Can you Invest in Real Estate With an IRA?

Most investors invest their IRA in stocks or mutual funds. However, there are many investment options when investing with an IRA that many investors are unaware of, even real estate. It is not complicated to invest an IRA in real estate and it can be an awesome way to grow your retirement accounts. You have to make sure you use a self-directed IRA when investing in certain assets with an IRA. When choosing a company to hold your IRA, you need to make sure they can help guide you through the process.

What are self-directed IRAs?

IRAs are Individual Retirement Accounts. They were created in 1974 to help people control their own retirement plans. The government gave many tax benefits to IRAs to encourage people to invest their money. The more money people invest, the better the economy does. Self-directed IRAs have been around since 1974 as well, but most banks and brokerage firms do not offer self-directed IRAs. It is legal to invest in real estate with an IRA, but it is not as simple as investing in stocks and most banks and brokerages do not offer self-directed IRA services. Banks and brokerage companies make a substantial commission when their clients buy and sell stocks, bonds, and mutual funds.

Self-directed IRAs can be invested into a number of assets including:

  • Real estate (homes, apartments, condos, commercial property, billboards, offshore real estate, trust deeds, notes and more)
  • Contracts of sale
  • Foreign sales corporation stock
  • Gold bullion, palladium, US Treasury gold and silver coins
  • Limited liability companies (LLCs)
  • Limited partnerships
  • Securities, CDs, stocks, bonds, mutual funds
  • Tax lien certificates
  • Much More

Here is a great article on why real estate is a better investment than the stock market.

How hard is it to set up a self-directed IRA?

It is not difficult to set up a self-directed IRA; you just have to find the right custodian. With a little help, you can easily rollover assets from a regular IRA into a self-directed IRA. You cannot simply start buying real estate with money in your IRA; there are many regulations and rules. When you buy real estate or other assets with a self-directed IRA, you are not buying the asset, the IRA is. All the money has to come from the IRA and all money you make has to go back into the IRA.

Since the IRA has to buy the asset, you must have a custodian handle the transaction for you. There are companies that are set up to act as custodian and walk people through the process of buying assets with a self-directed IRA. uDirect IRA Services is a great company that has been in business for five plus years and helps investors buy real estate, notes, and other assets with their IRA. They can also help with transferring your money over to a self-directed IRA.

Here is a link to the uDirect IRA Services website. I think I will be talking with them shortly about switching over my account!

Why would you want to invest money in an IRA?

IRAs have tremendous tax benefits and that is why so many people use them for retirement plans. Traditional IRAs allow you to deduct contributions from your taxes on money you put into your IRA. You will have to pay taxes on that money when you withdraw it from your IRA in retirement. Retirement age is considered 59 ½ by the United States government. I have no idea why they chose 59 ½, but that is the government.

If you withdraw money from your IRA before 59 ½, you have to pay all income taxes plus a ten percent penalty in most cases. If you withdraw money early for college, a first home purchase, medical expenses, health insurance, or disability you may be able to avoid the 10 percent penalty. Always check with your attorney or accountant for specific questions regarding IRAs or legal questions.

If you invest in a ROTH IRA, you pay taxes on money you invest into the IRA. The advantage of a ROTH IRA is that if you wait until age 59 ½, no taxes are paid on the money as it is withdrawn. There are income restrictions on a ROTH IRA. In 2014, single people cannot invest in a ROTH IRA if they make more than $129,000 a year and married couples no more than $191,000 a year. More information is available on the IRS website.

The great thing about a ROTH IRA is you can invest $50,000, turn it into $500,000, and only pay taxes on the $50,000.

Should I invest in real estate with a self-directed IRA?

I have an IRA, but it is not a self-directed IRA and I invest little money into it. I do not invest much money into retirement accounts, because I am still 23 ½ years away from retirement age as determined by the United States government. I plan to retire much sooner or at least be able to retire much sooner if I want to.

I would have to pay taxes on the money I made in my IRA when I withdraw it and I would have to wait 23 ½ years to withdraw any money. I plan to have 100 rentals by 2023, which will give my enough money to retire at 44. It does not make sense to me to have to wait another 15 years to start using my rental property income. Sure, I may be paying more in taxes now, but I want to be able to use that money sooner than later.


However, after researching this topic I am seriously considering investing the money I do have in my IRA into a rental property. I wrote an article a few months ago about possibly buying a turnkey rental property. I have since decided to hold off on that venture, because I found two great rental properties locally that I now have under contract. I have enough money in my IRA to buy a turnkey rental property with cash ($30,000 to $40,000) and since I cannot touch that money for many years to come, I may convert my IRA into a self-directed IRA and buy a turnkey rental. I would have a lot more fun buying a turnkey with my IRA than keeping it in index funds and REITs. In addition, I could go through the process of buying a turnkey rental property first hand. A turnkey rental is a property that has been repaired and is already rented and managed when it is sold to an investor.

For more information on turnkey rental properties, check out this article.

Can you invest in real estate with a 401k?

Self-directed investing is not limited to an IRA; you can also use a self-directed 401k plan to invest in real estate or other assets. uDirect can also help you with self-directed 401k investing. The process is very similar to investing with an IRA.

Why is real estate a great choice for an IRA?

When you buy a rental property with an IRA all the expenses are paid from the IRA and all the income goes back into the IRA. The awesome part about using a ROTH IRA is appreciation and income on the property is tax free in most cases! If you have a traditional IRA, the money you invest into the IRA is tax-free and when you start taking money out later the profits become taxable. Either way you pay fewer taxes than you would if you bought rental properties

I also saw a very interesting article from Financial Samurai today about “backdooring” ROTH IRAs. According to the article, you can invest in a ROTH IRA even if you make too much money by converting a traditional IRA into a ROTH IRA.

Would it be difficult to use my strategy to buy rental properties with a self-directed IRA?

When I buy rental properties, I usually buy houses that need work so I can buy them below market value. I think it would take a little more effort to buy houses and repair them with a self-directed IRA, but the main difference would be the IRA is paying for all the repairs and carrying costs while the work is being done. You would have to make sure you have enough money in your IRA to cover all the costs of your investments. You can only contribute $5,500 to your IRA in one year in most cases so you have to make sure you have a cushion available if you end up having a big repair bill. It is also important to keep in mind that you cannot do any of the work required to fix up the property. You would need to have an arm’s length third party do the work.

What alternatives are there to investing in real estate with a self-directed IRA?

Besides real estate, there are some great alternatives to invest in with a self-directed IRA.

  • Notes: Notes are loans made against real estate. They can be bought as either non-performing or performing. You essentially become the bank. You can find much more information on notes here.
  • Private money: Private money can be loaned to investors who are investing in real estate. I wrote about the subject here in much more detail. I use private money from my sister to help fund my fix and flips. You can use money from your self-directed IRA to loan to investors and make 8 to 12 percent interest on a secured asset.
  • Gold: Gold is a great way to diversify your investments and you can use a self-directed IRA to invest in Gold or other commodities.


If you have an IRA or a 401k and want to invest in real estate, you do not have to cash out the retirement accounts and in the process pay huge tax penalties. You can convert those accounts to self-directed IRAs or 401ks and use the money from your retirement accounts to build a nest egg. If you want to invest the money in your retirement accounts into an easier asset to manage than traditional rental proprieties, you may want to look into private money or turnkey rentals.


  1. Doreen Le May Madden March 5, 2015
  2. salasocialmarketing February 27, 2015

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