IRA Real Estate Investing - Is It For You?
If you have ever thought about buying residential income property, but asked where the financing would come from, this article is for you. You’re not the first person to wonder that. Why not try using the money in your individual retirement account (IRA) or your 401K?
You’re probably asking yourself how that can happen. Not to worry, because there is a simple solution called a self directed IRA (or 401K). Using one of these very special accounts, you can direct your money into whatever kind of investment you like, even real estate.
You better believe there are plenty of excellent reasons to invest this way, not least of which is the fact that income taxes on the money are deferred until retirement. Your tax rate will probably be lower then, and so your money will grow fast now, AND last longer when you need it.
A secondary benefit to IRA or 401K investing the self-directed way is that you get to play around in an area you are familiar with. Presumably you know something about investment property, or you wouldn’t be reading this article. Wouldn’t it be great to own rental property on the next street over, instead of some faceless mutual fund?
Of course, you must follow the IRS rules for setting up such an account. Don’t worry, though, because the trustee you choose to manage the account will know the rules, and they will be able to advise you accordingly. Probably the primary rule is that the real estate must be owned and paid for completely by the retirement account, not by you individually.
Because of this rule, every penny that is paid out or received related to that property must come or go through the retirement account, not your personal checkbook. As you might imaging, this can add to your costs and headaches, because you need to involve the account manager / trustee whenever you need to have a check written, or pay a bill. It’s not the end of the world, just something to be aware of.
Losing money is a real possibility, and you should be aware of the possibility. Real estate my be relatively safe as investments go, but there are no sure things. Remember, however, you will be the one with the final say on where your investment dollars go. That’s what “self-directed” is all about.
Is this type of “self-directed” retirement fund investing really your cup of tea? Only you can answer that question, but consider this. Do you really want a nameless, faceless, money manager in some Ivory Tower having the final say regarding your retirement dollars? That’s what I thought you would say!
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