11 Apr Can I buy real estate inside of my IRA?

Q. I wanted to buy a condo for my son, where he would pay rent that would cover the monthly carrying costs. If I wanted to buy it within an IRA, can I? I’d rather not take a mortgage.
— Dad

A. That’s a very generous move.

It is possible to buy real estate within an IRA but there are various requirements and ramifications that must be considered.

First, only a self-directed IRA with an agreeable custodian can be used to hold such real estate, said Steven Gallo, a certified public accountant and personal financial specialist with U.S. Financial Services in Fairfield.

“There are custodians available but there are fees to be paid for their services,” he said. “Buying real estate in an IRA is not as easy as it is to purchase the normal stocks, bonds, mutual funds and other investments usually held in IRAs.”

Gallo said the property needs to be titled in the name of the IRA and there are closing costs that will need to be paid from the IRA as well. None of the real estate-related costs can be paid through your personal funds under the IRS guidelines, he said.

“Although the IRS allows real estate to be held in an IRA, they specifically forbid the real estate to be used by the taxpayer or any member of the taxpayer’s family,” Gallo said. “This, on its face, appears to preclude you from achieving your goal.”

Gallo said there are various other issues to consider, such as maintaining the property, which must be done exclusively through the IRA because that’s where the property will be titled. You would need to be sure that there are ample funds available after the purchase to provide for any additional costs incurred, he said.

You would also need to be confident that you will have enough liquidity within the IRA to support your financial needs as well as any Required Minimum Distributions (RMDs) that will need to be made in the years ahead, he said.

“Buying real estate inside an IRA can be done but it is not for the faint of heart and should be seriously reviewed with your financial and tax advisors before moving forward,” Gallo said.

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This story was originally published on April 11, 2022.

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