Hot Off the Press: Hold Multifamily In Your IRA

Many people don’t know that their tax-sheltered retirement accounts are allowed to invest in multifamily real estate deals, but they can.  The IRS allows Traditional and Roth IRAs, HSAs, and SEP and SIMPLE IRAs to invest in all kinds of “alternative” assets, like real estate, while keeping the account’s tax advantages. Here is what you need to know to have your IRA, or other retirement account, grow by investing in real estate instead of (0r in tandem with) Wall Street stocks and mutual funds.

  • All IRAs must have a custodian.  However, not all IRA custodians offer accounts which can invest in alternative assets like real estate.  Banks and brokerages, which commonly serve as custodians for IRAs, usually do not handle these alternatives.  It is a business decision on their part.  The IRS does not say to all custodians, “If you are going to be a custodian, you have to service all allowable investments.”  Fortunately, there are custodians that do offer IRAs that can invest in alternative assets.  These custodians provide accounts that are often called “self-directed” IRAs, but to be precise, you would be looking for a self-directed IRA custodian that handles real estate investment.
  • IRS rules expressly prohibit only two investment categories for IRAs: collectibles and life insurance.  It has been allowable for IRAs to invest in real estate since the mid-1970s when IRAs were created.
  • If you already have an IRA at a bank or brokerage house or if you a 401(k), or other employer retirement plan, at an employer for whom you no longer work, you can move, without tax or penalty, these funds to a self-directed IRA custodian that handles alternative investments.

The process usually looks like this:

  • Open your new self-directed IRA (with a custodian that handles real estate)
  • Perform a transfer or rollover from your existing account(s). (You can also make contributions.)
  • Choose your multifamily investment and work with your IRA custodian to fund and document the investment using your IRA funds.
  • Investment returns come right back into your IRA and are ready to be reinvested, distributed, etc.

Remember the characteristics of the account itself (i.e. Traditional, Roth, etc.) do not change with a self-directed IRA that invests in multifamily real estate deals.  The contribution rules, distribution rules, and the tax advantages all stay the same.  The thing that is different is the investment that the IRA is making.  Instead of the IRA growing from a mutual fund going up in value, it grows from the returns on a multifamily investment.

With a self-directed IRA, the account holder performs due diligence and chooses the investments. Neither the IRS, nor your IRA custodian make the decisions.  It is an excellent idea to consult your financial team (CPA, CFP, attorney, family, etc.) and real estate team when you are considering an investment, but, ultimately, the account holder is the decision maker.

Keep in mind that one of the powerful aspects of IRAs (and HSAs) is the tax deferred status of investment profits.  When an IRA investment produces earnings, those earnings come back into the IRA without the amount being reduced by the taxes you would pay if the investment was made with your personal (non-tax advantaged) funds.  The effect of this is that the funds in the account can compound faster in the IRA than the same investment strategy could outside the IRA.

Investing your IRA in your preferred multifamily investing strategy is allowed by the IRS, it’s easy, and it can be very profitable!


Clay Malcolm is an custodian rollover specialist, who helps investors roll their retirement accounts into self-directed accounts to take better control of their returns, at Advanta IRA. For more information on self-directed IRA investing, contact Clay Malcolm at 470-695-0620 or  Or get started by opening your self-directed IRA today:

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