Invest with a Self-Directed IRA
Retirement savers are becoming aware that they have investment options alternative to the traditional offerings of stocks, bonds, mutual funds and CDs within an IRA (Individual Retirement Account). A self-directed IRA is either a traditional IRA or Roth IRA account, in which the custodian permits alternative investments that are allowable by the IRS for retirement accounts. One of these alternative options are real estate investments and financing.
An IRA custodian is a financial institution that is responsible for record-keeping and IRS reporting requirements. Each year, you must accurately value your investment and report the value to your IRA custodian — this is where the "self-directed" aspect comes in.
Benefits of Investing in Real Estate with IRA funds
Perhaps the biggest benefit of using a self-directed IRA to invest in real estate is found in the tax benefits. As is the case with any investment in your IRA, you will benefit from tax-deferred income until the day you take withdrawals. Or, if your funds are in a Roth IRA, those investment gains both accumulate tax-free, and allow for tax-free withdrawal.
IRS rules still require that you must wait until you reach age 59 1/2 to withdraw your funds, otherwise you will be subject to an early withdrawal penalty. Also, the withdrawal will be included as ordinary income on your tax return.
A wide array of options are available for real estate investing with your IRA funds, from passive investing to active buying, selling, or renovating properties. Self-directed IRAs provide you with the ability to invest in local investments and even with other local investors that you know, providing familiarity during times of market uncertainty.
Self-Directed IRA Tax Issues to Avoid
All self-directed IRA investments involving real estate must all be arm's length transactions; as such, investments cannot be made to purchase a primary personal residence or vacation home, which is considered self-dealing. There are also rules that apply to transactions or investments between immediate family members (including parents and children).
Interested in investment opportunities? Call or contact me Jennifer for more information.