Q: What are the advantages and disadvantages of having a portion of my home equity placed in a 401(k) or a conventional IRA?
A: I’m not quite sure how you’d do this. I believe the IRS prohibits you from putting your personal residence into an IRA.
There are companies that will help you purchase investment property out of IRA funds. However, you can’t buy a portion of the property. My understanding is that you have to purchase the entire property with cash for this to work, so all of the equity of the property is in the IRA. When you sell the property, all of the cash goes back into the IRA.
If you are working with someone who tells you that you can put a portion of your personal residence into an IRA, I’d be careful. It might be a scam. For more information on what you are allowed to invest in with an IRA, check out the IRS website, www.irs.gov. You should also consult with a tax advisor who can work with you on these issues to determine whether this is a permitted transaction under IRS rules.