Real Estate IRA: Is it for you?

With the current bear market,  the typical individual retirement funds (IRA) consisting largely of mutual funds, stocks and bonds, have taken quite a beating.   I wonder what happened to those who went to the other extreme and converted to a “self-directed IRA”.  I remember in the late ’90s that more and more people were advocating these instruments as a means to expand the investment pool beyond stocks and bonds to startups and real estate.  The self-directed IRA essentially lets you act as your own investment manager.

To invest in other types of assets, you need to open a self-directed IRA with a custodian that allows you to invest in the full range of asset types allowed by the IRS. With a self-directed IRA, you can diversify into Real Estate Investing or Privately Held Businesses, make secured or unsecured loans, and also invest in traditional assets such as stocks and mutual funds.   In a Real Estate IRA, any income and capital gains grow tax-deferred in the case of traditional IRA or tax-free in the case of a Roth.

It is critical to remember that the IRA accountholder is responsible for compliance with all government codes and regulations. While a custodian’s job is to follow the directions of the accountholder as a non-discretionary trustee, a custodian cannot ensure compliance or give legal or tax advice. Those interested in self-directed IRAs should seek education offered by an unbiased source.    Pensco Trust gives a pretty good overview of Real Estate IRA investing, including what you can AND cannot do. 

In case you are interested in further exploring this option,  suggested readings include:

Now remember:  Do your homework and above all,  DON’t put all your eggs in one basket.  After all,  you want to make sure your retirement money is there when you need it.  =)

Motherhood has a very humanizing effect. Everything gets reduced to essentials. ~Meryl Streep

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