Buying Property with Your IRA

by Barry Waxler - Date: 2007-04-21 - Word Count: 432 Share This!

The IRA is a retirement vehicle with plenty of potential, but almost no one takes advantage of it. One strategy for getting the most out of your retirement dollars is to buy real property.

Have you ever heard of buying property with an IRA? Probably not. Instead, you have probably been told and read that the money in your IRA should be invested in mutual funds or stocks. Well, you can do that if you want to follow the herd and make small gains. If you prefer much greater gains, effective tax reduction and thinking outside of the box, this new strategy is the answer.

First things, first. This is not an aggressive strategy. It is not something that is going to raise eyes at the IRS. Investing in property through your IRA is retirement planning 101. In fact, you can invest in property using your IRA, Roth IRA, 401(k), SEP-IRA and so on. Don't believe me? Section 408 of the Internal Revenue Code allows for the purchase of land, real property, commercial property, condominiums and so on.

So, how does it work? Well, the name is misleading. We are actually talking about a self-directed IRA that invests in property, often rental properties. A self-directed IRA is one that you control, instead of seeding it to a bank or investment firm that limits your investments to stocks, mutual funds or bonds. Setting up an account is simple and the cost is nominal.

Once you roll funds into the IRA, you are ready to invest. You can't buy just any old property. The IRS puts at least some limitations on the strategy. The property must be purchased from an unaffiliated third party, to wit, you can't buy your own home with the IRA nor can you buy your wife's share! Also, "you" will not purchase the property, the IRA will do so through the custodian maintaining it.

As the property grows in value over time, you are going to be able to capture the gain within the IRA and significantly leverage your IRA investment. Even better, you can use a Roth IRA to take the proceeds from the eventual sale of the property TAX FREE! Remember, all distributions from a Roth IRA are tax free. The fact that the money comes from the sale of property in the Roth is irrelevant.

Obviously, the above represents a simple summary of the wealth building power of the real property IRA strategy. Make sure to consult with a financial advisor that understands and has experience using the strategy.

Learn more about the real estate IRA strategy at

Related Tags: property, investment, invest, rental, home, ira, roth, individual retirement account

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