Purchasing Real Estate with your IRA-Part 2
Information for Buyers

Part 2 of 2 

By:  Lindsay Jiricek, Broker Associate, Sears Real Estate May 08

In part one of this article, I introduced the topic of buying real estate with the money in your IRA or 401K & outlined a few considerations if you want to buy real estate with your retirement funds.  In part two, it is important to understand the rule associated with this exciting opportunity. 

Let’s touch on a few of the IRS rules—after all, you never want to be in trouble with this branch of our government!

1.  This type of investment cannot benefit the account holder directly or indirectly, outside of the IRA.  What that means is that if you buy a condo in San Diego to use as a rental, you cannot use the condo for personal use in any circumstance.  (Translation:  When you go and stay in Southern California, you’ll need a hotel because you cannot stay in your condo—the IRS would consider that a “benefit.”)

2.   If you purchase a rental with the idea of putting your son or daughter in it (even if they are paying rent) while going to college, this program is not for you.  The IRS would consider your child living in the home as a “benefit” to you personally.  (NOTE:  You could still purchase a home to use as an investment while your children are in college—you just might not want to use your IRA to purchase the investment.) 

3.  Another example would be buying a fixer upper that you would want to resell.  You can purchase one of these to fix up, but you cannot personally do the repairs/remodeling.  Even if you are the most fabulous painter in the world, the IRS considers your involvement in fixing up the rental a “benefit” (because you saved costs to do the work yourself) & is not permissible under these rules.

4.  Remember—the IRS requires that all income & expenses run through the administrator of the custodian firm holding the account.  Money cannot be touched by the account holder in any way.  You cannot deposit the rent into your own personal bank account, take a little bit out for your vacation & then send the rest to the administrator.  The custodian must receive all of the funds to deposit on the front end.

This is just the tip of the iceberg as it relates to buying property with your IRA or 401k accounts.  Sears Real Estate agents are always willing to visit with you about this intriguing & exciting way to purchase real estate investments with money you may already have in your retirement portfolio. There are incredible opportunities to explore in today's market & the properties that are available. Call to discuss your options in greater detail with a Sears Real Estate broker.