| ext">A self directed Roth IRA invested in real estate | | | | income tax). So, most of us feel that cash deals |
| can generate large amounts of tax-free wealth. There | | | | are best. Private financing, such as borrowing from |
| are certain rules that you must follow when purchasing | | | | another person’s retirement account, should not |
| real estate in your IRA. Here’s a brief look at | | | | incur UBIT, as long as all of the other rules are adhered |
| the rules. | | | | to. |
| #1 - The Account Cannot Purchase Property Currently | | | | #3 - Profits Go In/Expenses Go Out |
| Owned By You or a Disqualified Person | | | | Profits from a self directed Roth IRA invested in real |
| You and your account are separate legal entities. If | | | | estate must be returned to the account. All costs and |
| your self directed Roth IRA invested in real estate that | | | | fees involved in purchasing real estate in your IRA |
| you currently own, you would pay lots of taxes and | | | | must come out of the account. You cannot loan |
| penalties. | | | | personal funds to the account and except for a few |
| By the same token, if you were purchasing real estate | | | | specific cases, you cannot borrow money from the |
| in your IRA that currently belongs to a close family | | | | account. You can loan to other individuals, however, as |
| member (your parents, children, spouse, grandparents | | | | long as they are not among the disqualified individuals. |
| or grandchildren), the transaction would be disallowed | | | | #4 - Your Options |
| by the IRS. Both you and the disqualified person could | | | | You can buy houses, fix them up and resell them at a |
| be required to pay the entire value of the investment | | | | profit. You can buy homes and rent them to people. |
| property. | | | | You can buy mobile homes, undeveloped lots, office |
| The rules are called self-dealing and indirect | | | | buildings, shopping centers and practically anything you |
| benefits. You and your family members are | | | | can think of. If you have the time to look for good |
| allowed to benefit from your account in the future, but | | | | deals and manage them properly, you can make big |
| not today. You cannot live in a property owned by the | | | | profits. |
| account. You cannot lease office space in a building | | | | No matter what you choose to do, if you are new, get |
| owned by the account. By keeping everything | | | | some advice from experienced investors, before you |
| away from yourself and your family, | | | | head down this road. There are many advantages |
| you’ll be safe at tax-time. | | | | and high earning potentials with a self directed Roth |
| #2 - Using Financing | | | | IRA invested in real estate. |
| When purchasing real estate in your IRA, bank | | | | If the idea of a self directed Roth IRA invested in real |
| financing can be used. But, earnings from the financed | | | | estate is new to you, you may want to consider |
| property are subject to UBIT (unrelated business | | | | starting with some easy choices. |