Self Directed Ira Rules

Have you ever heard of real estate investing using self directed IRAs? Wondering what kind of self-directed IRA rules apply to this kind of investing? This article will go over the 7 MUST-KNOW Real Estate IRA rules. After you understand these rules, you’ll be ready to take action and make plenty of tax-free profits!

1) You Cannot Purchase Property Owned by You or a “Disqualified Person.” Self directed IRA rules strictly forbid any kind of transaction that is “self-dealing.” You also cannot buy real estate to benefit anyone in your linear family. This includes yourself, your spouse, parents, grandparents and great-grandparents, children (and their spouses), and grandchildren and great-grandchildren (and their spouses).

2) The Indirect Benefits Rule. You cannot gain “indirect benefits” from investing in real estate with self directed IRAs. Self directed IRAs are meant to be used to provide for your future retirement and not to gain immediate benefits. So according to self directed IRA rules, you cannot purchase a home to live in, or a vacation home for you and your family to use occasionally, or a building to use as office space, or anything like this. You also cannot lend yourself money from self directed IRAs.

3) Real Estate in an IRA Can be Purchased Without 100% Funding from Self Directed IRAs. If you don’t have enough money to purchase your own piece of real estate at the beginning, you can pay for a portion of it with your self directed IRA and get funding from other sources for the rest. For example, you could partner with someone else to buy the property. Just be aware that all the expenses and profits are split in proportion to how much was initially invested to purchase the property.

4) Make Sure Your Self Directed IRAs are Uniquely Titled. Since you and your IRA are separate from each other, your investment must be titled in the name of your IRA. Here is what a correct title for most real estate IRA investments looks like:

[Name of Custodial Company] Custodian FBO (for benefit of) [Your Name] IRA

5) Expenses Incurred Must Be Paid from Self Directed IRAs. Self directed IRA rules state that all expenses that have to do with the property owned by your IRA must be paid from your IRA. This includes, but is not limited to, maintenance, repairs, improvements, property taxes, general bills, etc.

6) Real Estate IRA Income Must Return to Your IRA. Self directed IRA rules also state that all profits made from your investment must be returned to your self directed IRA. The bad news is you can’t touch this money until retirement; the good news is it will grow tax-free!

7) IRA investments that Use Funds from Financing Must Pay UBIT. UBIT stands for Unrelated Business Income Tax. Self Directed IRAs can purchase real estate using financing as long as the loan is non-recourse. However, UBIT has to be paid on that investment.

Now you know the In’s and Out’s of the major self directed IRA rules. Self directed IRAs are certainly a great way to generate large amounts of passive income for your retirement. As Social Security becomes less and less reliable, it’s important to have a strong retirement vehicle to guarantee you a safe and comfortable retirement.

It’s sad that everyone is so scared about investing. Many people see it as a huge hassle to be responsible for what happens with their IRAs. This is why nearly nobody decides to self direct their account.

But here’s what these people don’t understand- you don’t go at it all alone! If you find the right custodian to help manage your account, you can literally be put into a “hands-off” system that requires very little of your time and effort. Don’t be one of those people that settles for a measly 5-8% return rate. Why would you do this when you could have a 15%, 20%, 30%, or an even higher return rate?

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