The Self-Directed IRS 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:
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.
Article written and contributed to Cindy Bishop Worldwide by Mark Hensel, Licensed Real Estate Agent and Consultant
Mark is located in Virginia. You can reach Mark on his number or email address listed below.
12531 Clipper Drive, Suite 101
Woodbridge, VA 22192
Visit our Real Estate Education site for Real Estate Agents at Cindy Bishop Worldwide.
If you want to understand what the term “Self-Directed IRA” means, click here.