Found a raw land parcel that is your dream lot? Wondering how you can afford to make your dream come true? Then a Self Directed IRA could be your answer.
Self Directed IRAs offer today’s investor numerous investment options for their retirement funds. How does a real estate IRA work? Well, while typical IRAs only allow publicly-traded stocks, bonds, mutual funds and CDs, a self directed IRA affords individuals the opportunity to own alternative and non-traded investments such as real estate, precious metals, private equity, and much more.
You can buy any type of real estate, including raw land, with a Self-Directed IRA or 401K. It is completely legal and has been permissible since 1974 and, despite what you may have heard. You are not subject to any taxes or penalties for doing so.
There are some restrictions that come along with this type of investment that you should be aware of as well. If you were to purchase raw land with a Self Directed IRA you will have some restrictions such as:
- An account holder must remember that while the real estate is owned inside of an IRA, the property must be an investment only and cannot be used personally by the account holder or any other disqualified parties.
- Also, any profits generated by the property such as rental income or proceeds of sale, must be returned to the IRA. Likewise, any expenses incurred by the property such as taxes or improvements, must be paid for by IRA funds.
- All expenses due on a piece of raw land must be paid directly out of the IRA in direct proportion to its ownership in the deal. For example, if your Self-Directed IRA purchases 100% of a parcel of land, your IRA must pay 100% of any and all expenses that may arise for said property. Therefore, it is important that you budget accordingly and ensure that your IRA has enough money to not only buy the property, but to also maintain the property.
- Self-Directed IRA fees are relatively inexpensive, typically only about $250-$400 annually. (inquire with your companies due diligence process)
You should contact a professional to see how these rules and regulations may have changed or how they may impact you and your purchase. We recommend contacting several different providers that are licensed within your own state to ensure that you are getting the most accurate and specific information that would apply to you and your potential land purchase.
The first step is to establish a Self-Directed IRA with a company that specializes in alternative asset custodial services instead of a stock market focused brokerage firm. The entire process of establishing a Self-Directed IRA takes about two weeks by the time you have opened an account and funded it via an IRA transfer or rollover.
Some companies that our previous clients have used are as follows:
Ready, set, GO! Get started shopping here!
Just Another Important Investing Tip From Your Pirate Captain,