September 12, 2022

Self-Directed IRAs are one of my favorite investment vehicles! They give you the tax benefits of a retirement account while maintaining the freedom of other types of investments. You can invest in real estate, businesses, livestock, crypto, and a multitude of other assets within the confines of a retirement account.

I went over what a self-directed IRA is in a podcast episode a while back: https://open.spotify.com/episode/2lri0K8wDbfxqJwRQsXcLE?si=1a3a1b8e1ea9467a

Despite all the benefits, SDIRAs aren’t for everyone. There’s a handful of restrictions that make them imperfect and may not be right for you.

For example, there are a lot of restrictions on real estate and the way you can transact within the IRA. You’re required to have a property manager, and there’s certain scenarios in which you’ll have to pay an extra UBIT tax (Unrelated Business Income Tax).

Another restriction is that your IRA is a separate taxpayer, which means you can’t offset real estate income from outside the IRA with real estate losses within the IRA (or vice versa).

For these reasons, I don’t recommend a SDIRA for inexperienced real estate investors. However, if you’re a more seasoned real estate investor, then properly using an SDIRA can allow you to build wealth without triggering a taxable event.

At the end of the day, the self-directed IRA is a tool, and can be used correctly or poorly. By understanding the features and restrictions of this investing vehicle, you can make sure you’re getting the absolute most out of your investments.

To dig deeper into the self-directed IRA and its restrictions, check out my recent podcast episode: