This may be the easiest blog I will ever write. If you want to buy real estate with your IRA, you will not be able to do so with a Schwab IRA. The question is why?
Banks and traditional financial institutions, such as Charles Schwab, 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 make no money when you use your money to invest in alternative or nontraditional investments such as a plot of land or a private business. 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 Schwab, 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, such as Schwab do not advertise the fact that the IRS allows you to do a wide range of investments with your IRA, such as real estate.
Since the creation of IRAs back in the 1970s, the IRS rules permit you to engage in almost any type of real estate investment, aside generally from any investment involving a disqualified person. In addition, the IRS states the following on their website: “…..IRA law does not prohibit investing in real estate but trustees are not required to offer real estate as an option.”
Therefore, any IRA holder looking to make alternative asset investments will need to work with a special IRA custodian, such as IRA Financial Trust Company. Self-Directed IRA custodian have different business models than banks and traditional financial institutions. A self-directed IRA custodian is not a fiduciary and does not offer any investment, tax, or legal advice. Hence, self-directed IRA custodians do not sell any investment products, such as stocks and mutual funds. Self-Directed IRA custodians typically make money by charging an annual fee for its IRA administration and recordkeeping services, including the filing of IRS Form 5498 and 1099-R.
In general, if you are seeking to invest in real estate, cryptocurrencies, notes, investment funds, private businesses, etc.. with your IRA, you have options, but it will likely not be with a bank or traditional financial institution, such as Charles Schwab.
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.