While traditional investors often view real estate as merely another asset class, forward-thinking individuals are increasingly utilizing qualified retirement accounts like IRAs to secure real estate investments that offer both long-term appreciation potential and consistent income generation.
Before diving into the Maryland real estate market through your IRA, it’s critical to thoroughly understand the tax implications, regulatory requirements, and specific guidelines that govern these retirement account investments.
Let’s explore some actionable strategies for purchasing real estate with your IRA in Maryland MD!
Tips on Buying Real Estate With Your IRA in Maryland
If you haven’t yet established a self-directed IRA, your initial step should be consulting with a qualified financial advisor to identify a reputable, cost-effective self-directed IRA custodian. Alternatively, reach out to our team and we’ll happily recommend several trusted self-directed IRA providers with whom we’ve successfully collaborated in the past.
Open a Self-Directed IRA
The foundation for acquiring investment properties in Maryland through your retirement account is establishing a properly structured “self-directed” IRA. This requires partnering with a qualified financial advisor or fiduciary who will act as your IRA custodian. Fee-only advisors typically provide more objective guidance for this process, while commission-based professionals might be hesitant to recommend physical asset investments since they generally earn minimal commissions on these transactions.
Types of Properties You Can Buy With Your IRA and Rules
Your self-directed IRA can accommodate various property categories including residential buildings, commercial spaces, industrial facilities, and undeveloped land. Experienced investors often focus on low-maintenance, high-yield assets like parking facilities, storage complexes, and similar properties that deliver steady income with minimal operational demands.
Critical limitation: Properties held within your IRA cannot serve as personal residences or vacation homes. You’re strictly prohibited from staying overnight in these properties. This restriction cannot be circumvented by creating rental arrangements with your IRA, and you cannot rent to immediate family members (including spouse, children, grandchildren, parents, or grandparents), nor purchase property from close relatives. However, rental arrangements with siblings, cousins, or friends are acceptable. Many investors adopt a strategy of generating rental income from IRA-owned properties until retirement, then taking distribution of the property for personal use during retirement years.
How Does Income Work With Real Estate In An IRA?
All revenue generated by properties owned within your IRA must remain in the account until you reach retirement age—it cannot be utilized for “personal current benefit.” When the property is sold, all proceeds must stay within your IRA. Furthermore, all property-related expenses—including taxes, insurance premiums, improvements, and maintenance costs—must be paid directly from the IRA itself. Violating these regulations could result in disqualification of your IRA, potentially subjecting the entire property value to income taxes plus a 10% early distribution penalty.
It’s important to note that all standard IRA (or Roth IRA) regulations—covering taxation, required minimum distributions, beneficiary designations, and other administrative aspects—remain applicable when utilizing a self-directed IRA for real estate investments. While incorporating real estate into your retirement portfolio can provide substantial benefits, thoroughly understanding all implications is essential before proceeding with this investment approach.