Longboat Retirement Solutions LLC

Investing in Real Estate with your Self Directed IRA or Solo 401k June 30, 2012

Part One:  Using the Internal Method

BY: Lars Forsberg

Longboat Retirement Solutions LLC

As I have mentioned in several other posts and on my website www.myselfdirectedretirement.com although there is no legal prohibition of investments in land, homes, commercial property, trust deeds, mortgage notes, or real estate options within self directed retirement vehicles, often times the supposed “self directed” retirement options offered by the large financial institutions in fact limit you to traditional financial investments in stocks, bonds, or funds.

If your custodian tells you that you can’t invest in real estate within your IRA or 401k, get a new custodian, preferably yourself (in the case of a Solo 401k).

Assuming you have already set up a self directed retirement account, the process is simple.  The retirement account will hold title to the real estate for the account owner’s benefit.

Always keep the Internal Revenue Code in mind when making investments with your self directed retirement account.  In the specific case of investing in real estate with your retirement vehicle, avoid disqualified persons and self-dealing.

Don’t buy or sell a house from a spouse, ancestor, lineal descendant or any spouse of a lineal descendent.  Neither the account owner or any other disqualified person may benefit from the investment until qualified distributions are made.

Don’t use the purchased real estate for a vacation home.  Don’t let any disqualified persons live in, rent, or use for vacations, the property.  You cannot pay an account owner to rehab the property or pay a company that is owned by the account owner for services rendered.  A company that the account owner owns or controls cannot lease space in the property.

You cannot put a property that you or disqualified persons currently own inside your retirement account.

As long as you do not involve disqualified persons or self-deal, you are free to invest in real estate within your self directed retirement vehicle.

All rents or fees generated by the property will be directly deposited into the retirement account.  All expenses related to the property will come from the retirement account.

Stay tuned for Part Two:  Using the External Method


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