You can buy real estate with a Roth IRA, but only through a self-directed Roth IRA held by a custodian that handles alternative assets. The IRA, not you, owns the property. Rent flows into the account, expenses come out of it, and if you follow the rules, every dollar of appreciation and rental income eventually comes out tax-free. The rules are unforgiving, though, and a single misstep can disqualify the entire account.
Start With a Self-Directed Roth IRA
Standard brokerages like Fidelity and Vanguard don’t hold deeds or process rent checks. To buy property, you need a self-directed Roth IRA at a custodian built for alternative assets. The custodian holds legal title to the property on behalf of your IRA, signs closing documents, wires funds, stores the recorded deed, and reviews each transaction for compliance before it happens.
You direct the deals; the custodian executes them. Setup fees for self-directed custodians typically run $200 to $500, with annual maintenance charged by account value or number of assets held. Those fees are paid from the IRA, not your personal account.
Funding the Account
The 2026 contribution limit for all your traditional and Roth IRAs combined is $7,500, or $8,600 if you’re 50 or older.1Internal Revenue Service. Retirement Topics – IRA Contribution Limits Contributions alone won’t buy a property in any reasonable time frame. Rollovers are how most people fund these purchases.
You can roll a 401(k), 403(b), or traditional IRA into a self-directed Roth IRA, and the rollover doesn’t count against your annual limit.2Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions Converting pre-tax money to Roth is a taxable event: the full converted amount is ordinary income for that year. Investors moving large balances often spread the conversion across several tax years to soften the hit.
Direct Roth contributions phase out at higher incomes. For 2026, the phase-out runs from $153,000 to $168,000 in modified adjusted gross income for single filers and $242,000 to $252,000 for married couples filing jointly.3Internal Revenue Service. 2026 Amounts Relating to Retirement Plans and IRAs Rollovers and conversions are not subject to these income limits.
How the Purchase Actually Happens
Title Everything to the IRA
The purchase contract, deed, title insurance, liability policy, and any service contracts must name the IRA as the buyer, not you. The standard format is “[Custodian Name] FBO [Your Name] Roth IRA” (FBO stands for “for the benefit of”). If your personal name appears as buyer anywhere on the closing documents, the IRS can treat the whole thing as a personal purchase rather than an IRA investment.
Submit a Direction of Investment
Your custodian provides a Direction of Investment form authorizing them to move IRA funds toward the deal. You’ll supply the property’s legal address, the purchase price, the earnest money amount, the anticipated closing date, seller information, and the title company’s contact details. The custodian uses this form to run its compliance review before releasing any money.
Closing
Once the custodian clears the compliance review (no disqualified persons involved, titling correct, funds sufficient for the purchase price plus closing costs), they sign the closing documents as the IRA’s representative and wire funds directly from the Roth IRA to the title company. You don’t sign the deed yourself, even though you directed the deal. After recording, the custodian receives and stores the original deed, and your account statement shifts from cash to real property.
The Rules That Will Blow Up Your Account
Federal law under 26 U.S.C. § 4975 restricts who can transact with an IRA and how the account owner can interact with its assets. A violation isn’t a fine on the bad transaction. For IRAs, the entire account loses its tax-exempt status as of January 1 of the year the violation occurred, and the full fair market value is treated as distributed on that date.4Office of the Law Revision Counsel. 26 U.S. Code 408 – Individual Retirement Accounts
Disqualified Persons
Certain family members and related parties cannot transact with your IRA in any way. The list includes you, your spouse, your parents and grandparents, your children and grandchildren, and the spouses of your lineal descendants.5Office of the Law Revision Counsel. 26 USC 4975 Tax on Prohibited Transactions Buying a rental from your father, leasing IRA-owned property to your daughter, or paying your son to manage the building are all prohibited. Siblings are not on the list, but the IRS scrutinizes deals that look like an indirect benefit to the account holder.
No Personal Use, No Sweat Equity
The property is an investment, period. You can’t spend a night there, use it as a vacation home, or let a disqualified family member stay. You also can’t do the work yourself. Repairs, renovations, and management must be handled by independent third parties and paid from IRA funds. Picking up a paintbrush contributes labor to the account, and the IRS treats that as a prohibited transaction.
What a Violation Costs
When the account is deemed distributed, your original Roth contributions come back tax-free because you already paid tax on them. All earnings, however, become taxable income, and if you’re under 59½, the 10% early withdrawal penalty applies on top.6Internal Revenue Service. Topic No. 557, Additional Tax on Early Distributions from Traditional and Roth IRAs On appreciated property, the combined tax bill can wipe out years of growth. Most violations happen through well-meant actions: fixing a leaky faucet, letting a relative stay “just for a weekend.”
