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A Few Helpful Tips for Investing in Real Estate Using Retirement Funds (2019 Update)

Your retirement fund is an important tool for ensuring that you’ll have the money needed to live the lifestyle you want once you reach retirement age. Whether we’re talking about a 401(k), a traditional IRA or a Roth IRA, you can invest in a number of different vehicles to grow your wealth. That includes real estate, although most investors are unaware of it. What should you know about investing in real estate using retirement funds, though? There are several important rules that you’ll need to be aware of before taking any action with your retirement fund.

Deposit and Purchase Price

One of the first things to understand is that the deposit and purchase price for any real estate should be from the retirement account. That money cannot come from any other account, and it cannot come from a disqualified person.

Titling Considerations

You cannot put the title of the purchased property in your name, or in the name of a disqualified person. In fact, the title to the real estate should be put in the name of your retirement account.

Can the Real Estate Benefit You?

The only benefit you can receive from the real estate is to ensure retirement success down the road. It cannot offer any sort of immediate benefits, including indirect immediate benefits. For instance, you can’t purchase a vacation home that you’ll use every now and then, or an office in a building that your fund owns.

What Types of Real Estate Can You Invest In?

You can invest in pretty much any type of real estate, from a vacant lot to an income-producing property to timberland, depending on your needs. The primary rule is that you can only benefit from the real estate during retirement, not now.

Can My Fund Purchase Property I Already Own?

No, the fund cannot purchase any real estate that your currently own. Again, you cannot purchase real estate that you will use in any way, as that would be considered an indirect benefit, and is against the IRS’ rules.

How Do You Pay for Property-Related Expenses?

Any money used for the property, say for upgrades, repairs, maintenance or the like, must come from your retirement fund. It cannot come from you, or from a disqualified person.

Can You Use the Income Generated from Real Estate?

Any income generated by real estate purchased by a retirement fund must go back into the fund itself. You cannot use it directly, as that would be considered an immediate benefit, which is not allowed under IRS rules. You can benefit from it once you begin drawing disbursements from the fund after retirement, but not until then.

These are just a few of the important things you’ll need to know about purchasing real estate using your retirement fund. It is possible, but there are strict rules in place. There are also UBIT rules in place governing issues related to loans obtained to purchase real estate with a retirement fund, and other considerations you’ll need to make.