Can IRAs Hold Real Estate or Other Tangible Assets?

When most people think of Individual Retirement Accounts (IRAs), they imagine investments in stocks, bonds, and mutual funds. However, there is another powerful option that can diversify your portfolio and open doors to alternative investments: Self-Directed IRAs (SDIRAs). These accounts enable you to diversify your portfolio, holding real estate and other tangible assets, provided you follow specific rules.

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What Can You Hold in an SDIRA?

With a Self-Directed IRA, you’re not limited to traditional financial assets. Instead, you can choose from a wide range of options, including but not limited to:

• Real Estate: Residential properties, commercial buildings, raw land, rental properties, real estate funds or syndications, and more.
• Precious Metals: Gold, silver, platinum, and palladium that meet IRS fineness requirements.
• Tax Liens and Deeds: Securing interest in properties through tax-defaulted real estate.
• Promissory Notes: Lending funds to individuals or entities in exchange for interest income.
• Cryptocurrency: Digital assets such as Bitcoin and Ethereum.
• Private Equity: Investments in startups, private companies, or venture capital.

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Key Rules for Holding Real Estate in an IRA

Investing in real estate through an IRA offers tax advantages and diversification, but it comes with strict rules. Here’s what you need to know:

1. No Self-Dealing: You cannot use or directly benefit from the property. For instance, you cannot live in it, vacation there, or rent it to yourself or certain family members. This rule ensures the investment is solely for your retirement benefit.
2. All Expenses Paid by the IRA: Any property-related costs, such as taxes, maintenance, and repairs, must be paid using funds within the IRA. Personal funds cannot be used.
3. Income Returns to the IRA: Any rental income or proceeds from the sale of the property must go back into the IRA. This ensures the tax advantages of the account are preserved.
4. No Personal Guarantees on Loans: If the property is financed, the loan must be non-recourse, meaning you cannot personally guarantee repayment. The property itself is the only collateral.
5. Avoid Prohibited Transactions: The IRS prohibits buying or selling property to or from the IRA involving yourself, family members (ascendants and descendants), or certain entities you control.

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Holding Real Estate in an SDIRA

1. Diversification: Real estate offers a way to diversify your portfolio, reducing reliance on traditional financial markets.
2. Tax Advantages: Rental income and capital gains grow tax-deferred in a Traditional IRA or tax-free in a Roth IRA.
3. Control: You have the freedom and responsibility to choose specific properties or alternative assets that align with your retirement goals.

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Final Thoughts

Real estate and tangible assets can add diversity to your retirement portfolio. A Self-Directed IRA unlocks these opportunities, giving you control over your investments. However, it’s crucial to understand the rules and work with knowledgeable professionals to avoid costly mistakes. Be sure to consult with a CPA or financial advisor to ensure your strategy aligns with your overall retirement goals and complies with IRS regulations. By following the guidelines, you can harness the power of alternative investments to build a more robust retirement plan.