It’s no longer a secret. Real estate investing is probably the single best way to take advantage of a newly established self-directed IRA account. But with the newfound responsibility of directing your own IRA account also comes the obligation to stay in compliance with a web of IRS regulations. Among other things, you’ll need to do things like monitor your investments to ensure they are performing as expected and maintain an arm’s length with your transactions. Things that you can invest in within the real estate realm include real properties, real estate notes and even private placements that invest in real estate related investments.
Some common mistakes and things to remember when investing in real estate with your self-directed IRA are:
1. Contributions to a self-directed IRA must follow the same rules as other IRA accounts, meaning the funds must come from sources such as earned income, rollovers from other retirement plans, or transfers from other IRA accounts.
2. All investments must be made in accordance with IRS rules and regulations, and prohibited transactions are not allowed. Prohibited transactions include investing in life insurance, collectibles, and any investment that would benefit a disqualified person. To receive a free rules guide from a custodian company, visit this site and complete the form.
3. All income and gains earned in the self-directed IRA must remain in the account and may not be withdrawn or used for personal benefit.
4. All investments must be made through the custodian of the account and the custodian must be a qualified and approved financial institution. For a list of custodians visit my other article here.
5. Distributions from the self-directed IRA must be made in accordance with IRS rules.
6. All investments must be properly documented.
In short, investing when considering investing in a self-directed IRA account, don’t forget about investing in real estate.