Investing in Real Estate With a Self-Directed IRA
Many veterans, nurses, and other healthcare professionals have most of their savings in retirement accounts: a TSP, a 401(k) or 403(b) from a former employer, or an IRA. A self-directed IRA is one way to invest part of those savings in private real estate. This guide explains how it works, the rules, and the risks. It's education, not tax or legal advice.
What Is a Self-Directed IRA?
A self-directed IRA (SDIRA) is an IRA held by a custodian that allows alternative investments, such as private real estate offerings, in addition to stocks and funds. The tax treatment is the same as other IRAs (traditional or Roth). The IRA, not you, owns the investment, and all income and expenses flow through the IRA.
Moving Money Into a Self-Directed IRA
From an old employer plan
After leaving a job or retiring from service, you may be able to roll a former employer's 401(k), 403(b), or TSP into a self-directed IRA. A direct (trustee-to-trustee) rollover avoids withholding.
From an existing IRA
A transfer from one IRA custodian to another.
Timing
Custodian account opening and funding can take several weeks; plan ahead of any offering deadline.
Rules to Know Before You Invest
No personal benefit
You and "disqualified persons" (such as your spouse, parents, children, and certain businesses you control) can't personally use or benefit from IRA-owned property.
Prohibited transactions
You can't sell property to, buy from, or lend to your own IRA, and you can't personally guarantee its debts. A prohibited transaction can disqualify the entire IRA.
UBTI and Form 990-T
If your IRA invests in a property or fund that uses debt, part of the income may be "unrelated debt-financed income," which can be taxable inside the IRA and require a Form 990-T. Ask your tax advisor before investing in a leveraged offering.
Annual valuation
Custodians generally require a fair-market value for private investments each year. Ask how year-end values will be provided before you invest.
Accredited status still applies
Our offerings are Rule 506(c) offerings, so you must be an accredited investor and be verified, even when investing through an IRA.
Investing With Omega Through Your IRA
Open an SDIRA
Open and fund a self-directed IRA with a custodian of your choice.
Verification
Complete accredited-investor verification.
Sign in the IRA's name
Subscription documents are signed in the IRA's name, for example "[Custodian] FBO [Your Name] IRA," and the custodian approves and funds the investment.
Distributions
Distributions are paid to your IRA, not to you.
We don't recommend a specific custodian, and custodians don't recommend investments.
Questions to Ask Your Custodian and Tax Advisor
- What are your fees for holding a private investment?
- How long does funding take?
- Will this investment generate UBTI?
- Who files Form 990-T and pays the tax?
- How is the annual valuation done?
- Is a Roth or traditional account better for this investment?
Quick Answers
What is a self-directed IRA?
Can a self-directed IRA owe tax on real estate income?
This page is general education, not tax, legal, or investment advice. Rules for retirement accounts are complex and change; consult your custodian and a qualified tax advisor.
Read: Self-Directed IRA Real Estate for Nurses and Healthcare Professionals →
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