A few years ago, a famous violinist died and left his daughter a total of five million dollars in assets. According to Forbes, part what was left to pianist Laura Harth Rodriguez by her deceased father was two million dollars in retirement accounts. What Rodriquez wanted to do was purchase a three-story-building in an up-and-coming neighborhood in Pittsburgh. The caveat with doing that is that she would have to take the money out of an IRA, which she would have to pay all of the taxes on at the time of withdrawal. Right?

Actually, Rodriguez had another option, which is to buy the building with the IRA itself. Rather than removing the money from the IRA altogether, the way this typically works is through self directed IRA lending. Since self directed IRAs give the owner more freedom to invest the funds wherever she chooses, a person in Rodriguez’s position would have to move the funds from the IRA into a self directed account.

The only way to buy real estate with self directed IRA lending is with an IRA non recourse loan. A non recourse loan just means that the non recourse lender is unable to seize any property aside from the real property that the borrower put up as collateral if the borrower defaults on the loan.

Using self directed IRA to buy real estate does have its limits. An IRA can only take out a non recourse mortgage loan on certain types of property. These typically include agricultural property with a lease contract (for supporting crops or livestock), multi-unit buildings (like apartments or multi-family homes), or commercial property (for offices or retail spaces).

Additionally, the owner of the IRA cannot personally benefit from the real estate in any way — only the IRA itself can. This means that the owner cannot receive any rental payments from the property and that those funds must go directly back into the IRA. Additionally, the owner of the IRA cannot live in or on the property at all, nor is she able to allow any friends or family to use the property for free or discounted rates, or at all.

About 40% of working Americans believe that they will have to work until the age of 80 to be able to retire and maintain a comfortable lifestyle. People should always begin financially preparing for retirement early, and IRAs are some of the popular methods of doing it (thanks to those attractive tax deferrals). They also open the door to self directed IRA lending and investing in real estate.