We often get the question of "Can I buy real estate thru my IRA?". First, consult your tax professional as we are not one, but it is our understanding that it is possible to buy and sell real estate thru your IRA. Section 408 of the Internal Revenue Code permits individuals to purchase land, commercial property, condominiums, residential property, trust deeds, or real estate contracts with funds held in many common forms of IRAs.

 

This is a fairly common practice, but certainly one where you will want to work closely with your financial advisor.

 

You’ll need to locate an independent IRA custodian that allows real estate investments and work with that company to set up an IRA account. Most banks and brokerage companies—the most common IRA account options—limit your choices to certificates of deposit, stocks, mutual funds, annuities, and similar financial instruments.

 

It is important to select a custodian knowledgeable about the types of investment you’re interested in, because the custodian holds title to the real estate.

 

It is my understanding that once you’ve chosen a property, your IRA custodian—not you personally—must actually purchase it. The title will reflect the name of your IRA custodian for your benefit (such as Golden Trust Co., Custodian FBO Brad Houston IRA). In addition, if you put up earnest money with your personal funds, you’ll need to make sure you include that amount in the total due so that the title company can reimburse you upon closing.

You would want to have a fairly liquid IRA as all property expenses, including taxes, insurance, and repairs, must be paid from funds in your IRA.  I also understand it is possible to sell properties while they are held by your IRA, so long as the purchaser is not a family member

 

I believe you can even withdraw real estate from your IRA and use it as a residence or second home when you reach retirement age (age 59½ or older for a penalty-free withdrawal).

 

Of course, I am not a tax professional and I would highly recommend seeking professional advice from your tax planner before embarking on this option.