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Bob Powell: No doubt you've read about people owning real estate instead of say mutual funds, ETFs, stocks and bonds inside their Ira and you might even wonder if you should do it too. Well, the short answer is no. Financial advisor, Adam Beaty in an article published in Retirement Daily outlines two big reasons why you should never own real estate in an IRA. First thing to know is this. The IRS has set very strict rules regarding self directed IRAs that are incredibly easy to break. A self directed IRA is a special type of IRA where the custodian will allow you to own non traditional investments such as limited partnerships, small businesses and real estate. It's still a traditional IRA but it has some extra rules. What are those rules? First, there's something called the disqualified persons rule. In essence, this rule says you or your family can't benefit from your IRA investment. You cannot, for instance, use your Ira to invest in your brother's business and if you aren't investing in real estate, you cannot rent, sell or give away for free any part of the property to yourself or anyone related. And if you break the rule, penalties start at 15% of the amount involved for each year and then jump to 100% if you don't fix the mistake. Next, there's the disqualified transaction rule. You cannot sell exchange or lease property to a disqualified person, and the list goes on. The penalty, the IRS will treat the complete IRA as disqualified. The entire IRA will be treated as a distribution and normal penalties and tax will be assessed on the distribution. My advice, stick with a traditional IRA. You'll never have to worry about these rules.

The law permits IRA funds to be invested in just about anything except life insurance and collectibles.

That means you can invest the money in your IRA not only in stocks, bonds, and ETFs, but in real estate and businesses as well. The trouble with investing in real estate or a business, however, is that it comes with many rules that are easy to break. Among other things, you've got to worry about the disqualified persons and disqualified transactions rules. Sounds like an IRS penalty waiting to happen, right? What's more, you have to search for a custodian who will let you invest in non-traditional assets like real estate. And that's not easy either.

If, however, you want to invest the money your IRA in real estate and businesses, a good place to start your research and due diligence is with a subscription to our premium newsletter, Retirement Daily, edited by Robert Powell. Every day, Retirement Daily publishes articles that can help you save and invest wisely for and during retirement. So, if you have designs on investing in real estate in your IRA, Retirement Daily will provide you with all you need to know to make a prudent decision.

Get more information and sign up for a free trial subscription to TheStreet's Retirement Daily.

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