If you’re looking to diversify your retirement portfolio and invest in alternative assets, you may be wondering if you can use your IRA to buy property. Traditional financial assets like exchange-traded funds (ETFs), stocks, mutual funds and bonds can all be great investment options, but diversifying your portfolio can give you greater returns and a bigger safety net.
Unfortunately, many Americans are unaware that it’s possible to use your IRA to invest in alternative assets, such as private equity, precious metals and even cryptocurrency. At Accuplan, we want to give you the information you need to make the most of your investments and IRA.
Can I Buy Property With My IRA?
Yes, you can buy property with your IRA. In fact, among our investors, property is the most sought-after asset. However, many IRA providers do not offer real estate as an investment, which is why many Americans are unaware of this option. As long as you follow the regulations and rules set by the IRS, you can choose to use your IRA to buy property.
What Types of Real Estate Can I Invest In?
Real estate is often looked to as a stable investment during uncertain times, as it can both provide income to the owner and appreciate in value over time. With a self-directed IRA, you can invest in a variety of real estate assets, such as:
- Residential property like single-family rental homes
- Commercial property
- Real estate investment trusts (REITs)
- Unimproved and improved land
- Mortgage notes
- Joint ventures
- Tax lien certificates
- Limited partnerships
- Trust deeds
Now that you know you can purchase property with your self-directed IRA, you should understand what this investment strategy can do for your retirement portfolio.
Benefits of Using an IRA to Buy Investment Property
When you opt to invest in real estate with your self-directed IRA, you can enjoy the following benefits:
- Diversification: One of the greatest advantages that investing in property with your IRA offers is greater diversification of your investment portfolio. Diversification means you aren’t relying on a single asset class, which is crucial for reducing your portfolio’s risk.
- Tax benefits: When you invest in real estate with your self-directed IRA, the property gains the same tax benefits as an IRA.
- Tangible assets: Tangible assets can be a great investment option because they are worth something even if the market dips.
This is why we give you the choice to invest in real estate with your self-directed IRA at Accuplan — we want you to enjoy all the advantages of this investment option.
Using an IRA to Buy Rental Property
Once you’ve decided to cash out an IRA to buy rental property, next, you need to know how to do so. Follow the steps below to use an IRA to invest in real estate.
- Find a custodian: If you want to purchase and own rental property with an IRA, you’ll first need to find a custodian like Accuplan. A custodian is an entity that specializes in self-directed investment accounts and will manage the transaction, financial reporting and paperwork. Your custodian prevents you from violating the rules associated with these real estate transactions.
- Get a self-directed IRA: Next, you’ll need to open a self-directed IRA if you want to invest in rental property.
- Seek expert advice: Before you dip your toe in real estate investing with your IRA, seek legal, financial and real estate advice from the experts who can give you a more comprehensive picture of how it can benefit your portfolio.
- Understand the rules and restrictions: The IRS sets strict regulations and rules surrounding this type of investment, so you’ll want to be aware of these before you invest your funds.
- Fund your account: Use a cash contribution, rollover or transfer to fund your account so you can start investing. Keep in mind that rolling over or transferring your funds could take some time.
- Find your property: Finally, search the market for the rental property you want to invest in.
There are a few restrictions you may want to keep in mind when using an IRA to buy an investment property.
- Self-directed IRAs: If you want to use IRA money to invest in real estate, you must choose a self-directed IRA. A self-directed IRA simply means you can invest in alternative assets that the IRA custodian or financial institution offers or accepts. Rather than having someone make decisions for you, you’re in control of which investments you choose when your IRA is self-directed. You may also have limited IRA providers to choose from. Luckily, you can take just 10 minutes to open an account with Accuplan.
- Disqualified persons: A disqualified person can’t conduct any business with your IRA or benefit directly from the property. A disqualified person can be the account owner, beneficiary, spouse, descendants, custodian or an entity in which the account owner has at least 50% interest.
- Prohibited transactions: Prohibited transactions refer to the leasing, exchange or sale of a property between your IRA and a disqualified person or the transfer of IRA assets or income that benefits a disqualified person.
- Sweat equity: Improvements, upgrades and repairs are part of managing a rental property, but you could face rules regarding sweaty equity when your IRA is the property owner. Sweat equity prohibits you from working on any property owned by your IRA.
- UDFI and UBIT: Unrelated Debt-Financed Income Tax (UDFI) and Unrelated Business Income Tax (UBIT) can apply to your IRA’s assets in certain circumstances.
- Funding rules: You can choose from several different ways to fund a property, including crowdfunding, purchasing with a non-recourse loan or directly purchasing the asset with a portion of your self-directed IRA funds. Funding rules may apply depending on which option you choose.
- Personal use of property: Legally, rental properties purchased via a self-directed IRA are exclusively owned by the IRA, which means you cannot use the property for personal use.
Contact Us or Create an Account Today
Choose Accuplan Benefits Services for a self-directed IRA that allows you to buy property. When you open a self-directed IRA, you can opt to invest in more than just mutual funds, stocks and bonds. Instead, invest in what you’re passionate about. Whether you want to invest in property, cryptocurrency or precious metals, a self-directed IRA can let you invest for retirement the way you want. Sign up for an account or contact us at Accuplan Benefits Services today.
Disclaimer: This content is provided for informational and educational purposes only. It is not intended to provide, nor should it be depended upon for legal, investment, accounting or tax advice. We do not make guarantees regarding the applicability of the above information to your situation.