You Can’t Benefit from the Property

If you buy property from your IRA, all proceeds have to go back into your IRA.
If you buy property from your IRA, all proceeds have to go back into your IRA.

You can’t personally benefit from the subject property right now, that is.

In other words, you can’t buy office space, a vacation home, or even your own home with money from your IRA.

Buying property that you’re going to benefit from in any way other than the proceeds going back into your IRA account is not allowed.

 

The Investment Can’t Be In Your Name

I don’t care what kind of real estate purchase you have through your IRA; the IRA owns the investment.

You don’t.

So whether you’re investing in a private mortgage, or you’re buying a rental property out of your IRA, it needs to be titled in the name of your IRA.

You and your IRA are two different entities.

 

Moving to an SDIRA

OK, so now that you know you need an SDIRA, let’s talk about the steps required to moving your account to an SDIRA, if it’s not already with one.

But before I get into the process of moving over to an SDIRA, I wanted to touch on the difference between a custodian, administrator, or facilitator, when it comes to overlooking your IRA.

As you research SDIRA’s, you’ll hear these titles used, and it’s easy to think that they’re all the same.

Custodians will help you with the paperwork necessary to make and document your investments.  (Image: tldagny/Flickr)
Custodians will help you with the paperwork necessary to make and document your investments. (Image: tldagny/Flickr)

But trust me, they’re not. And it’s important to understand the differences between the three.

 

Differences Between Custodians, Administrators, Facilitators

Custodians, administrators, and facilitators; the three names are thrown-around often in the realm of SDIRA’s.

But as I said above, they’re not the same.

So let’s quickly talk about the differences between them.

 

Custodians

As you research moving your current IRA or 401(k) to a SDIRA, you might hear the term “trust company” used here-and-there when they’re talking about custodians.

That’s because under the tax code, some retirement accounts are treated like trusts.

See, the custodian’s job is to handle your money, but that’s not all.

They’re also tasked with taking care of the paperwork that’s required to create and maintain your account.

On top of that, they’ll also make sure that whatever you’re trying to do with your IRA money isn’t prohibited by law.

With that said, the downside to working with a custodian, is that they don’t give you any advice on what to invest in.

So let’s say you don’t care about them giving you advice. You still need to make sure that they’re authorized to do what you need for them to do.

So just for your information, you should know that in order for them to operate, they have to be:irs102way

  • Owned or affiliated with a trust company or a bank or
  • Regulated and approved by the IRS directly

In my opinion, even though custodians serve a good purpose, there are still some things to watch out for when it comes to working with them:

  • They’re not all the same. Even though they’re “supposed” to double-check your strategy for investing, and make sure your plans aren’t prohibited, they don’t always do it.  So before you pick a custodian, you might want to find out if giving advice is something they do or not.
  • The account maintenance and transaction fees you have to deal with can make working with them expensive over time.
  • They can take a long time to respond when you’re trying to get money moved for a particular investment.

Next: Explanation on What SDIRA Administrators and Facilitators Do, and More…