About Real Estate in IRA
Individual retirement accounts (IRAs) are a great way to save for retirement with the advantage of the tax benefit that’s included in them. IRAs make it possible to invest in real estate as an asset class, and offer the opportunity for people to generate an additional source of rent, as well as the chance of flipping the property in question (which involves fixing the place up) so it may appreciate in value and offer a better deal.
Self-directed IRA real estate has a plethora of available investment alternatives with respect to the IRA being the title holder, from agricultural land, land in its natural state, commercial and residential property, etc. Applying for a non-resource loan to purchase the land or property makes it easy to venture into real estate IRA.
Partnering with an entity, a person or a completely different IRA account to purchase the land is also an option worth considering.
What are the Benefits of Investing in Real Estate with Your IRA?
The benefits of IRAs are quite extensive even as simple retirement accounts, but when you use these funds to invest in real estate, here are some of the additional advantages to consider:
- Ability to Keep the Income Gained in a Tax-Deferred Account
Primarily, the real estate funds in an IRA will continue to grow tax-free, and income tax only applies when the funds are distributed at retirement. Even the profits accumulated on these investments are exempt from capital gains, which benefits the account holder immensely. By the time they reach retirement age, they are most likely in a lower tax bracket, enabling them to save extra money!
- Opportunities for Access to Additional Capital
Depending on the money saved up from income and the accumulated profits in an IRA, there are plenty of opportunities that help to purchase a desired real estate property or land. Attaining a loan is made easy and so is teaming up with an additional entity, individual or a different IRA account holder to gather the necessary amount needed to purchase a property, which could foster a steady cash stream and all the while appreciate in value.
Important Things to Know about Real Estate IRA Investing
- A self-directed IRA is considered separate from personal finances.
- It acts as its own legal and financial entity.
- The real estate IRA pays for all the expenses involved from purchasing to maintenance.
- The accumulated rent from the real estate is rolled back into the account that is originally owned by the IRA and not the account holder.
- Since the IRA is the owner of the property and not the account holder, all the legal documentation is in the name of the IRA.
IRS Prohibited Transactions for Self-Directed IRA Real Estate
- The IRA real estate holder does not have the permission to use the property held under the IRA name, as it is solely an investment of the IRA and not in possession of the IRA holder.
- While fixing up the IRA real estate account, the account holder must only hire paid assistance to carry out any work involved in the flip makeover.
- Selling or purchasing the real estate in IRA to or through the account holder itself is not an option and is concluded as self-dealing. Dealing with a disqualified person is also deemed unfit.
- The IRA account holder or a disqualified person can under no circumstances be the guarantor of a loan for an IRA.
A Simple 3-Step Guide to Acquiring Real Estate in an IRA
- The process starts by opening an IRA account in order to fund the real estate investment. Once the application is in the office, the account should be operational in around 2 working days.
- The hunt for the desired real estate property begins. Once it’s found, the offer should be made in the name of the IRA and not the account holder. Earned money and not the account holder’s personal wealth can then come from the IRA itself.
- At every stage, working closely with a specialist to assemble the necessary documentation and seeing it to a successful close is the best way to kick start your IRA real estate adventure.