Can I Buy Rental Property With My Roth IRA?

Yes, you can buy rental property with a Roth IRA, but not through the account you hold at a mainstream brokerage. Real estate purchases require a self-directed Roth IRA held with a custodian that handles alternative assets, and once the property is inside the account, every dollar of rent and every eventual sale dollar flows back to the IRA tax-free — as long as you follow IRS rules that keep you and your family completely separate from the property. The hardest part for most people is getting enough money into the account in the first place. The 2026 contribution limit is just $7,500, or $8,600 if you are 50 or older, so purchases are usually funded by rolling over an existing retirement account or by having the IRA itself borrow through a non-recourse loan.¹

Why a Regular Roth IRA Won’t Work

Standard Roth IRAs at major brokerages limit you to publicly traded investments. To hold real estate, you need to open a self-directed Roth IRA with a custodian that specializes in alternative assets. The custodian does not give investment advice or vet whether a property is a good deal. Their role is administrative: they process paperwork, execute transactions at your written direction, sign documents on behalf of the IRA, and file the required tax reports with the IRS.

That custodial layer is what keeps the IRS from treating the property as a personal holding. The IRA — not you — has to be listed as the legal owner on every document, from the purchase contract to the recorded deed. Without that separation, the purchase would be treated as a distribution from your account, triggering taxes and potential penalties.

Custodian fees come out of the IRA, not your personal funds. Setup fees for a new self-directed account generally run $50 to $300, and annual maintenance fees range from roughly $200 to $2,000 or more depending on the custodian and the value or number of assets held. You will also pay transaction fees for the purchase itself, wire transfers, and any ongoing payments the custodian processes for the property, such as property tax checks.

Getting Enough Money Into the Account

Contribution Limits

For 2026, contributions cap at $7,500 per year, or $8,600 if you are 50 or older.² Your ability to contribute at all also depends on your income. For 2026, single filers with modified adjusted gross income above $168,000 and joint filers above $252,000 cannot contribute to a Roth IRA. The phase-out starts at $153,000 for single filers and $242,000 for joint filers.¹ At those amounts, funding a property purchase through contributions alone takes many years.

Rollovers and Roth Conversions

Most self-directed IRA real estate purchases are funded by rolling money from an existing account — a 401(k) from a former employer, or another IRA — into the self-directed Roth. Roth-to-Roth rollovers are not taxable. But rolling a traditional (pre-tax) 401(k) or traditional IRA into a Roth is a Roth conversion, and the converted amount counts as taxable income in the year of the transfer. If your purchase depends on converting a large traditional balance, plan for that tax bill before you commit.

Non-Recourse Loans

If the IRA doesn’t have enough cash for the full price and closing costs, it can borrow, but only through a non-recourse loan. Federal rules prohibit using IRA assets as collateral for a personal loan, so any financing has to be structured so the lender’s only recourse in a default is the property itself.³ The lender cannot come after your personal assets or any other assets inside the IRA.

Terms are stricter than a conventional mortgage. Lenders typically require 40% to 55% down, and the rental income has to exceed debt payments by roughly 20% to 25%. Rates run higher than standard mortgage rates because the lender carries more risk. Borrowing also triggers a separate tax on part of the rental income, covered further down.

The Rules That Can Destroy the Account

The IRS enforces strict rules to keep you from using IRA-held property for personal benefit. Under Internal Revenue Code Section 4975, any transaction between the IRA and a “disqualified person” is prohibited.³ Disqualified persons include:

You, the account owner
Your spouse
Your lineal family: parents, grandparents, children, grandchildren, and their spouses
Any fiduciary or service provider to the IRA
Entities in which disqualified persons hold 50% or more ownership

None of these people can buy, sell, lease, or exchange property with the IRA. You cannot live in the property, use it as a vacation home, let a family member stay there, or rent it to any disqualified person, even at full market rate. You also cannot perform repairs, renovations, or other labor on the property yourself. Mowing the lawn or painting a wall counts as providing services to the IRA, which is prohibited.⁴

The penalty is severe. If you or a beneficiary engages in a prohibited transaction at any point in the year, the IRA loses its tax-exempt status as of January 1 of that year. The IRS treats the entire fair market value of every asset in the account as distributed to you on that date.⁵ For a Roth IRA, your original contributions come out tax-free because you already paid tax on them, but all earnings become taxable income. If you are under 59½, an additional 10% early distribution penalty applies to the taxable portion.⁶ On a property worth several hundred thousand dollars, the tax bill can be devastating.

How the Purchase Actually Happens

Every document in the transaction must show the IRA as the buyer, not you. The standard format is the custodian’s name followed by “FBO” (for benefit of) and your name, along with your account number. Documents prepared in your personal name will be rejected.

