Self Directed IRA Real Estate Investing – What Is It?

by Tom Dunn

You may be wondering what all the confusing language surrounding IRA Real Estate Investing really means. Perhaps you have heard the term “self-directed” applied to IRAs used to invest in real estate, but the question is, “What does self-directed really mean, and why is it the best IRA for real estate investing?”

Like most of my readers, you probably know something about real estate, but you may know almost nothing about IRAs. Maybe you’ve got a job where you have a 401K retirement account. You most likely contribute directly to your retirement account out of each paycheck, and maybe your employer matches those contributions. The money contributed to your 401K is tax deferred (up to certain government imposed limits) until you withdraw it at retirement age.

You can open an IRA – also named an Individual Retirement Account – as an individual with as little as $2,000, and you can add to it on your own each year, up to certain tax law imposed maximums. That’s where the term “individual” comes from. You can even open an IRA even if you also have a 401K.

You can also move the funds from an existing employer sponsored 401K into an IRA. This is called an IRA roll-over, and there are very specific rules for how these must be handled. I’m just giving you the basics in this article… good so far.

The problem is, neither the IRA or the 401K as they commonly exist can be used for investing in income property. Only the custodian of the account (normally a bank or financial institution) can designate what investments are purchased with these funds, leaving you on the outside looking in, with almost no control over where your own money is invested. About all you can do is state what percentages of your money you want to go into which funds the account is invested in. Not nearly good enough for my money.

On the other hand, the IRA known as the “Self-Directed IRA” allows you to state exactly where you want your money to go. You pick the investments you are expert in, such as rental properties, apartment buildings, what have you. This means that those tax deferred funds from your retirement savings account can be directed into investments you actually like and know something about. Isn’t that a smart idea? you know it is!

It’s simple and easy to open your very own self-directed IRA. Just find a custodian who specializes in these accounts, and they will guide you through the process, and help you abide by all the government rules. Then, your tax-deferred account will grow the way you want it to.

There is even a Socially Conscious Real Estate Investing program, in which the company will handle all of the paperwork, all of the hassles, AND all of the fees associated with setting up your self-directed IRA. They will also handle everything when it comes to buying and selling the property, and the property management hassles.

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