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You can buy property with your checkbook IRA, but there are restrictions. Understand the two primary factors that determine whether your IRA can make the purchase. A checkbook IRA is a wonderful investment tool, and knowing the rules and restrictions will keep you out of trouble!

What Can You Buy with a Self-Directed IRA?

An IRA can buy anything other than collectibles, life insurance contracts, or stock in a sub S Corp, and 401K plans can literally buy anything other than collectibles. So rarely is the investment a problem. It’s the transaction between or for the benefit of the disqualified party that causes that problem. So you are a disqualified party, your plan.

There is no way for your plan to buy a property from you or for you to sell a property to your plan. You can’t loan money to yourself from your plan, nor could you loan money to your plan. Who else is a disqualified party to your plan? Well, if you’re married, your spouse would be; other disqualified parties are your parents, grandparents, kids, grandkids, their spouses or any other legal entity owning a controlling interest by one of those people. We like to say keep the money away from the kids, grandkids, parents, grandparents, and you’re just going to be fine. The funny thing is that aunts, uncles, cousins, brothers, and sisters are all fine.

But bottom line is, as far as buying property, anything acquired with the intent to hold for investment and held for investment is legitimate. Could you buy an office to occupy? Absolutely not. Once again, it’s not because the property doesn’t qualify, it’s because you’d be occupying it and that would be the problem. Once again, there are two factors:

  1. What are you buying?
  2. Who are you transacting between or for the benefit of?

The answers to those questions dictate what you can and can’t do. In a real estate context, it has to be real estate acquired with the intent to hold for investment and it can’t be something that’s benefiting a disqualified party.

Using Your Checkbook IRA to Buy Property

Understand the Asset’s Ownership

Keep in mind that the account owns the asset. Therefore, any expenses are that account’s and any benefit is that account’s, and the only way you’re taking any benefit is by taking a distribution. If we’re talking about a checkbook IRA, a common problem with them is that people just simply write themselves a check as a distribution and that does not work. That’s a prohibited transaction. If you want to take a distribution, the money has to go from that checkbook IRA LLC account back to the custodial account, and from the custodial account to you. Any contribution has to go the opposite direction, from you to the custodial account, then an investment in the LLC is made.

For real estate, it must be investment purposes, no personal benefit, nor any benefit to a disqualified party. If your son Johnny goes to college and you want to use your retirement account to buy Johnny an apartment to live in during that period of time, that’s not okay. Buying a business property for your business to be in is not okay. You have to keep it arms-length. Be safe. This is money you’ve worked hard to put away and we want to keep it yours.

Truly understanding what your retirement options are takes the help of an expert. A simple call to IRA Advantage will get you the advice you need. Give us a call today: 503-619-0223.