TreeOfGreen.net
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| Roth IRA and Real Estate |
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I was told that I could open an IRA and use the money to invest in real estate. The profits would not yet be taxable as long as I kept re-investing them.
Has anyone else heard this, or better yet, done any Roth IRA investing in Real Estate?
Thanks for your time.
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Tue Oct 02, 2007 2:23 pm |
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pf101
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This can be done, it's called a Self Directed IRA. However, you need to know that these are difficult and expensive to set up and manage. (You will definitely need/want to use a pro.) Not many FAs do them because they are so challenging. There are VERY VERY strict rules and if you break one your *entire* Roth is disallowed which could be a nasty tax surprise. You're also still limited to the $4k/year contribution so unless you have enough money within your Roth to purchase and manage the RE outright with $0 out of pocket expenses (absolutely none) then it's probably not a great idea.
Personally I don't think it's a great idea anyway but that's an individual decision.
Personal Finance 101
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Tue Oct 02, 2007 3:12 pm |
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pf101
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quote:
Originally posted by coaster
quote:
Originally posted by pf101
This can be done, it's called a Self Directed IRA. However, you need to know that these are difficult and expensive to set up and manage.
I think she means when you're putting Real Estate in your IRA. Self-Directed just means you make your own investment decisions.
We've had a threads about real estate in IRAs and I tried to find one or two to answer questions, but they're scattered all over, and I can't spend that much time searching right now. Good luck to you if you want to take a whack at it.
No. People *think* that's what self directed means, but in fact there is a very specific product called Self Directed IRA which is specifically for holding RE and other hard assets/unusual investments. It is completely different from a Roth/TIRA that you would start at Vanguard or Scottrade and it's a PITA to set up and maintain.
People use the term incorrectly all the time which is why when people ask about starting a self directed IRA I ask them to describe exactly what they mean because 9 times out of 10 they mean just a standard IRA NOT a Self Directed IRA.[/b]
Personal Finance 101
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Tue Oct 02, 2007 5:12 pm |
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pf101
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I started writing a response but then I started confusing myself. 
I think this site (not advocating it) has some decent info: http://www.trustetc.com/ready.html
Basically, we're both kinda right. The term Self Directed IRA means that you choose your investments. Correct. So all IRAs are self directed and using that term isn't INcorrect. However, not all IRAs offer full self direction. Most IRAs that you open at places like Scottrade, Vanguard or most other DIY brokerages (where most of us go to open an account) do not allow you to purchase assets like Real Estate, etc. So, while technically they're Self Directed IRAs (because you can choose your own investments), to get a FULL SDIRA you'd have to go to a full-service trustee/broker who offers those expanded services. Which, as I mentioned, is expensive and a PITA (which is why most discount brokerages don't offer them).
So, while they're technically not separate types of accounts, they're also not something that you can just go online to open up and fund and get going which is what most people think of when they want to open an IRA.
So, when someone says "I want to open a self-directed IRA" you have to know what they mean by that because if they just want stocks/bonds/funds/etc then just about any brokerage would do. But, if they want to invest in RE or other things they'd have to go to a special broker.
Confusing and, IMO, more trouble than it's worth for most people.
Personal Finance 101
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Tue Oct 02, 2007 6:00 pm |
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BlankenshipFP
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This highlights one of the tenets of the use of esoteric investments (such as real estate, aircraft, etc.) within IRA accounts - it is extremely technical and confusing. Heck even determining what to call the thing is confusing!
pf101 is (as usual) absolutely correct, this type of account is the only one that is rightly referred to as Self-Directed. Just because you DIRECT the investments in an Trad IRA yourSELF doesn't make it a Self-Directed IRA.
Proceed with caution... there can be no incident of self-dealing by any related persons (relatives, corporations, partnerships) and no related person can benefit from the investment. For example, if you used a Self-Directed IRA to purchase rental property and rented it out to unrelated individuals, you'd be okay. But when your child needs a place to live and you rent the property to him, you've disqualified the investment and the entire activity is considered, from the beginning, to be a distribution - taxes, penalties, interest, all due.
Jim Blankenship, CFP�, EA
Blankenship Financial Planning, Ltd.
www.BlankenshipFinancial.com
Standard IRS Circular 230 Notice Applies
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Wed Oct 03, 2007 1:30 pm |
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TreeOfGreen.net
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OK. Thanks for the answers. I was pretty sure it wouldn't be as simple and easy as it was explained to me.
I'll definitely do a lot of learning before I begin.
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Wed Oct 03, 2007 11:20 pm |
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