Every week, I hear the same thing from business owners and investors: “I was told I can’t buy real estate with my IRA.” That’s not true. What they were really told is that their broker can’t help them do it. There’s a big difference.
The IRS has always allowed retirement accounts to own real estate. The limitation isn’t the tax code. It’s Wall Street. Let’s walk through how it actually works, why people do it, and the rules you must follow to avoid taxes and penalties.
Yes, Your Retirement Account Can Own Real Estate
Your IRA, Roth IRA, 401(k), or HSA is not limited to stocks, bonds, ETFs, or mutual funds. Those restrictions come from brokerage firms, not the IRS. Brokerages make money selling Wall Street products. They don’t make commissions when you buy a rental property, so they simply don’t offer the option.
Self-directing your retirement account changes that. You’re not breaking rules or using loopholes. You’re choosing investments that your current custodian doesn’t support. When someone says you can’t do this, what they really mean is they can’t help you do it.
Why Investors Put Real Estate Inside Retirement Accounts
The motivation is simple: higher returns and control. Many investors don’t want to cap their retirement growth at single-digit returns if they already understand real estate. Long-term rentals, short-term rentals, commercial property, raw land, even development deals often produce stronger returns when done correctly.
If you already invest in real estate personally, it often makes sense to let your retirement account invest the same way. That doesn’t mean abandoning Wall Street entirely. It means balance. Real wealth comes from diversification, not putting everything into one bucket.
Decide What Type of Real Estate You Want First
Before moving any money, be intentional. Self-directing gives you freedom, but freedom without a plan is a mistake. Decide what type of real estate you actually understand. Long-term rentals. Short-term rentals. Commercial. Storage units. Farmland. Raw land.
There is no “best” asset for a retirement account. The best investment is the one you understand well enough to manage properly.
Put Your Plan Into Action
Step One: Open a Self-Directed Retirement Account
To buy real estate, your retirement funds must be held with a self-directed custodian or trust company. Traditional brokerages won’t work. A self-directed account allows you to choose alternative investments like real estate. This is not a taxable event. You are not cashing out your IRA or 401(k). You’re transferring the account to a custodian that allows more investment options. No penalties. No taxes. Just more control.
Step Two: Fund the Account
The transfer is account-type specific. IRA to IRA. Roth to Roth. 401(k) to 401(k) or IRA, depending on eligibility. The money moves via a direct transfer, not through your personal bank account. Note that timing varies. Some transfers take days, others take weeks. Once the funds arrive, you’re ready for the next step.
Step Three: Form a Retirement-Owned LLC
This is where flexibility comes in. Your retirement account forms a special-purpose LLC. The retirement account owns the LLC. You serve as the manager. This structure allows faster transactions, cleaner asset separation, and easier management. The LLC buys the property, collects rent, pays expenses, and holds reserves. You manage the process but you do not personally benefit.
You cannot pay yourself. You cannot contribute sweat equity. This is not your rental property. It’s your retirement account’s investment.
Step Four: Fund the LLC and Buy Property
Once the LLC is formed, the retirement account funds it. The LLC opens its own bank account. From there, it operates like any real estate buyer. Offers, due diligence, closing, management. You must plan conservatively. Your retirement account must have enough cash for the purchase, reserves, repairs, furnishing, and ongoing expenses. You cannot personally inject money later. The deal needs to stand on its own.
Understand Prohibited Transactions Before You Start
This is where people get nervous, but the rules are straightforward. You, your spouse, your parents, your children, and their spouses are prohibited parties. You cannot personally use the property. You cannot manage it for pay. You cannot act as the realtor. Neither can your spouse.
The IRS is simply preventing self-dealing. Hire third parties, use property managers, pay market rates, keep it at arm’s length– all things you can do to prevent a prohibited transaction. When you follow the rules, there’s no issue.
Ongoing Maintenance and Long-Term Flexibility
The LLC must be maintained. The retirement account must be reported properly. If the property produces cash flow, the money can stay in the LLC for future investments or be sent back to the retirement account. When you sell, proceeds go back into the retirement account tax-deferred or tax-free, depending on the account type.
Over time, your retirement portfolio becomes balanced. Real estate. Stocks. Bonds. Crypto, if you choose. That flexibility is the real power of self-directing.
The Bottom Line
This strategy has the power to completely change the trajectory of your retirement. When your retirement dollars are invested in assets you actually understand and can grow intentionally, the long-term impact is dramatic. If you want someone to walk you through this strategy, book a free call with my team at KKOS Lawyers and they can help you structure it correctly from the start. Or if you’re ready to run this strategy immediately, you can open a self-directed account at Directed IRA and start moving money today.
The sooner your retirement funds are working outside the limits of Wall Street, the more time they have to compound into something far bigger than most people ever realize.
