Individual Retirement Accounts (IRA) and Real Estate Investments

Many savers have the idea that if they invest their IRA savings into Real Estate, they will make good profits and increase their retirement savings ultimately. However, there are many pitfalls that could get you in trouble if you do not follow the IRA rules.

Prohibited IRA Transactions

Some specific investments are prohibited in IRAs. These investments are called “collectibles” and include items such as:

  • Artwork
  • Antiques
  • Coins
  • Collectible Stamps
  • Gems

Real Estate is not prohibited, but certain rules and pitfalls can easily make your IRA Real Estate Investment into a prohibited transaction.

Prohibited Real Estate Transactions

  • You can’t sell property to your IRA, nor buy property from your IRA
  • You can’t loan money to your IRA or borrow money from it
  • You can’t use your IRA Savings as Loan Collateral
  • You can’t receive goods and services from your IRA nor provide them from your IRA

Beware, some companies promote real estate investments for IRAs by not properly disclosing all the related rules and prohibitions as stated by the law.This is because they do not want to lose business and you as a client/customer.

Examples of Prohibited Transactions

For example, imagine your IRA purchases a broken-down house that needs lots of repair work and remodelling. You use funds from your IRA to do the remodelling and add value to the house. Later, you sell it at a profit. That is NOT a prohibited transaction yet. However, if the remodelling is done by yourself, or your relative’s local shop, this means you are providing “services” to your IRA. Now THIS is a prohibited transaction.

Another example of a prohibited transaction is when you buy a rental property and also do the work of finding tenants, collecting rent and property management. If you or your relatives do this, you are providing services to your IRA.

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