How to Convert Roth IRAs Into Real Estate

The ups and downs of the stock market might make your stomach a bit queasy, encouraging you to delve into a more nontraditional IRA investment for your retirement funds. A self-directed IRA will allow you to purchase investments such as real estate with retirement funds. To fund a self-directed IRA to the point that you can purchase properties, you can transfer money from an existing IRA account to a self-directed account by completing a transfer, or rollover, of funds.

Step 1

Find an IRA trustee who will handle self-directed IRA accounts. Many IRA trustees, like mutual fund companies or stock brokers, will only handle IRA investments that they sell. You need an IRA trustee who will manage nontraditional IRA investments, including real estate. Set up an IRA with such a trustee to receive funds from your existing Roth IRA.

Step 2

Initiate a trustee-to-trustee transfer from your existing Roth IRA to the self-directed IRA that you established. The trustee for the self-directed IRA can request this transfer of funds, and the trustee for the existing Roth account will send a check directly to the self-directed trustee. Or you can request a distribution of the entire balance of your Roth account, then deposit the distribution into the self-directed IRA within 60 days to have it qualify as a tax-free rollover.

Step 3

Locate real estate that you wish to purchase and tell your self-directed IRA trustee to make these purchases for you using IRA funds. If you have sufficient cash available in the account to purchase the property, the trustee will make the purchase using available funds. If you wish, you can apply leverage by making a down payment on the property, and having your IRA account secure a mortgage for the remaining balance of the purchase price.

Tip

  • Some trustees will handle the purchase of the real estate, as well as the management of the properties.

Warning

  • Be certain that all money coming in from your properties is kept within the IRA. If it is not, it is considered a distribution, and you could owe taxes and penalties on the amount.

About the Author

Craig Woodman began writing professionally in 2007. Woodman's articles have been published in "Professional Distributor" magazine and in various online publications. He has written extensively on automotive issues, business, personal finance and recreational vehicles. Woodman is pursuing a Bachelor of Science in finance through online education.

Zacks Investment Research

is an A+ Rated BBB

Accredited Business.