How to Use Your Roth IRA or SEP IRA for Real Estate Investment

Self-directed SEP and Roth IRAs can hold real estate.

Self-directed SEP and Roth IRAs can hold real estate.

The process of turning a Roth IRA, a SEP IRA or a traditional IRA into a vehicle for real estate investment is the same. Unless you're happy buying shares in real estate investment trusts as a part of your IRA's stock portfolio, you need to set up a self-directed account. Self-directed accounts give you more latitude to choose the investments in your IRA, letting you buy assets like precious metals, business interests and real estate, but they carry additional fees and complexities.

Open a self-directed IRA account with a custodian that allows you to invest in real estate. Typically, you have to complete paperwork and pay account setup fees.

Fund the account by rolling over money from your IRA account. The method of rolling over funds varies depending on your SEP or Roth IRA custodian, but the IRS rules are the same. Once you withdraw the money from your existing IRA, you have to put it into a new IRA within 60 days or you'll be liable for any taxes that would be due on the withdrawal.

Find a real estate investment that meets your goals. Since it can be hard to get debt on properties in an IRA, consider buying properties that can be purchased on an all-cash basis. This will also save you from having to pay unrelated debt-financed income tax. It's also wise to buy a property that doesn't use up all of your IRA funds, since any money that you spend on the property will have to come out of the IRA.

Name your IRA custodian as the purchaser of the property when you put it under contract. The custodian will provide the deposit money out of your IRA funds.

Close the transaction by directing your IRA custodian to release funds to actually buy it. The custodian will send a wire or a check, and your IRA account will end up owning the property. You can now manage it as you would any investment real estate property, with the caveat that all of its expenses and benefits must flow from and to your IRA account. You can't put anything into the property and you can't get anything out of the property.


  • If you intend to take out debt as a part of your investment strategy, converting your SEP IRA to a Solo 401(k) plan may be advantageous, since Solo plans aren't subject to the unrelated debt financed income tax.

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About the Author

Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.

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