Tempted To Own Actual Real Estate Properties In Your IRA? Think Twice

house money blue shuttersSome investors like real estate so much they want to own actual rental homes and apartments in their retirement accounts.

While it may be tempting to do so, there are many tax hurdles and potential pitfalls that can make such a move perilous.

If real estate is on your mind, check out “Investing in Real Estate With Your IRA,” a Wall Street Journal article by financial writer and real estate expert Robyn Friedman, who discusses the challenges of placing actual real estate investments in your retirement account via what’s called a self-directed IRA.

We shared with Robyn some tips you’ll want to keep in mind when considering a self-directed IRA that owns real estate properties.

The most important thing to know is that this strategy is definitely not for everyone.

“There are plenty of easy opportunities to invest in real estate using mainstream methods like mutual funds or real-estate investment trusts,” we told Robyn in an interview.

“It only makes sense to do direct real-estate investments if you’re a seasoned pro and are convinced the project you’re investing in is an absolute winner.”

The Takeaway: Owning actual real estate properties in your IRA can expose you to serious tax penalties if you’re not careful. It’s not a good strategy for most people. We do like to include real estate in client portfolios, but there are much easier (and less aggravating!) ways to do so by investing in real estate mutual funds, exchange-traded funds, or REITs.

About Mari Adam

Mari Adam, Certified Financial Planner™ has been helping individuals and families chart their financial futures for over twenty-five years. Have a question about your financial situation? Ask Mari!

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