Self-Directed Retirement Accounts- An Introduction

The real estate and finance professionals at Hard Money Bankers and HMB Cribs are dedicated to not only providing insight into the current industry climate and opportunities, but also to educating our readers on important real estate investing techniques, and strategies.  We recently conducted a survey in which we collected information (and gave away an iPad 2) on how our readers use their IRAs to invest.  Specifically we were interested in information about self directed IRAs and real estate.  Based on the responses we received, it became clear to us that many of our readers are unclear to exactly what self directed IRAs are, how they differ from “regular” IRAs, and how they can be used to dramatically boost IRA earnings.

You’re probably familiar with the companies that offer “regular” IRAs; they are banks, brokerages, and other financial institutions that you see every day.  Self directed IRA companies may be lesser known to you but by doing some research on the fees, locations, and ease of access, you’ll find one that is a good fit for you.

Listed below are some major differences between a “regular” IRA and a self directed IRA (SDIRA).

Regular IRAs:

– Usually confined to investing in products that the bank or financial institution offers

– Investment decisions are usually made with the help of a custodian who is in charge of the IRA

– Limitations may exist when investments don’t benefit the custodian or financial institution

Self Directed IRAs:

– Can invest in a nearly limitless array of investment options

– The individual makes all decisions on what he or she would like to invest in

– Not constrained to bank or financial institution’s products

One investment option that makes up a large segment of SDIRAs is real estate.  There are many ways to invest in real estate with your SDIRA including buying rental properties, commercial buildings, industrial properties, land, farms, notes and tax liens.

Investors often choose SDIRAs for their real estate investments not only for the tax benefits, but also being able to invest in real estate can greatly boost IRA growth.  With the current condition of the real estate market, investing in real estate now can pay large dividends to your retirement saving’s bottom line when purchased through a SDIRA. For example, a distressed property can be purchased at a discount, fixed up and rented out.  The rental income that comes back in can be reinvested into the SDIRA tax deferred.

Another way that investors simplify the process of using a SDIRA for real estate is to create a self directed IRA LLC.  Also known as a checkbook SDIRA, having the SDIRA invest in an LLC can reduce the fees, paperwork, and time costs associated with SDIRAs.

The benefits of using a SDIRA for real estate are many and there is a world of information on the best strategies to use.  We hope this article was helpful in determining how to strategize your next investment.


Note** This article was written for informational purposes only.  It is not meant to be taken as financial advice.  Please consult a financial expert before making any decisions.


  • Dennis Cody

    Is there a tax benefit in the transfer of owned income property to an SDRA aside from the tax defered net profit from the property

  • Ben

    Thanks for the question Dennis. But to be honest I’m not really sure. There may even be tax implications for you personally if your IRA bought a property you own…especially if there is some capital gain. But that’s a question you’ll definitely want to run by your CPA.

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