ARTICLES
Invest in Real Estate with Your
IRA
By Gregory Herman-Giddens, JD, LLM
Are you worried about having too much of your retirement funds in
the stock market or interested in obtaining a potentially better
return? If so, consider using your IRA to purchase investment real
estate. IRS rules allow IRAs to purchase many types of investment
property, such as single or multi-family dwellings, commercial
buildings, raw law, or vacation property.
Here’s an example. Joe is looking forward to retiring in a few years
and moving to the beach. After a couple of years of looking around,
Joe finally finds his perfect retirement home. However, without
selling his current home, he does not have enough cash to purchase a
retirement home, and does not want to take on a large mortgage
payment. After speaking with his tax advisor, he finds he can roll
over his 401(k) with a former employer into a self-directed IRA. He
then directs the custodian of the IRA to purchase the beach house
with the $350,000 in the IRA. After the purchase, he makes
improvements to the property using some of the funds in his IRA and
begins renting it out. All expenses are paid out of the IRA and all
income goes back into IRA, with no tax due as the income is
received.
Five years later, when Joe is 60, he retires and directs the IRA
custodian to distribute the beach house to him. He then pays income
taxes on the value of the home, but is in a lower tax bracket since
he no longer has any earned income. The accumulated rental income
and the earnings on such income remain the IRA for Joe to withdraw
at later date.
There are a few restrictions. You cannot buy a property you already
own or from certain family members. In addition, to the extent that
financing is used to make the purchase, income generated from the
investment property is subject to unrelated business taxable income.
Finally, it is necessary to have a qualified self-directed IRA
custodian selected prior to the purchase.
Investing in real estate using your IRA can be a great way to
increase the return on your retirement dollars or purchase that
retirement property you’ve always dreamed of. However, it is
important to work closely with a your tax advisor to ensure that the
transaction is structured properly.
Please contact us today or call us at
800-201-0413
Email:
info@trustcounselpa.com
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