Buy real estate with your IRA

Does your IRA allow you to buy ANY mutual fund your want? How about ANY stock you want? Dare I ask does your IRA allow you to buy real estate? If you are like most holders of IRAs the answer to these questions is no. Why is this? Well the folks that hold your IRA are called custodians. They are usually banks and brokerage firms. These custodians make money from the type of transactions they allow your IRA to have. O.K. folks that hold my IRA have economics reasons why they do not let me buy whatever I want, what can I do about it? The answer: open a self-directed IRA

What is a self-directed IRA? It's simply an Individual Retirement Account established with a broker instead of a mutual fund or a bank. A self-directed IRA enables you to buy and sell individual stocks, mutual funds and real estate. As a result, you make the investment decisions instead of someone else, such as the manager of a mutual fund.

A great way to get started with a self-directed IRA is to roll over your 401K into a self-directed IRA. You can roll over your 401K when you terminate your employment. So if you are looking to change employers keep in mind this is a wonderful opportunity to roll your 401K into a self-directed IRA.

For me buying real estate is the most appealing aspect of a self-directed IRA. Remember banks, brokerage firms, and other companies that administer most IRAs are not interested in helping folks buy real estate because they want to sell their own products. About 10 years ago I changed jobs and decided to open a self-directed IRA. My motivation was to take care of my disabled brother. My goal was to purchase home for my brother. There are some restrictions about who can be the owner of property bought through a self-directed IRA. For instance the following would be excluded from owning real estate under and IRA.
- The IRA owner
- The IRA owner's spouse, descendant (e.g., son), or ascendant (e.g., mother)
- Spouse of a descendant of the IRA holder

I shopped around for an IRA custodian that offered self-directed IRA. Ten years ago the pickings were pretty slim. I decided to go with a Pensco because they were local (San Francisco) and I really like the way they answered my questions and their supporting documentation. I ended up rolling my 401K into a self-directed IRA help by Pensco. I bought my brother a home in North Carolina and can now sleep a little better at night knowing my brother will always have a roof over his head.

Conclusion: There is a reason your IRA has limited investment choices. There is an alternative and it is called a self-directed IRA. With a self-directed IRA you can buy real estate today with tax deferred dollars. I encourage you to read up on the self-directed IRAs.