Buying Real Estate with Your IRAWould You Like More Investment Choices for Your Retirement Funds? Did you know that you can use your retirement funds to invest in real estate? It's a common misconception among Americans that the only investments allowed in a retirement account are stocks, CDs, and mutual funds. The truth is that broader investment options have been available to the public since 1975, the year contributions could first be made to IRAs. Why the confusion? Because the retirement industry has been dominated by large transaction-driven custodians who have focused on a narrow universe of investments. While these kinds of accounts may be right for some, they don't offer the kind of freedom that a self-directed qualified retirement plan offers. To fully maximize your investment options, you need a retirement plan that allows you to select your own investments. A fully self-directed retirement plan allows you the freedom to invest in many types of non-traditional assets, including:
Diversify Your Retirement Investments Over time, real estate investments have afforded many people with the powerful combination of appreciation and income. The purchase of real estate through a self-directed retirement plan is a popular investor choice. What If I Don't Have Enough Money? If your IRA doesn't have enough money to pay for the entire purchase, you can finance or leverage any income-producing property. The property is used as collateral for the loan. Because the property belongs to your IRA, the debt must be repaid from assets within your IRA, whether it's income from the property, permissible contributions, or other assets in the IRA. All real property is either purchased or sold for your benefit using your Qualified Plan and/or IRA funds. Financing the Purchase You may finance or leverage any property you purchase for your plan. The property is the collateral for the loan. As the property is an asset of the plan, repayment of the underlying debt must come from contributions to or income from the property or other assets in the plan. This type of loan is generally referred to as a non-recourse loan because the IRA holder cannot extend credit to an IRA. Ensuring the Tax-Deferred Status of the Account Your entire transaction must flow through the tax-free or tax-deferred retirement account. The escrow must be opened by the account, not in the name of the beneficial owner. Vesting is always in the name of the account. The funds in your IRA may be used as good faith deposits, down payments, or purchase money. Additional Requirements When purchased, these properties become assets of your plan or account. In addition:
The tax laws affecting retirement plans can be confusing and complicated. Depending on your financial situation, your future goals, and whether you might have an employee-sponsored plan available, you will need to choose between several alternatives. Consult your tax advisor or financial planner on the best course of action for you. If you decide that self-directing your retirement investments is for you, Toni D'Angelo is here to help. |
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Toni A. D'Angelo, Licensed Real Estate Broker
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