What You Should Know About Real Estate IRA Custodians

What You Should Know About Real Estate IRA Custodians

Have you found a home that you would consider an ideal real estate investment for your retirement plan? First, you have to pick from all the real estate IRA custodians out there that will represent your needs the best. Where do you start?

A real estate IRA is no different than any other type of self directed IRA. You still get all of the same tax benefits as other types of IRAs. There are a few things to keep in mind that make investing in real estate different than other types of retirement plans.

Self-Dealing, the IRS, and Your IRA

The IRS rules and regulations are mostly guided by what they don't want you to do. The biggest concern for this is that there needs to be a way to track all funds for taxation. This means that any type of transactions that would be difficult to apply a value to or track may be prohibited.

So, you may not invest in things such as stamps, artwork, and collectibles. Basically, things that are hard to track physically or on paper.

For real estate, the thing that you really need to pay attention to are disqualified parties and prohibited transactions. A disqualified party includes the following:

Your fiduciary

Lineal descent

You or your spouse

Any beneficiaries

If any of these people were to take advantage of the real estate either by living, renting, or managing, you risk disqualification and severe penalties. You also have to watch out for profits, expenses, and maintenance going through any disqualified party's hands.

Be aware that you may not put your IRA up as security or collateral under any terms. If you buy or sell the property to any disqualified persons, you also risk disqualification.

Who Should Help Me with Real Estate in an IRA

The beautiful thing about your real estate IRA is that you get to make all the decisions right down to whom you choose to manage the retirement plan. Do you want to work with someone that charges annual fees or per transaction? Are you looking for a passive custodian that specializes in real estate investments? Does the custodian have a good track record of these types of investments? These are all questions that you need to ask.

Another thing to consider when looking for a self directed IRA custodian is whether they prohibit any transactions that are otherwise legitimate transactions that are approved by the IRS. If your custodian only deals in certain types of real estate transactions, you are not dealing with a truly self directed IRA. Having someone on your side that can help ensure that they can answer any questions about real estate investments is critical.

That means they should be able to process any sort of real estate transactions including:

Raw land

Real estate options

Second mortgages

Tax liens

Single family homes

Multi-family homes

Condos, townhomes, apartments

In the end, only you know whether real estate is a good option for you to diversify your portfolio, but having one of the best real estate IRA custodians on your side is a great asset!

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