While social media influencers parading as financial advisors is a modern phenomenon, bad financial advice is as old as time. See tulip bulb mania of the 1600s. One does not have to go far down the pop culture of financial advice to start seeing recommendations like buying gold, renting your house to your IRA, or paying yourself to manage your IRA. While some of these recommendations are easy to scoff at, bad advice can be seductive even to the most experienced and sophisticated clients and investors.

Let me share a story from another advisor. They got a call from a client who said, “I’m convinced the market is going to collapse, and the government is going to seize all retirement accounts, so I want to move everything to gold.” After a long discussion, the advisor, David, believed he had talked his client, Helen, off the proverbial cliff—until he saw a large six-figure transfer leave Helen’s IRA account. He later learned that Helen, in a panic, had transferred the money to a gold broker who promised her it wasn’t a taxable event. To make matters worse, the broker sold Helen collectible coins instead of traditional gold coins or bars, all at a terribly inflated price.

Unfortunately, this story doesn’t have a happy ending. Helen couldn’t raise the money within 60 days to repay her IRA, as physical gold cannot be held in a standard IRA, thus making it a taxable distribution. David is now working with Helen to take legal action against the gold broker, but little, if any, of the damages will likely be recovered.

Almost anything you can physically possess cannot be held inside of an IRA. The IRS specifically lists collectibles like art, rugs, antiques, metals, gems, stamps, coins, alcoholic beverages, and any other tangible personal property. While there are very limited exceptions for certain coins and metals, as a general rule, if you can hold it, you cannot own it in a standard IRA. If you do wish to purchase precious metals or property inside an IRA, they must be held inside a specific self-directed IRA. The metals must be stored in an IRS depository and cannot be held personally by the IRA owner.

So, what would it look like to purchase a home inside of an IRA? Owning individual real estate in an IRA is almost universally a bad idea. This is due to the minefield of prohibited transactions—like no self-dealing, no mixing funds, no borrowing—and the potential for unrelated business taxable income (UBTI) taxes, as well as the lack of capital gains treatment and restrictions on using borrowed money for the transaction. The IRA would own the property, which can only be used for investment purposes. The owner of the IRA cannot receive rents or income, nor can you claim deductions for property taxes, mortgage interest, depreciation, or other expenses. All expenses, repairs, and maintenance must be paid with IRA funds, and you must pay others to manage the property and handle any work. You and your relatives cannot live in or run a business out of the property.

While you can buy, sell, and flip properties within the IRA, potentially reducing your tax burden at the time of sale, the restrictions can be burdensome. You could also implement a 1031 exchange outside of an IRA, but inside of an IRA, you don’t have to worry about the 1031 timelines. For this to make sense, you’d need cash to purchase the home, be adamant about paying in full, and plan to hold onto the property long enough for it to dramatically increase in value. In such a case, purchasing the property in a self-directed Roth IRA could make sense to avoid capital gains taxes down the road, but of course, this is not personalized investment advice. I don’t know your individual situation.

Here’s what you can do:

1. Don’t take financial advice from influencers posing as experts.
2. Probably turn off the financial “pornography” network altogether.
3. Subscribe to our YouTube channel for reliable information from professionals who care.

I’m Hunter Brockway, founder of Boca Retirement Strategies. If you ever have any financial questions, feel free to send them to contact@BocaRetirement.com. Enjoy your successful retirement, and thank you for watching!