I’m going to talk about my favorite subject in a little more detail today…Real Estate, and how it can put more of that green stuff where it belongs…in your wallet!
A self directed Roth IRA invested in real estate allows the owner to keep more profits in the account, rather than handing them over to the government. Some of you may have little knowledge about purchasing real estate in your IRA. Many people still think that the only investment options are stocks and bonds or certificates of deposit. Well, there is a lot more that you can do!
Whether you want to buy raw land, single family homes, commercial property, an apartment building or a mobile home, you are surely hoping to make a profit. You may want to hold the property for several years and wait on the value to grow or you may be a rehabber, planning to flip the property for a quick profit. Either way, the self directed Roth IRA invested in real estate has several advantages, and here are a few.
First, there are no capital gains taxes. All returns are either tax-deferred or tax-free, depending on the type of account that you have and the withdrawals that you make. Purchasing real estate in your IRA can be easy. It just takes some time and knowledge, as well as the right custodian.
Many brokerages will not handle a self directed Roth IRA invested in real estate. It’s not that the IRS doesn’t allow it. The laws regarding retirement accounts allow people to invest in almost anything. It’s just not a traditional investment type and most brokers are not familiar with it. And, you would be better of to choose someone who is.
So, in order to begin purchasing real estate in your IRA, you need to find a company that is familiar with the option. Otherwise, you could run into problems down the road. Let’s say that you decided to let the new broker down the street manage your account.
You knew about the advantages of a self directed Roth IRA invested in real estate, so you took the plunge and bought a single family home, using funds from the account. The property is held in your custodian’s name and all income and profits are returned to the account.
Your son needed a place to live, so you decided to let him rent the property, since it was vacant. Being unaware of the self-dealing rules, the custodian allowed this to go on. Once the IRS saw that rental income was going into the account from one of your relatives, the account was audited, the tax-deferred status was lost and you were forced to liquidate the account. Why?
Because one of the rules about purchasing real estate in your IRA is that family members may not live in the homes that you buy. You can’t even buy a house that you plan to live in after retirement and hold it in your retirement account. It all falls under the self dealing laws and if your custodian is unfamiliar with them, then you will become the loser.
If you have knowledge and expertise about buying and selling property, then a self directed Roth IRA invested in real estate is simply another way to grow your portfolio. If you need to learn, there are people who can help. So, get some help and start investing in your future.
Joe Fazchas is a Real Estate investor as well as owner and founder of www.iLOCAdvantage.com, a company that partners with private individuals and lending corporations nationwide for the sole purpose of financing and/or rehabbing investment properties. All of which is done using a proven “turn-key” Real Estate system…The ILOC IRA.