Purchasing A Property With Your Self-Directed IRA

Once you have your SDIRA set up, you can acquire investment properties. Remember, this is an investment account. The goal is to increase the value of your investments, so the intent needs to be purchasing assets that will increase in value over time or that will generate income now, like rental properties, for example. Your SDIRA account holds the assets, and you direct the custodian to make purchase transactions on behalf of your account.

Real Estate and all investment assets purchased through your SDIRA are titled in name of your IRA trust (which is assigned to you by your custodian), not your name. It will look something like this: “Trust company, FBO Your Name IRA.” The steps are straightforward:

1.    Open account with authorized custodian.

2.    Prepare asset purchase agreement in name of SDIRA.

3.    Instruct custodian to complete the purchase and wire the funds.

4.    Custodian executes the purchase and signs, assisting you in ensuring the investment doesn’t violate rule or laws.

5.    All income and expenses go through the IRA only, never to you as the owner directly.

And you should always maintain a cash balance for unexpected expenses related to assets held in your SDIRA. This is important: It’s a prohibited transaction with a disqualified person to personally pay for any expenses related to assets held in your SDIRA. I am sure to always have cash in a money market account owned by my SDIRA to promptly pay insurance premiums or a maintenance issue that may come up with one of the rental properties owned by my SDIRA.

It’s important to remember that through the SDIRA, you’re building your retirement nest egg, and the funds are not available until you retire (without penalty and taxes in most cases). And that’s good news because until you withdraw funds at retirement, your investments are growing tax-deferred. You’ll pay income tax on the funds when you withdraw them—and, most likely you’ll be in a lower tax bracket at that time.

Ruth Lyons
Ruth Lyons
REALTOR®
5850 Waterloo Road Suite 140 Columbia MD 21045