When Your Financial Advisor Can't Help: One Attorney's Self-Directed IRA Solution
Key Takeaways
Traditional IRA custodians can't facilitate real estate investments, but direct custodian-to-custodian transfers allow tax-free, penalty-free transfers to a self-directed account.
Self-directed retirement accounts require strict compliance: all income and expenses must flow through the IRA, never personal accounts, and third-party property management is non-negotiable.
Working with an experienced self-directed IRA custodian ensures proper structure from day one, helping you avoid costly prohibited transactions that could disqualify your entire account.
When a 56-year-old South Carolina attorney approached Chicago Trust Administration Services (CTAS) in 2019, his problem wasn’t underperformance. His $1.2 million Traditional IRA was doing exactly what his financial advisor designed it to do: sit in stocks and bonds and generate market returns.
The problem was simpler: his IRA wasn’t generating income. As he looked at his retirement timeline, he realized he needed income-producing assets, not just appreciation. And he knew exactly what made sense: resort rental properties that would generate consistent monthly cash flow.
When he asked his financial advisor about placing rental real estate within his IRA, the advisor couldn’t help him. Thankfully, that’s when he found us.
The Real Problem: No Path to Income-Producing Assets
This attorney earned $350,000 annually and understood sophisticated investments. His challenge wasn’t a matter of financial literacy — it was access.
His Traditional IRA custodian could only handle stocks, bonds, and mutual funds. They couldn't facilitate real estate transactions or manage the compliance requirements for property ownership in self-directed retirement accounts.
On top of that, his financial advisor didn’t know the rules governing real estate in IRAs. No framework, no referrals. No path forward.
The attorney was also under the (incorrect) impression that transferring funds to a self-directed account would trigger taxes. This very misconception keeps many sophisticated investors trapped in structures that don’t serve them.
The Strategy for Building Tax-Free Retirement Income
We started with education. I walked him through the fundamentals of self-directed retirement accounts and the specific compliance requirements for IRA-owned real estate.
His goal was to acquire two resort rental properties to generate monthly income. So how did that happen?
First: The Account Transfer
We opened a self-directed IRA at CTAS and executed a direct custodian-to-custodian transfer from his existing Traditional IRA.
This structure is critical. A direct transfer involves no taxable event, no penalties, and no 60-day rollover clock. The funds move directly between qualified custodians, maintaining tax-advantaged status throughout.
Many investors don't realize this option exists. They assume they need to liquidate positions, withdraw funds, and somehow redeposit within 60 days — creating unnecessary tax complications. A properly structured transfer avoids that burden.
Next: Structuring Compliant Acquisitions
With funds in his self-directed retirement account, we moved to property acquisition. He'd identified two resort properties generating strong rental income.
Every document had to list the IRA, not him personally, as the purchasing entity. Every payment had to flow through the self-directed IRA, never his personal checking account.
I've seen investors disqualify entire retirement accounts by using personal funds for down payments, thinking they'd reimburse themselves later. But commingling personal funds with IRA investments triggers prohibited transactions that can disqualify the account.
Then: Funding Renovations Compliantly
Next, the properties needed updates to optimize their rental income.
Here's where compliance becomes critical: you cannot personally provide labor to IRA-owned property. You cannot use personal funds for improvements. Every expense must flow from the self-directed retirement account.
We funded renovations through the IRA, using independent contractors who billed the account directly, maintaining the required arm's-length relationship.
We also established a maintenance reserve of three to six months of expenses inside the IRA.
Finally: Establishing Property Management
We hired third-party property managers with contracts listing the IRA as the property owner. All rental income is deposited directly into the self-directed IRA. All expenses paid from the IRA.
This structure is non-negotiable.
We set up monthly income sweeps, depositing net rental income into the self-directed IRA after expenses. This created his desired cash flow while maintaining compliance with tax-free retirement income regulations.
From Two Properties to Three: Building Confidence Through Cash Flow
Getting those properties ready for leasing required significant hand-holding — coordinating renovations, establishing management contracts, and ensuring compliance with every transaction. It was a lot of work and a learning curve for our client.
But once the properties became truly turnkey, everything changed.
Monthly cash flow exceeded projections. The properties appreciated beyond his income-focused expectations. Most importantly, he gained confidence in the self-directed retirement account structure.
That confidence led him to acquire a third property.
In just six years, his portfolio had grown from $1.2 million to $1.6 million, now including three resort rental properties that generate consistent monthly income into his tax-advantaged retirement account.
He wasn't dependent on stock market performance. He had tangible assets producing real income, positioned for both cash flow and appreciation, all within a structure that deferred or eliminated taxes on growth.
His portfolio evolved from passive to active, from generic to personalized, and from market-dependent to income-focused. He'd gone from frustrated and limited by his advisor's constraints to empowered and in control of his retirement strategy.
What You Can Learn From This Transition
This client’s experience demonstrates key principles for anyone considering alternative investments in self-directed retirement accounts:
Current custodian limitations shouldn't dictate investment strategy. Self-directed retirement accounts exist specifically to give sophisticated investors access to alternative asset classes that traditional custodians won't touch.
Moving retirement funds between custodians doesn't trigger taxes. Direct custodian-to-custodian transfers maintain tax-advantaged status by design.
Real diversification means different asset classes. Stocks, bonds, and mutual funds all respond to the same market forces. Adding rental real estate to self-directed retirement accounts provides true portfolio diversification with different risk profiles and income characteristics.
Tax-free retirement income requires a proper structure from day one. Compliance requirements aren't suggestions; they're ironclad rules with serious consequences. Working with an experienced custodian who understands prohibited transactions and ongoing compliance isn't optional.
Successful self-directed investors share certain traits. They pursue answers instead of following conventional wisdom. They ask questions until they understand the rules thoroughly. They prioritize long-term compliance over shortcuts. They recognize that proper planning and professional guidance deliver better outcomes than navigating complex regulations on their own.
Our attorney client is precisely that kind of investor. You might be, too.
Your Self-Directed IRA Partner
At Chicago Trust Administration Services, we've helped sophisticated investors structure and manage self-directed retirement accounts for over 20 years.
Our consultative approach combines regulatory expertise with personalized guidance. We don't just process transactions; we help you understand the framework, anticipate next steps, and build strategies that work.
To see how we can help, we invite you to schedule a complimentary meeting with us by calling 312-869-9394 or emailing steve@ctasira.com.
Frequently Asked Questions (FAQs)
Q: What happens if I accidentally use personal funds for my IRA-owned property?
A: Using personal funds for IRA-owned property creates a prohibited transaction that can disqualify your entire account, triggering immediate tax consequences on all deferred gains.
Q: How long does it take to transfer funds and purchase property in a self-directed IRA?
A: With experienced administration, the process typically takes 1-2 weeks compared to 4-8 weeks with large institutional custodians, allowing you to move quickly on time-sensitive investment opportunities.
Q: What types of properties work best for self-directed IRA real estate investing?
A: Income-producing properties such as single-family rentals, multi-family units, commercial properties, and resort rentals work well because they generate consistent cash flow.
Properties that require significant personal involvement or frequent renovations pose compliance challenges. Focus on turnkey or professionally managed properties that generate passive income.
*The content and opinions in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
**CTAS professionals are not financial advisors and cannot provide advice or recommendations regarding specific investment decisions.