By now, it should be clear that an IRA is a Trust permitted by Congress to help people to save and invest for their retirement on a tax preferred basis.

As such, your IRA is permitted to invest in those things that would be reasonable investments as you plan for your retirement. (There are three restrictions, please see Prohibited Transactions)

_^Example:

Would it be reasonable that a person might consider an investment in Real Estate to be a good retirement planning investment? Sure it could.

Is it possible that when investing in Real Estate some “leverage” (borrowed money) may be needed? Sure it could.

Hence, is it reasonable that an IRA that invests in Real Estate may need to borrow some of the money needed to invest in or buy the real estate? Sure it could.

There are two considerations to keep in mind when using leverage inside an IRA.

1. The loan must be made to the IRA. You may not co-sign the loan. This means the loan will be non-recourse to you.
   There are several lenders that are willing to offer non-recourse loans to IRA’s.
   
   
2. The use of borrowed money to finance a project inside your IRA can trigger Unrelated Business Income Tax.
   Your accountant can compute any UBIT on IRS Form 990-T. It is our experience that the amount of the tax is generally small and not considered an undo burden in most transactions.