It was a case of the wolves guarding the sheep. In the 1970’s when the U.S. congress was trying to develop a program to increase personal savings, the investment industry was asked to help draw up the plans. Out of those meetings emerged the Individual Retirement Account (IRA). As we all know, they allow certain investments to grow and be differed from taxation. Not only that, contributors receive a tax deduction for the regulated amounts contributed. But what most people don’t know is that just about anything can be put into an IRA or 401K.
The rules are spelled out in IRS code section 509. However, during the development of the IRA, the investment industry was able to have part of the specifications say that the custodian of the account (the institution that acts as guardian for the account) can stipulate its own requirements. In other words, if you put your IRA with a bank or stock brokerage, they can limit your types of investments to whatever they-the custodian- define. Could there be a conflict of interest here?
Under section 509 of the IRS code, what you cannot invest in are: Life Insurance Contracts, Collectibles such as: Artwork, Rugs, Antiques, Metals, Gems, Stamps, Coins, Beverages (wine etc.), Stock in an S-Corporation, and other tangible personal property
You may invest in real estate but you must find a custodian who will allow it. Also, you must set up what is called “a self-directed” IRA or 401K. Keep in mind you can have many IRA accounts. You can have one for real estate, another for equities, etc, etc. For more information, go to the internet and search “self-directed IRA”. As in all things dealing with the IRS and SEC, make sure you understand the rules.
There are many benefits to owning real estate in a tax deferred vehicle. You can place into your IRA or 401K assets like: Raw Land, Single Family Home, Multiple-unit dwellings, Apartment Buildings, condominiums, Office buildings, Foreign Real estate, Options on any of the above, Tax Lien Certificates, Mortgages, and Notes. With prices of real estate under pressure, now might be a good time to look at putting some real estate into a tax deferred investment account.
However, make sure you do your homework first.