What to Know About Using a Self-Directed IRA to Invest in U.S. Real Estate
Most retirement accounts restrict the types of investments you can pursue, but self-directed IRAs allow a little more freedom. One reason many people choose this type of account is that the IRS lets you use a self directed IRA for real estate. However, there are certain restrictions in place, so it’s important to thoroughly understand how to use real estate for growing retirement wealth.
Why Choose Real Estate
If you pay attention to the real estate market in your community, you know that inflation drives the value and cost of housing higher each year. This means the real estate you buy today will increase in value in the ensuing years. This is one reason that real estate makes such an attractive investment option. If you also use the real estate as rental property, you can get even more value out of the property.
Keep in Mind That You Can’t Use the Property
One of the rules the IRS establishes for including real estate in a self-directed IRA is that you can’t profit from the property until retirement. This means you can’t withdraw rental payments or the profits from selling property. It also means you can’t stay in the property or let anyone you know use the property. This includes your IRA’s service provider or anyone with a 50% interest in the property.
Operational Costs Come From Your IRA
When you use a self directed IRA for real estate, you can’t pay any of the property upkeep expenses out-of-pocket. Any costs related to owning the real estate, including the payment of property taxes, must come from the self-directed IRA account.
If you’re unsure about using your self-directed IRA for real estate investments, your financial advisor can help.
