan.
- Fund the account by making a transfer or rolling funds over from an existing account or make annual contributions to your account.
- Your Advanta IRA business development specialist guides you through this process each step of the way.
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Identify and Vet Investment Real Estate
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- First, decide what types of real estate you want to invest in. Popular options include:
- Next, choose the location, and define your goal (rental, rehab, buy-and-hold).
- Then, perform due diligence on the property (inspections, appraisals, etc.)
- First, decide what types of real estate you want to invest in. Popular options include:
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How to Purchase Real Estate with an IRA
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- The contract to purchase real estate with an IRA must list your IRA’s name as the buyer. Advanta IRA works with you to make sure this proper wording is on the contract.
- A representative of Advanta IRA signs the purchase contract on behalf of your IRA, but you must approve it first.
- Any deposit on the property must be paid with IRA funds.
- Advanta IRA works with the title company and any relevant party to ensure closing documents are properly titled in the name of your IRA.
- You review and approve all closing documents; a representative from Advanta IRA signs on behalf of your account.
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Learn How Your IRA Can Partner Funds to Invest
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- Your IRA can partner with your personal funds and with other disqualified persons to invest.
- Your IRA can partner funds with another IRA or a business entity.
- Income and expenses are determined by the percentage of ownership. (If your IRA owns 60% of the asset, it receives 60% of the income and pays the same share of expenses.)
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Make Sure You Understand Real Estate IRA Rules
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- All expenses related to the asset must be paid with retirement funds. So, make sure the IRA has enough funds after purchase to pay expenses associated with the asset.
- All income (e.g., rental checks, sale proceeds) flows directly into your retirement account on a tax-sheltered basis.
- You and any (i.e., lineal ascendants and descendants) are unable to personally use the property for any reason.
- Know your IRA cannot purchase property from you or a disqualified person. This one of several IRS prohibited transactions for IRAs you must avoid. Learn more about prohibited transactions in IRC 4975.
- You are not allowed to perform work yourself; you must hire an independent third party to do so.
- When/if you decide to sell the property, Advanta IRA works with you, signs all documents, and executes the transaction on your IRA’s behalf.
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Why Use Advanta IRA for Self-Directed IRA Services?
Advanta IRA is an elite self-directed IRA services provider with over $2 billion in client assets under management. We deliver unparalleled, one-on-one service for clients through each step of the investment process. As a leader in our industry, we oversee the administrative details of client accounts, so you can focus on the important task of finding your next investment.
If you have questions about self-directed retirement plans and alternative investments to the stock market you can use to build retirement wealth, contact us today.
Additional reading about how to use an IRA to invest in real estate:
Case Study: Invest in Rental Property with Your Old 401(k) Funds
Case Study: Investing in Tax Deeds with an IRA
Case Study: Partnering IRA Funds to Invest
