Real Estate IRA’s
We have a client (age 57) who has over $ 500,000.00 in a Fidelity IRA. He called wanting to move the entire portfolio to an IRA that will let him purchase real estate. It almost sounds like this client assumes he would have complete control of any transactions and usage of said property. Can anyone with any knowledge please fill me in on this?
Permalink Submitted by Alan - IRA critic on Fri, 2015-08-14 20:00
He would have to transfer the IRA to a self directed IRA custodian. He could then use some of the money to purchase investment real estate. The IRA would have to maintain enough cash to pay all costs of the real estate including property taxes, repair bills, owner paid utility bills, insurance premiums, and associated legal costs (eg eviction fees) from that same IRA. None of his other money could be used for these expenses. There are many pitfalls called prohibited transactions which would cause a taxable distribution of the IRA. For example, there can be no personal use of the property including use by relatives. Client might get some helpful material from the SD IRA Custodian on avoiding prohibited transactions. The IRS is watching self directed IRA activity closely now, and his custodian will have to complete a Form 5498 reporting to the IRS that the IRA holds real estate. He should not commit until he fully understands all the pitfalls of holding rental real estate in an IRA.
Permalink Submitted by Richard Ernst on Fri, 2015-08-14 21:06
Thank you Alan