Retirement vehicles such as individual retirement accounts come with an common understanding regarding how they can be used. This understanding can sometimes be incorrect as it is with IRAs.



If I have an individual retirement account, I have to invest in the stock market. Everyone know this is the way it works, right? Well, the literature and commercials spewed out by investment firms might suggest as much, but it is not true.





investing in the stock or bond market with your IRA is an in the box strategy. You can make a decent return, but is that really what you want? I doubt it. Leveraging your IRA account to buy homes and condos has much more potential.



Every time I read about a new wealth building strategy, I do so with a healthy bit of skepticism. If it sounds to good to be true, it often is. This strategy, however, does not push any limits or validate itself because of a loophole. It is basic IRA planning.



Truth be told, you have the right to invest your retirement dollars in many more investment areas then you are led to believe. So, why havent you been told this? Well, most stock investment brokers dont make money in real estate, so why would they promote it?



To buy a home with your IRA, we need to back up a few steps. You cannot open an IRA at your stock broker. Instead, you must open a self-directed IRA. IRAs held by investment firms restrict you to stock marketing investing since that is where they make their money.



Regardless, a self-directed individual retirement account works a bit different than the ones most people use. The account has a custodian who acts much like a trustee for a trust. The custodian can be a bank or other advisor and the fees are low.



After setting up your account, you can invest in property. That being said, there are some minor limitations put forth in the tax regulations by the IRS. You cannot buy, for instance, your own home, which would be self dealing.



You cannot buy property from yourself or family members. That is it. Doing so would be considered self-dealing, which is a no-no in the tax world. The prohibition applies even if you buy the property at fair market value.



The actual fundamentals of the buying process are a bit convoluted. You do not actually purchase property. The custodian of the IRA will do the purchasing. The IRA then reaps the gains in rents or appreciation.



To really maximize the strategy, many people will look to a different type of individual retirement account. You guessed it. The Roth. The strategy works the same, but the benefits are better. All distributions for the Roth are tax free, so you can set yourself up for retirement.



You probably have a number of questions regarding this strategy. This article is admittedly a simplification of the strategy. To find out more and take advantage of it, speak with an advisor experienced in the field.