Real estate independent retirement accounts (IRAs), also known as self-directed IRAs, are retirement accounts that permit investing in real estate. With a real estate IRA, you can use your retirement funds to invest in various types of assets, including rental properties, commercial properties, raw land and more.
To set up a real estate IRA, you’ll need to find a custodian who offers self-directed IRA services. The custodian will hold and manage the funds in your IRA, and you’ll work with them to make your real estate investments.
Investing in real estate through an IRA comes with some unique rules and regulations. For example, you cannot use the property for personal use, and you must adhere to IRS guidelines regarding prohibited transactions and prohibited investments.
Real estate IRAs can be a powerful tool for diversifying your retirement portfolio and potentially earning a higher return on your investment. However, it’s important to do your research and understand the risks and regulations involved before diving in.
Benefits of Holding Real Estate in a Self-Directed IRA
Holding real estate in a self-directed IRA can provide several benefits, including:
- Tax advantages: Real estate IRAs offer the same tax-deferred or tax-free growth benefits as traditional IRAs or Roth IRAs, depending on the type of account you choose. This means you can avoid paying taxes on your real estate investments until you start making withdrawals.
- Diversification: Investing in real estate can help diversify your investment portfolio, potentially reducing your overall risk. With a real estate IRA, you can invest in a variety of real estate assets, including residential properties, commercial properties and even raw land.
- Higher returns: Real estate investments have the potential to generate higher returns than other types of investments, such as stocks or bonds. By investing in real estate through a self-directed IRA, you can potentially earn a higher return on your investment than you would with a traditional IRA.
- Control: With a self-directed IRA, you have greater control over your investments. You can choose the specific properties or assets you want to invest in and manage them yourself or hire a property manager to handle them for you.
- Estate planning: Real estate IRAs can also provide benefits for estate planning. Upon your death, your real estate assets can pass to your beneficiaries tax-free, letting them continue growing in value and providing a potential source of income for your heirs.
Why Accuplan Is Different
At Accuplan, we offer self-directed IRAs that allow real estate investment. We have been serving real estate investors for more than 25 years. Real estate is the most sought-after asset by Accuplan investors, so we have naturally built our self-directed IRA program to best suit real estate.
Experience and Foresight
Working with thousands of individuals who invest in real estate with their IRAs has enabled us to craft a perfectly tailored platform for real estate IRAs. We know the pain points and frustrations that can come with self-directed investing because of our vast experience. Let our expertise provide a seamless experience with real estate in your IRA.
Trusted Over the Decades
We’re careful with each client interaction. Our products offer state-of-the-art ingenuity and security. With more than $2 billion in assets under our management, we can deliver expertise and a personalized touch.
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Self-Directed IRA Real Estate Rules
To effectively operate a real estate IRA, general knowledge of the rules and regulations set by the IRS is essential.
These rules are imperative to follow since violating them can put the tax-advantaged benefits of your self-directed IRA at risk of being distributed and could lead to you incurring hefty IRS fees.
Commonly broken rules of investing in real estate include:
A prohibited transaction is defined as the sale, exchange or leasing of property between an IRA and a disqualified person. They can also be stated as transferring IRA income or assets to the benefit of a disqualified person.
Disqualified persons cannot conduct any business with you or your IRA account, and they cannot directly benefit from the property.
Personal Use of Property
A rental property purchased through a self-directed IRA is legally owned exclusively by the IRA. The IRA owner is prohibited from spending even one night on the property, according to the IRS. Doing otherwise can disqualify the entire IRA.
UBIT and UDFI
There are circumstances where Unrelated Business Income Tax (UBIT) and Unrelated Debt-Financed Income (UDFI) tax apply to the assets within your IRA.
Repairs, upgrades, minor fixes or improvements are all a part of managing real estate, but when your self-directed IRA is the property owner, you may run into Sweat Equity rules.
Penalties Associated with Prohibited Dealings
Under Internal Revenue Code section 4975(a), the standard rule is that prohibited transactions can lead to a starting penalty of 15% of the transaction amount, which is imposed on disqualified persons involved in the transaction. If the prohibited transaction is not corrected in the current tax year, this penalty increases to 100% of the amount of the transaction.
There are multiple ways to fund the purchases of an asset. You can:
- Direct purchase with IRA funds
- Purchase with a non-recourse loan
- Partnerships with other IRAs
Frequently Asked Questions
Below are some frequently asked questions we receive regarding real estate investing with an IRA:
Yes, it’s the most sought-after asset among Accuplan’s investors. Regular IRA providers don’t offer real estate as an asset option, so it may initially seem like it would not be allowed. Still, if the IRA owner follows all IRS rules and regulations, it is 100% allowed.
In uncertain times, real estate can be a stable investment. Real estate as an investment provides an income to the owner and appreciation to the market.
Funding a real estate purchase with your IRA can be made in many ways—partnerships with other IRAs, non-recourse loans, and more.
No. Living on a property your IRA owns is considered a prohibited transaction by the IRS.
Open a Self-Directed IRA for Real Estate Investing With Accuplan
Accuplan, as a self-directed IRA custodian, can provide guidance and support in opening and managing your account, as well as ensure compliance with IRS regulations. We can also help you navigate the complexities of real estate investing within an IRA, such as dealing with property management and financing.
Opening a self-directed IRA with us for real estate investing can offer several benefits for those who want more control over their retirement savings and are interested in diversifying their investments beyond traditional assets. Open a self-directed IRA that allows real estate investments today.