Roth IRA to invest in Real Estate

[StealthRabbit]

As mentioned... this MUST be a totally separate titled, and sustained property for legal IRA designation.

Even a shared water meter, driveway, permit, or septic connection (very common in mf) would cause co-mingling of funds / personal benefit and result in a 100% taxable IRA distribution (via a Disallowed use).

Best to keep this stuff REALLY separate. (as in completely different structure / lot / address / legal description).

[parentologist]

Originally Posted by H'ton

As one of my options, I could transfer what I already have in my ROTH IRA (mutual funds) so it could be a cash transfer from my ROTH.... or very close to it.

I'm asking because I'm looking at buying a small lot to build a duplex, or 2 townhomes, or whatever you want to call it.

1/2 of the deal would be paid for with non-retirement funds. I would live in that unit as my primary residence. The other half would be built and managed as my ROTH as a rental property. This way, I can split the costs of land acquisition and construction down the middle.

This idea allows me to get a bigger lot than what I could if I wanted to build a small house. And I would ultimately own both units.

Again, I'm just in the brainstorming stage so I really appreciate your feedback!

This, you could not do. It would be considered self-dealing by the IRS.

What you can do, is you can buy an investment property entirely for cash with the Roth IRA after you have set up a self-directed ROTH IRA account that specializes in real estate investing. You can do everything from the Roth - pay all expenses from it, all rents go to it. The benefit is that you don't pay any income tax on the rent, and if you sell it at a profit, you pay no income tax on the profit. You don't get to deduct anything, and it's difficult and complicated to have the Roth take a mortgage - it's safest to do it all cash deals.

You cannot sell to your Roth a property you already own. You cannot buy from the Roth a property the Roth owns. You can't have much to do with managing the property. And the IRS is looking very closely at these self-directed Roth IRAs that are dealing in real estate.

It's complicated getting it set up, and it costs money. If you want to educate yourself about it, I recommend cruising around on bigger pockets. (website about investing in real estate)

[parentologist]

It's interesting, it seems that the IRS' biggest concern is that people would try to somehow get financial benefit OUT of the Roth into their pockets now - such as borrowing from the Roth, or living in the Roth-owned real estate. Of course, the smart person's goal is to do just the opposite, to put as much value as possible INTO the Roth, for the tax benefits. For instance, buying a run down property with the Roth, renovating it, and thus increasing its value, and so on. Paying the expenses of the Roth property from outside the Roth. But that doesn't seem to be what the IRS is looking for.

[enmanueljeffren]

Originally Posted by H'ton

Anyone here have experience using their Roth IRA to invest in real estate property?

If so, what steps did you have to take (lawyer, accountant?)

Also, say if it was a rental property, how did you document the annual "cost" (taxes, maintenance, mortgage, etc.) from the ROTH Real Estate to the left over profit (left over money from the rent you charged)?

Or if you used your entire ROTH to "invest" in the Real Estate, in cash...how did that work out?

I am considering this option but am just getting started to explore this route.

it can be very very hard ....Only non-recourse financing is allowed. In other words, the IRA holder cannot personally guarantee a loan made to his or her IRA.

[aslowdodge]

Originally Posted by parentologist

This, you could not do. It would be considered self-dealing by the IRS.

What you can do, is you can buy an investment property entirely for cash with the Roth IRA after you have set up a self-directed ROTH IRA account that specializes in real estate investing. You can do everything from the Roth - pay all expenses from it, all rents go to it. The benefit is that you don't pay any income tax on the rent, and if you sell it at a profit, you pay no income tax on the profit. You don't get to deduct anything, and it's difficult and complicated to have the Roth take a mortgage - it's safest to do it all cash deals.

You cannot sell to your Roth a property you already own. You cannot buy from the Roth a property the Roth owns. You can't have much to do with managing the property. And the IRS is looking very closely at these self-directed Roth IRAs that are dealing in real estate.

It's complicated getting it set up, and it costs money. If you want to educate yourself about it, I recommend cruising around on bigger pockets. (website about investing in real estate)

All true, but a few people posting here think they are clever and can set up a separate entity whose purpose is to self deal with the IRA. Those same people have never done it and think the government hasn’t thought of that already.

[enmanueljeffren]

Originally Posted by enmanueljeffren

it can be very very hard ....Only non-recourse financing is allowed. In other words, the IRA holder cannot Speed Test Scrabble Word Finder Solitaire personally guarantee a loan made to his or her IRA.

As mentioned... this MUST be a totally separate titled, and sustained property for legal IRA designation.

Even a shared water meter, driveway, permit, or septic connection (very common in mf) would cause co-mingling of funds / personal benefit and result in a 100% taxable IRA distribution (via a Disallowed use).

Best to keep this stuff REALLY separate. (as in completely different structure / lot / address / legal description).