Operating the Property
Every dollar in and out of the property must run through the IRA. Rent goes into the IRA’s cash account. Property taxes, insurance, repairs, and management fees are paid from that cash balance. You cannot pay a bill personally and reimburse yourself later. If the IRA doesn’t have enough cash to cover an expense, adding your own money outside the normal contribution or rollover process can create a prohibited transaction.
Keep a cash reserve inside the IRA. A leaky roof or a few months of vacancy will drain the account fast, and forced sales at the wrong time can turn a good investment into a bad one. Rental income helps replenish the reserve naturally, which is one reason experienced investors favor properties with steady tenant demand over speculative land plays.
You cannot manage the property yourself, so you’ll hire a professional manager. Residential management fees typically run 8% to 12% of monthly rent collected, paid from the IRA. Build that into your return projections before you buy.
Financing With a Non-Recourse Loan
The IRA doesn’t have to pay all cash. Financing is allowed, but the loan must be non-recourse: secured only by the property, with no ability for the lender to pursue you personally or reach other IRA assets on default. A personal guarantee on an IRA loan is a prohibited transaction and would disqualify the account.5Office of the Law Revision Counsel. 26 USC 4975 Tax on Prohibited Transactions
Non-recourse lenders price the added risk. Expect 35% to 40% down, since most cap loan-to-value at 60% to 65%. Interest rates run higher than conventional mortgages, and the pool of lenders is smaller. Some private lenders will go to 80% loan-to-value, with cost rising accordingly.
The UDFI Tax on Leverage
When your IRA uses borrowed money to buy property, the share of income attributable to the debt is subject to Unrelated Debt-Financed Income tax. If 40% of the purchase was financed, roughly 40% of the net rental income and eventual sale profit is taxable as unrelated business taxable income.7Office of the Law Revision Counsel. 26 U.S. Code 514 – Unrelated Debt-Financed Income The rate follows trust income tax brackets, which compress quickly and can hit 37% at modest income levels. The IRA must file IRS Form 990-T whenever unrelated business taxable income reaches $1,000 in a year, and the tax is paid from the IRA’s own funds.8Internal Revenue Service. Instructions for Form 990-T Run the UDFI numbers before you borrow.
Getting Out: Selling or Distributing the Property
Sell Inside the IRA
When you’re ready to sell, you direct the custodian to list and close the sale, and every dollar of proceeds flows back into the IRA’s cash account. There’s no capital gains tax on the profit, and if you later take a qualified distribution, the appreciation comes out tax-free.
Take the Property Itself
You can also take the property as an in-kind distribution, transferring the physical asset from the IRA to your personal ownership. The distribution is valued at fair market value on the date of transfer,9Internal Revenue Service. Distributions from Individual Retirement Arrangements (IRAs) which requires a professional appraisal, since IRA assets must be valued at fair market value rather than original cost.10Internal Revenue Service. Valuation of Plan Assets at Fair Market Value
The Five-Year Rule
For a Roth distribution to be fully tax-free, two conditions must be met: you must be at least 59½, and at least five years must have passed since you first funded any Roth IRA. Miss either, and contributions still come out tax-free, but earnings are taxable and may face the 10% early withdrawal penalty.11Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions The five-year clock starts on January 1 of the year of your first Roth contribution. Open your first Roth in 2024, and the requirement is satisfied on January 1, 2029.
No Lifetime RMDs
Roth IRAs have no required minimum distributions during the account owner’s lifetime.12Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs That matters with illiquid assets. A traditional IRA holding a single property could force a sale at 73 just to meet the RMD. A Roth lets the property sit and appreciate for as long as you want. Beneficiaries face their own distribution rules, but during your lifetime there’s no forced liquidation.
What a Self-Directed Roth IRA Cannot Hold
Real estate is permitted, but not every tangible asset qualifies. Federal law prohibits IRAs from holding life insurance and treats the purchase of collectibles as an immediate taxable distribution.4Office of the Law Revision Counsel. 26 U.S. Code 408 – Individual Retirement Accounts Collectibles include artwork, rugs, antiques, gems, stamps, most coins (narrow exceptions apply for certain government-minted coins), and alcoholic beverages. Vacant land, single-family rentals, apartment buildings, commercial property, and foreign real estate are all fair game inside a self-directed Roth IRA, provided the prohibited transaction and titling rules are followed at every step.