Menu Close

This is Why Banks are So Afraid of The Self-Directed IRA for Real Estate

A new study has shown that real estate, as an investment, is more popular and more favored than investing in the stock market among younger U.S. adults. According to data from RealtyShares, 55% of Millennials want to invest (or are already investing) in real estate. Furthermore, Fannie Mae reports that 85% of Millennials view real estate as a “good investment.”  While only 2-3% of American retirement account holders are invested in real estate and other alternative market, there is strong sense amongt bank and financial institution executives that the self-directed IRA real estate market will have an adverse effect on their business.

With 50 million IRAs and over $9 trillion in IRA funds, the IRA industry is a very important market for the banks and traditional financial institutions. Banks and traditional financial institutions, such as Bank of America and Vanguard, make money when you invest in their financial products and keep your money there for a long time, whether through highly profitable trading commissions or by leveraging the power of your savings. They do not make money when you use your money to invest in alternative or nontraditional investments such as real estate or cryptocurrency. They get no commissions as a result. They lose access to your money, too.  Accordingly, it does not make any financial sense for traditional banks or financial institutions, such as Fidelity, to offer you the ability to make alternative asset investments, such as real estate, with your IRA funds.  It just comes down to dollars and cents, which is the reason that banks and financial institutions do not advertise the fact that the IRS allows you to do a wide range of investments with your IRA, such as real estate.  Why would they inform you, then, that such a strategy was permissible and possibly even preferable depending on the circumstances?  Yet, such nontraditional or alternative retirement asset investments are perfectly legal. The IRS has permitted them since 1974. It says so right on the IRS website. And the best way to make those investments is through the self-directed IRA.

With real estate growing in popularity as an investment with millennials and with more and more IRA owners learning about the opportunity to buy real estate and defer tax on any gains or income (tax-free in the case of a Roth IRA), it is not surprising that the banks and financial institutions are so afraid of the self-directed IRA for real estate option. In fact, a new study shows that real estate, as an investment, is more popular and more favored than investing in the stock market among younger U.S. adults. What this means is that the banks are correct in in projecting that a growing number of IRA investors will look at the self-directed IRA real estate as a viable option for their retirement funds.


Adam Bergman is the founder of the IRA Financial Group & IRA Financial Trust Company.  For more information on this topic please call 800-472-0646.

Share the knowledge
Posted in Self-Directed IRA