Individual Retirement Accounts (IRAs) are commonly known as long-term savings tools, but real estate investors can leverage them in ways that go beyond traditional stock and bond investments. By strategically utilizing IRAs—especially Roth IRAs—you can grow your real estate portfolio and engage in lending activities while minimizing tax burdens.
IRA Basics: How They Work and Who Is Eligible
Roth IRAs function similarly to 401(k) accounts but with notable differences. In a 401(k), contributions reduce your taxable income now through tax deductions. However, you pay taxes on gains during retirement withdrawals. Roth IRAs operate differently by taxing contributions upfront instead of later. Growth and future withdrawals from Roth IRAs remain completely tax-free. This tax-free structure makes Roth IRAs ideal for long-term wealth building.
Roth IRA eligibility depends on your income, and the thresholds are rising in 2025. The phase-out range for Roth IRA contributions for single and head-of-household taxpayers in 2025 will allow full contributions for incomes less than $150,000. Partial contributions will be allowed for incomes from $150,000 to less than $165,000, up from $146,000 to less than $161,000 in 2024. This increase means more people can qualify for Roth IRA benefits. If your income is within or below this range, you can take advantage of tax-free growth and withdrawals, a significant advantage for long-term financial planning.
Using IRAs for Real Estate Investments and Lending
IRAs, particularly Roth IRAs, are powerful tools for real estate investing. While rental income can be inefficient from a tax perspective, using your IRA for real estate investments can reduce or eliminate these tax burdens. A strategic approach is to originate loans from your IRA. Any interest earned accrues tax-free, making lending a highly attractive option with risk-adjusted returns.
However, building enough funds in your IRA to make significant real estate investments or loans can be challenging due to annual contribution limits. The key is to consistently max out your contributions and explore creative ways to grow your IRA balance. Once you’ve accumulated sufficient funds, a Checkbook Control IRA offers even greater flexibility. In this setup, your IRA owns an LLC, and you act as the manager, allowing you to make real estate investments, like buying or wholesaling properties, directly from the LLC without needing custodian approval for each transaction.
For example, you could wholesale real estate through this structure, earning fees that go back into your IRA and grow tax-free. Over time, this strategy can help you build a substantial balance, enabling larger real estate investments or the ability to offer private loans, all while keeping the earnings tax-free within your IRA.
Contribution Caps and Income Restrictions
While promising, using an IRA for real estate investments comes with limitations. As of 2024, the annual contribution cap is $7,000 for those under 50 and $8,000 for those 50 and older, thanks to a $1,000 catch-up contribution.These limits cap the amount you can invest in your IRA each year. High earners may face extra restrictions on Roth IRA contributions. Consistently maxing out contributions allows real estate investors to grow their IRA balances steadily. This strategy builds a strong foundation for substantial, tax-advantaged wealth accumulation.
A Unique Tool for Real Estate Professionals
When used thoughtfully, IRAs—especially Roth IRAs—can be transformative for real estate investors. By leveraging tax-advantaged growth, lending, and wholesaling strategies, you can accelerate your retirement savings while diversifying income streams. IRAs provide long-term investors with unique opportunities to grow their real estate portfolios. Strategic tax planning helps maximize investment returns.
