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Does the IRS Allow one to use a Real Estate IRA to Buy Rental Properties?

Since the creation of IRAs back in the early 1970s, the IRS has always permitted an IRA make real estate related investments. In fact, it states it right on the IRS website when discussing IRA investments. By using a real estate IRA, also known as a Self Directed IRA to buy real estate, the IRA holder will be able to purchase raw land, domestic or foreign real estate, residential or commercial property and generate tax-deffered income and gains, or tax-free income or gains in the case of a Roth IRA. Since the traditional IRA custodians, like Vanguard, Fidelity, Charles Schwab, or Bank of America do not allow one to make real estate investments with retirement funds, an individual wanting to buy real estate with retirement funds will typically look to a self-directed IRA or real estate IRA as the investment vehicle of choice. Many people ask why don’t the traditional IRA custodians allow for real estate investments using retirement funds and the answer is not surprising. Traditional retirement custodians do not make money when one uses their retirement funds and reallocates them from Wall Street to real estate. The reason is these financial institutions or banks only make money when you buy financial products and do not earn any income when you buy real estate. In fact, even worse, by removing your retirement funds from their institution, they are losing capital which could impact their regulations.

With a Self-Directed IRA with checkbook control, also known as a Real Estate IRA, making a real estate investment is as simple as writing a check. As manager of your Self Directed IRA real estate LLC, you have the authority to make real estate investment decisions on behalf of your IRA on your own without needing the consent of an IRA custodian. One major advantage of purchasing real estate with a Self-Directed IRA is that all income and gains are tax-deferred until a distribution is taken (Traditional IRA distributions are not required until the IRA owner turns 70 1/2). In the case of a Self-Directed Roth IRA LLC, all gains are tax-free.

A Self Directed IRA with checkbook control is the most efficient and cost effective vehicle for making real estate investments.  With a Self Directed IRA with checkbook control, you will be able to use your IRA or 401(k) funds to purchase real estate tax-free and without custodian consent.  A traditional IRA custodian (financial institution) will not allow you to purchase real estate using your IRA or retirement funds.  Therefore, in order to have the ability to make a real estate transaction using retirement funds, a Self Directed IRA LLC with Checkbook Control is the answer. Unlike a conventional Self Directed IRA which requires custodian consent and requires high custodian fees, a Self Directed IRA LLC with Checkbook Control will allow you to buy real estate by simply writing a check. Since all your IRA funds will be held at a local bank in the name of the Self Directed IRA LLC, all you would need to do to make the real estate transaction is write a check straight from the IRA LLC account or simply wire the funds from the IRA LLC bank account. No longer would you need to ask the IRA custodian for permission or have the IRA custodian sign the real estate transaction documents.  Instead, with a Checkbook Control IRA, as manager of the IRA LLC, you will be able to execute the real estate transaction by simply writing a check.

To learn more about the advantages of using a Self Directed IRA LLC to purchase real estate and buy rental properties please call an IRA Expert at 800-472-0646 or visit

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Posted in Self-Directed IRA

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