Illustration by Ingo Fast
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Live Off the Land
By Lynn O’Shaughnessy, March-April 2004
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Looking for new IRA options? A growing number of investors are sinking IRA
money into real estate. Section 408 of the Internal Revenue Code lets you use
IRA funds to buy a home, a building, land—just about any property
that's out there. Here's how:
Bypass the Bank
First you create a "self-directed IRA" with an IRA custodian that
handles real estate. Roughly two dozen institutions in the U.S. can do this,
says Patrick Rice, author of IRA Wealth: Revolutionary IRA Strategies for Real
Estate Investment. Rice suggests three firms: PENSCO Trust Co. in San Francisco
(800-969-4472), Sterling Trust Co.
in Waco, Texas (800-955-3434), and Lincoln Trust in Denver (800-825-2501).
Go Pro
You'll want an accountant to investigate tax issues and the
property's viability. Also, work with a real estate broker who's
experienced in investment real estate.
Stick to Business
If you plan to buy a vacation home, forget it. One of the many mind-numbing
rules about self-directed IRAs is that you can't buy property for personal
use.
Take It Easy
Most investors want property that'll bring in cash but won't demand
much time. A good example: parking lots. They're low- maintenance and
provide steady income when leased to a parking firm, Rice says.
Keep Some Cash
Don't invest all the IRA in property—you may need some liquidity
to cover taxes, expenses, and minimum IRA withdrawals at age 70 (if the account
is dry, the IRS can penalize you).
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