How to Title Property in a Self-Directed IRA

Properly vesting the title of a real estate property purchased through a self-directed IRA is a crucial step for maintaining compliance and protecting your account’s tax-advantaged status. Incorrectly titling a property can lead to legal and/or tax complications, so it’s essential to get it right.

Steps for Properly Vesting a Property Title in a Self-Directed IRA

“Vesting” refers to the official registration of ownership for any type of asset. To title real estate purchased through your self-directed IRA, take the following steps:

1. Title the property correctly: The property title (and all related documents) should reference the custodian, the IRA account number, and your name as the IRA owner. Note that the title must include the “FBO” (“For the Benefit of”) designation before your name. This ensures asset ownership remains within the IRA. For example: “[Custodian Name] FBO [Your Name] IRA Account # [Your Account Number]”
2. Submit documents for custodian review: Your IRA custodian will review the investment documents to confirm the titling before funding and executing the documents to close escrow.

By following these steps, you can ensure that the property title is correctly vested, protecting your IRA’s tax-advantaged status and maintaining compliance with IRS regulations.

Why Proper Titling Matters

Ensuring your real estate investment is legally owned by your IRA, not by yourself, is critical for IRS compliance as it keeps the property separate from your personal assets. The IRS requires that all assets in a self-directed IRA remain within the IRA to maintain its tax-advantaged status. If the property is titled in your name, it could be seen as mixing IRA assets with personal assets which is a prohibited transaction and may result in penalties, taxes, or even disqualification. Proper titling ensures you follow the rules designed to protect the account’s tax benefits.

1. Vesting for IRAs, ESAs, and HSAs:

   The title must list your IRA custodian (for example, Forge Trust) as the legal owner, as the custodian owns the real estate on your behalf.

   For example: “Forge Trust Co., Custodian FBO Jane Smith Account #67890”

   If the property has multiple owners, the title must include each owner’s share as a percentage of “undivided interest” (for example, 50% each for two owners).

   For example: “Forge Trust, Custodian FBO Jane Smith Account #67890, 50% undivided interest”

2. Vesting for Qualified Plans:

   For qualified retirement plans, like 401(k)s or profit-sharing plans, the title includes the trustee’s name, the plan name, the designation “FBO,” the client’s name, and their account number.

   For example: “Jane Smith, Trustee of Bright Horizons Profit Sharing 401K Plan FBO Jane Smith Account #67890”

   As with IRAs with multiple owners, you must specify their percentage of ownership.

   For example: “Jane Smith, Trustee of Bright Horizons Profit Sharing 401K Plan FBO Jane Smith Account #67890, 50% undivided interest”

Ensure Proper Document Signing and Submission for Your Real Estate Purchase

All title documents must be noted “read and approved,” then signed and dated by you as the IRA holder before sending to your custodian for signature. Your custodian will then sign all documentation for the real estate purchase on behalf of your IRA. You’ll submit documents to your county’s records office, keeping a copy for your records. Working with a custodian like Forge Trust can provide guidance to ensure that your title is properly vested, and they can even sign documents on behalf of your IRA to maintain compliance and diversify your retirement.