The mechanics look like this:

You submit a Direction of Investment form telling the custodian to use IRA funds for the purchase, specifying the property, price, and closing details.
The custodian reviews the purchase contract, title commitment, and closing statement for compliance. This usually takes several business days.
The custodian signs the closing documents on the IRA’s behalf. You cannot sign as the buyer. Funds wire directly from the IRA to the title company or escrow agent.
The title company records the deed with the county, listing the self-directed Roth IRA as the legal owner.

Build extra time into your closing. Custodians follow their own internal review process, and agents or sellers unfamiliar with self-directed IRAs often need guidance on naming and signing.

Running the Rental

Every dollar has to flow through the IRA. Rent payments go directly into the Roth IRA account, never into your personal bank account. Property taxes, insurance, repairs, homeowner association fees, and property management costs are all paid from IRA funds. You cannot pay for a repair out of pocket and reimburse yourself later, no matter how small the amount. Mixing personal and IRA funds is a prohibited transaction that can disqualify the entire account.⁴

Because you cannot personally manage or maintain the property, you have to hire a third-party property manager to handle tenant screening, rent collection, maintenance, and day-to-day operations. The manager must be unrelated to you and any other disqualified person, and their fees come from the IRA. Keep enough cash inside the account to cover ongoing expenses and vacancies. If the account runs dry and you cover costs personally, you have created a prohibited transaction.

Tax on Rental Income From Borrowed Money

Roth IRA income is normally tax-free, but there is an exception when the IRA borrows to buy the property. The portion of rental income tied to the borrowed funds is subject to Unrelated Debt-Financed Income tax under Internal Revenue Code Sections 511 through 514.⁷

The taxable share is calculated by dividing the average outstanding loan balance by the average adjusted basis of the property during the tax year. If your IRA buys a $300,000 property with a $150,000 non-recourse loan and the adjusted basis is $300,000, roughly 50% of net rental income falls under the tax. As the loan is paid down, the taxable percentage drops, and once the debt is gone, the tax no longer applies.⁸

This income is taxed at trust and estate rates, which are compressed compared with individual rates. The top 37% bracket kicks in at $16,000 of taxable income for 2026, so even modest net rental income from a leveraged property can land in the highest bracket. The IRA itself pays the tax, filed on Form 990-T, and you can deduct a proportionate share of expenses such as depreciation, insurance, and repairs against the debt-financed income before calculating it.

Annual Valuation Reporting

Your custodian reports the fair market value of the IRA’s assets annually to the IRS on Form 5498.⁹ Unlike stocks, real estate does not have a public market price, so you have to supply the valuation information. Custodians generally rely on independent appraisals every two to three years, with interim valuations based on comparable sales. Failing to establish a reasonable fair market value can create compliance problems, especially when you eventually take a distribution or if the IRS questions the account’s reported value.

Getting the Property Back Out

Selling Inside the IRA

Selling follows the same custodial process as buying. You find a buyer, but the custodian signs all sale documents on the IRA’s behalf. You submit a sell direction letter with the purchase contract, deed, and closing statement, and the proceeds are deposited straight back into the Roth IRA, where they continue to grow tax-free. Because the IRA is the seller, there is no capital gains tax on the sale.

Taking the Property as an In-Kind Distribution

Instead of selling, you can distribute the property itself out of the Roth IRA. The fair market value on the distribution date sets the value of the distribution. Whether it comes out tax-free depends on the Roth distribution rules: the account has to have been open at least five tax years, and you have to be at least 59½ (or meet another qualifying event such as disability or death). If those conditions aren’t met, the portion tied to earnings is taxable as ordinary income and may be subject to the 10% early distribution penalty if you are under 59½.¹⁰ Once the property is out of the IRA, you own it personally and can live in it, rent it, or sell it, but future income and gains are taxed under normal rules.

1
Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
2
Internal Revenue Service. Retirement Topics – IRA Contribution Limits
3
Office of the Law Revision Counsel. 26 USC 4975 – Tax on Prohibited Transactions
4
Internal Revenue Service. Retirement Topics – Prohibited Transactions
5
Office of the Law Revision Counsel. 26 USC 408 – Individual Retirement Accounts
6
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
7
Office of the Law Revision Counsel. 26 USC 514 – Unrelated Debt-Financed Income
8
Internal Revenue Service. Publication 598 – Tax on Unrelated Business Income of Exempt Organizations
9
Internal Revenue Service. Form 5498 – IRA Contribution Information
10
Internal Revenue Service. Publication 590-B – Distributions from Individual Retirement Arrangements (IRAs)