Can I buy real estate in my IRA?

Can I buy real estate in my IRA?

You cannot buy a personal residence in your IRA but you can buy other properties. For most people, it is either not practical or not a good idea. Here a few of those reasons:

  • If the rules are not followed properly and a “prohibited transaction” occurs, the entire IRA can become taxable.
  • Owning a building in a non-retirement account presents some potential tax breaks. For instance, depreciation can reduce current taxes and low capital gain rates can apply upon a sale. Inside an IRA, none of these benefits are available.
  • Rents can cause Unrelated Business Taxable Income (UBTI) which is taxable even though it occurs in the IRA and is taxed at high rates.
  • Traditional mortgages cannot be used to buy real estate in an IRA. If another loan can even be made, it can create UBTI.
  • In addition to the taxes incurred from UBTI, that income will be taxed a second time when it is paid out of the IRA.
  • Only cash can be contributed to an IRA. If you or a disqualified person works on the property, it is considered a contribution and is prohibited.
  • If you or a disqualified person use the property, that’s considered a distribution and is taxable.
  • With borrowing funds difficult and creating UBTI and the cash contributions to an IRA limited to $6,000 or $7,000 depending on age, other cash or liquid assets must be kept in the IRA to meet expenses.
  • Once an IRA owner is subject to Required Minimum Distributions (RMDs), it gets even trickier. RMDs are calculated each year based upon the value of the IRA. Therefore, each year a qualified appraisal is needed.
  • RMDs start at age 72 and the first RMD is 3.91% of the IRA. If the real estate is worth $500,000, that value alone creates $19,531 of a RMD. Any cash or other assets in the IRA add to the required amount. The following year, the RMD is 4.05%. The year after it is 4.20%. Every year, there is a RMD and every year the percentage increases. There must be enough cash or other investments to make the distribution or face a very stiff penalty – 50% of the shortfall.
  • Theoretically, if the IRA didn’t have enough cash to meet the RMD, one could retitle a portion of the property into individual ownership to satisfy the RMD. That means paying costs to retitle and the accounting for the property is now split proportionately between the IRA and the individual. That can get very complex very quickly and become more burdensome with each subsequent RMD.

Owning real estate can help diversify a portfolio but most people will be better off gaining real estate exposure in their IRAs through less direct ownership such as a diversified array of publicly traded Real Estate Investment Trusts. These trade like stocks so valuation is clear and they can be liquidated for cash in any proportion one chooses almost instantly.

Making News…

We frequently produce Q&A columns for Florida Today and MarketWatch, a personal finance website of the Wall Street Journal, as well as pieces for a variety of other media. Below is a sampling from the last three months.

We continue to help the Orlando Sentinel with reader questions by participating in a free call-in hotline and its Ask An Expert feature. Charlie Fitzgerald,CFP®, recommended that a caller seek a qualified attorney to draft estate planning documents and Mike Salmon, CFP® discussed some of the things people should consider prior to retiring in this December 19, 2019 recap.

Charlie was also featured in this CNBC article about how people can make mistakes when markets have been good. He warns against getting overconfident and trying to time short term moves of the financial markets.

Dan Moisand,CFP® continues to write for MarketWatchFlorida Today, and Financial Advisor:

I’m so confused: How do I treat withdrawals from a Roth IRA?

How can I tell if an annuity is a good deal?

How can my account balance be down if my investments are turning a profit?

My stepmother inherited my dad’s IRA but she wants to give it away to her grandchild — is that allowed?

Financial matters: What’s the latest on required minimum distributions?

Are TIPS the answer for inflation protection?

In the News…

Learning Never Stops

Several members of our team attended conferences put on by the FPA of Central Florida and TD Ameritrade during the last week in January. Conference session topics ranged from new technology upgrades to best practices in helping clients through elder care issues.

Charlie, Dan, Derrick Chandler, CF, Mike, Tracy, Tommy Lucas,CFP®, Casandra, and Paula attended one or both gatherings. Team members sat in on a number of sessions ranging from how to utilize upgrades to TDA’s technology to best practices in helping clients through elder care issues.

Teach them young

Earlier this year, we reported that after several years of work by the FPA of Florida, a new elective course on personal finance would be made available in all public high schools in Florida. On the latest visit to Tallahassee by the group, Charlie Fitzgerald,CFP® was pleased to see that a Financial Literacy Strand has been embedded in Florida’s new math curriculum. There are 32 meaningful lessons in personal finance covering a wide variety of important topics such as understanding compounding, how credit card interest adds up, how mortgages work, and calculating net worth.

Things We Found of Note

Average expected daily change in the Dow Jones is now about 174 points. Historically, the average daily change in the Dow Jones has been 0.6%. With the index recently topping 29,000, 0.6% of that equates to 174 points.

Average college tuition and fees for the 2019-2020 academic year: Public, instate – $10,116; Public, out of state – $22,577; Private university – $36,801 (U.S. News & World Report).

43% of people who attended college incurred debt to pay for their education. Total outstanding student loan debt as of Q2 2019 was $1.48 Trillion (Federal Reserve Bank of New York).

Only 10% of the population itemized deductions on their tax return in 2018, down from 30% in 2017 (Tax Foundation).


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Moisand Fitzgerald Tamayo, LLC is an Orlando, Tampa and Melbourne, Florida based fee-only financial planner serving central Florida and clients across the country. Moisand Fitzgerald Tamayo, LLC specializes in providing objective financial planning, retirement planning, and investment management to help clients build, manage, grow, and protect their assets through all phases of one’s life and the many transitions in between. If you have any questions or would like to discuss anything further, please give us a call or send us a note. If you are not a client and wish to receive emails notifying you of new posts – no more than once per month – fill out the subscription information in the sidebar to the right. For more frequent updates, follow us on FacebookLinkedIn, or Twitter.  

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About Dan Moisand

Dan Moisand is a fee-only financial advisor with Moisand Fitzgerald Tamayo, LLC. He is a regular contributor for multiple outlets, including Florida Today, MarketWatch, and The Wall Street Journal. His writing and financial advice have also been featured in Financial Planning, Investment Advisor, Wealth Manager/Advising Boomers, Forbes, Smart Money, and The New York Times, among other publications. He is the only two-time winner of the Journal of Financial Planning’s “Call for Papers” competition and has been named a top financial planner and advisor by multiple publications. Investment News named Dan one of the “twenty most influential men and women” in the history of financial planning. He currently serves on the Board of Directors for the CFP (Certified Financial Planner) Board.


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