The Self-Directed IRA enables investors to purchase (i.e.
Buy & Hold / Fix & Flip) properties with untaxed dollars within a
Traditional IRA and collect rent or earnings from a flip, tax free until
distributions are made at retirement. The Roth IRA allows earnings and rents to
remain tax free for life. Once Roth IRA
distributions are made at retirement, only those earnings after distributions
are taxed. The power of untaxed dollars provides tremendous growth potential
for your personal real estate investment portfolio and typical returns of 10% -
14% including asset appreciation.
A Self-Directed IRA allows you to invest your IRA savings
into what you know and understand. Some examples include:
|
Rental Properties |
Buy / Fix / Flip |
Hard Money Loans |
|
Mobile Homes |
Auctions |
Real Estate Options |
|
Promissory Notes |
Short Sales |
Tax Liens |
These are just a few examples of Real Estate investments
that can greatly increase the earning power of your IRA.
What is a Traditional
Self-Directed IRA?
Based on the amount of any contribution you make to your
IRA, you can deduct that amount from your earned income. These contributions
are tax free until the time that you withdraw those funds, typically starting
at age 59 and a half to avoid early withdrawal penalties. You may convert your
Traditional IRA to a Roth IRA at any time but you must pay the taxes on the
conversion amount.
What is a Roth Self-Directed IRA?
A Roth IRA contribution is an after-tax contribution into
your IRA. However, any earnings realized within a Roth IRA are tax free for
life. An example would be the rental
income from the purchase of a rental property (that was purchased using Roth
IRA contributions) would be tax free for as long as that property remains
inside the Roth IRA.
Are there any IRA investment
restrictions?
Yes, they are called Prohibited Transactions which include:
·
Life Insurance Premiums
·
Collectibles such as: artwork, antiques,
stamps, etc.
·
Conduct business transactions and/or commingle
assets or services with a “Disqualified Person”
Who is a disqualified
Person?
Pretty much everybody in yours or your spouse’s vertical
family tree: Parents, Grandparents, Children (and their spouse’s) and
Grandchildren (and their spouse’s).
The way ahead
Many folks are well versed in property flipping, selling and
renting. However, there are those that would like to invest in Real Estate but
are hesitant in making the first step. A recommendation for these folks would
be to work with a Wholesaler who will work with you in both investment projects
(flips) and purchases of a rental properties. They should also provide property
management services, usually a 10% fee of monthly rental income, and can work
with your IRA management group. I work with Alpine Capital Solutions in
Indianapolis.
So, look at your current returns in your IRA and ask yourself can I do better? Opting to control your own investments through real estate could significantly grow your retirement nest egg and provide more opportunities to enjoy those golden years.
Author and Contributor:
Mark Hensel
Real Estate Consultant
RE/MAX Executives
703-405-7819 Mobile/703-498-2602 Office
