Hatching Property from Your Nest Egg

Here's a way to invest in real estate through your IRA that few know about. But beware -- it takes some planning to reap the tax savings

After seeing so much wealth disappear in the stock market over the last few years, many people are looking at real estate as an investment alternative. Of course, the value can go up or down, but at least there's a solid, tangible asset, the thinking goes. A little-known option for investing in real estate is to do it through your individual retirement account (IRA).

"I personally wish I had never gotten involved in the stock market. I have taken some loss, and what's worse, I have not taken the growth," says Jim Maxwell, a Ridgefield (Wash.) "qualified intermediary" whose business is facilitating tax-favored real-estate deals. His solution: Using some of his IRA nest egg to buy a 5-acre tract of land that he's pretty confident will appreciate in value. When he sells the land, Maxwell can keep the proceeds in his IRA -- without paying capital-gains taxes -- and invest them in the stock market or any other instrument he chooses. Maxwell has been in the real estate business for 20 years and has been doing tax-favored deals since 1990.