Investing wisely in investment real estate is a fantastic way to boost returns in your retirement accounts. If your investment adviser is simply buying index funds and charging you management fees, you accounts will be stagnant and you will be working through retirement. Instead consider investing your retirement assets into a “self-directed” IRA and see your savings grow long-term, tax-deferred or tax-free. You must however follow strict rules so as not run afoul of IRS regulations.

You must invest in a business property, not a personal residence, second home or occasional rental. Also, you cannot use your IRA to buy a property you already own; it has to be a new purchase directly into the IRA or other retirement account vehicle. To invest in a rental property, you can open an IRA custodial account, transfer cash from an existing IRA account — or possibly 401(k) — into the custodial account and then purchase real estate under the IRA account name. You must pay attention to very specific IRS rules in what you can and cannot do in funding and managing the investment. You can also buy and sell real estate in a self-directed IRA if you are in the flipping business, but there are limits on how many you can do per year. The profits on any transaction would be tax-deferred or tax-free and allow your IRA to continue to grow with those tax advantages.

IRA investing concerns
The negative side of investing through your retirement funds is your inability to leverage. You can’t get a traditional mortgage loan in an IRA, so you must have sufficient funds in your IRA to permit you to complete the purchase. In the alternative, you could purchase part of the property as Tenants in common with another person or your-self in an Entity or your individual name. This further complicates the tax and deduction part of the investment as all income and expenses must be calculated and accounted for meticulously.

There are also costs to administering the IRA/retirement account, so factor those into your calculations. Furthermore, as this is a tax free vehicle, you cannot write off losses or depreciation from any investment property in an IRA, so there won’t be the traditional tax savings you would get on rental properties. Most importantly, if you fail to comply with any of the rules, it may kill your IRA and expose you to fines and penalties. So tread carefully and get good advice. There are several reputable self-directed IRA custodians on your finger(google)-tips who can advise and guide you through this oft-overlooked investment vehicle.