Self Directed IRA Investing For Beginners


Self directed IRA real estate investing has proven it deserves a place in an investor’s portfolio, but I am concerned it hasn’t gotten the attention it deserves. Far too few entrepreneurs, for that matter, are aware that using a self directed Roth IRA for real estate investing strategies is not only an option, but a viable one at that. It is entirely possible to fund your next deal with the retirement savings you have accumulated in an individual retirement account, provided you fallow the appropriate steps and take the right precautions. That said, self directed IRA real estate investing isn’t without risk. Do not take your retirement funds lightly; they are important to your livelihood, and they should be treated as such. There are risks when using your own retirement accounts to invest in real estate, but those who can do so successfully will be glad they did.

What Is A Self Directed Roth IRA?

In order to understand what a self directed Roth IRA is, you must familiarize yourself with the concept of a conventional Roth IRA. A Roth IRA is similar to a traditional IRA, or individual retirement account. However, unlike a traditional IRA, Roth IRAs are intended to pad your retirement coffers with after-tax dollars; the contributions are not tax deductible. As a retirement account, Roth IRAs are permitted to grow tax free, and are, therefore, a great way to save for retirement. There are, of course, other rules and regulations to consider when electing to contribute to a Roth IRA, but I digress; the purpose of this article is to suggest how one may use the money in their Roth IRA to invest in real estate.

It is worth noting that most IRAs can be tapped into for the sake of real estate investing. In other words, the money you have managed to save up in your own individual retirement account doesn’t have to stay there; if your account custodian allows it, it is entirely possible to use the money in your IRA to invest in real estate. Typically, withdrawing from your IRA would be met with strict and steep penalties, but there are exceptions, and real estate just happens to be one fo them. You can withdraw from your IRA account to invest it in real estate without having a penalty levied in your direction.

If you intend to self direct your own IRA, however, there are a few steps you will need to take. First off, you’ll need to get your IRA to a point that it can be self directed. Most companies, for that very purpose, offer the assistance of custodians to help you navigate the confusing process. Talk to the custodian of your account to see if you can self direct your IRA, and then to follow through with it. Some custodians may charge a fee, but you’ll nonetheless have to go through them if you want to self direct your IRA into real estate. I also recommend consulting a financial advisor before making any decisions on your own. Investing your retirement funds is not without risk, so make sure you are taking the right steps.

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Self directed IRA real estate

The Benefits Of Roth IRA Investing

Self directing funds from an IRA into real estate coincides with some pretty significant tax benefits. Of particular importance, real estate investors using funds from their IRA have the opportunity to buy, sell, and flip homes while simultaneously maintaining the tax-deferral status of the IRA. Roth IRAs, in particular, offer the potential for tax-free growth, since previous contributions were not tax deductible. You must be careful to abide by the correct rules. If you neglect to abide by the rules, and purchase property the wrong way within an IRA, you could disqualify the IRA and create a taxable event. So again, be sure to consult your custodian and a tax professional before making any decisions for yourself.

In addition to the tax benefits one could receive from self directing their IRA properly, there’s an obvious benefit that can’t be ignored: access to capital. Funding is nothing, if not the foundation of real estate investing, and your IRA could very easily serve as the source of your next deal.

Exit Strategies To Invest In Real Estate With A Self Directed IRA

Rules set forth by the IRS suggest you may self direct your IRA towards a number of other investments, not the least of which includes real estate. Real estate itself can be broken down into its own set of exit strategies. Perhaps even more importantly, investors may use their self directed IRA to invest in the following:

  • Raw Land
  • Residential Properties
  • Comercial Properties
  • Apartments
  • Duplexes
  • Condominiums
  • Townhomes
  • Mobile Homes
  • Real Estate Notes
  • Tax Lien Investing
  • Tax Deed Investing
  • And More

Individual retirement accounts, whether they are Roth or traditional, have functioned as a viable retirement vehicle for years. However, a lot of investors are intrigued by the potential returns exhibited by today’s real estate market. A large contingent of investors have tapped into their IRAs in an attempt to self direct them towards a more tangible investment: real estate. Doing so awards savvy investors the opportunity to invest for themselves, and potentially make more money than their retirement funds would have had they been left alone. Self directed IRA real estate investing does come with potential risks, but many would agree they benefits outweigh them significantly.

Key Takeaways

  • Self directed IRA real estate investing is a viable option that far too many people don’t know about.
  • Roth IRA investing allows investors to tap into their retirement funds to invest in real estate.
  • Self directing your own IRA could be just what you need to fund your first deal.