One of our Wealth School participants told me that she had some money in her IRA that she would like to use for her real estate investing so that she could use some of the cash flow now. 

In his article "Self-Directed IRA Investing: Invest to Protect Your Retirement" , IFAZ blogger points out that self directing your IRA funds can make a lot of sense given the current market conditions.  After all, many have watched their IRAs lose 50% or more of their value. 

Many years ago I made the decesion to never again have any of my money in the stock market.  It seemed that every decision I made in terms of investing in stocks was a wrong move.  I decided to keep my money in a vehicle that I could at least somewhat control instead of being totally at the mercy of some publically traded company and the whims of the market. 

I took that money, bought real estate, and then sold the property on terms.  This is giving me a huge return on my money because I nearly doubled the price of the real estate I sold, plus I’m charging 10% interest.  I haven’t actually calculted the return I’m getting, but I can tell you that it doesn’t take that much of a starting investment over 20 or 30 years of that type of investment to have a mult-million dollar IRA account at the end of that 20 ro 30 years. 

So, going back to quesitons my student had about her IRA.  Sorry, but takin cash flow out of your own IRA is a no-no.  That is definitely a prohibited transaction, and the IRS can revoke the tax benefits of that account (ouch!). 

Buying rental property in an IRA is not a good financial move.  For example, you can’t take depreciation on a property you own in the IRA.  There are other down sides, but let’s just leave it at that.  My recommendation is to buy some real estate in the IRA that you will finance out (i.e., the IRA will get the note and mortgage), or simply lend out the money as if you were a hard money lender.