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Real Estate IRA
You can use your IRA, 401K, 403B or any qualified retirement plan to purchase real estate or buy a business. Tap into this hidden resource and turbocharge your retirement plan.
Self Directed IRA
What does ‘self-directed’ mean?
The term ‘self-directed’ does not actually have any legal connotation. It does not imply a different type of IRA, or a separate set of IRS rules. ‘Self-directed’ is simply an accepted industry term indicating that the IRA custodian is allowing the IRA owner greater control over their investment decisions. When an IRA account is self-directed, the IRA owner makes all investment decisions and instructs the custodian to act.
Types of Property Your IRA Can Own
Single family and
multi-unit homes, apartment buildings, co-ops, condominiums, commercial
property, improved or unimproved land, whether it's leveraged or
unleveraged, may be purchased by your Qualified Plan or your IRA.
Your IRA can invest in a LLC that in turn
invests in real estate. The LLC can have other IRA or individual investors
as well.
Ensuring the Tax-Deferred Status of the Account
The entire transaction must flow through the tax-free or tax-deferred retirement account. The escrow must be opened by the account, and not in the name of the beneficial owner. Vesting is always in the name of the account. Only Qualified Plan or IRA funds may be used as good faith deposits, down payments, or purchase money.
If title is vested in individual account holder names, it may not be subsequently sold to the tax-deferred or tax-free account.
Additional Requirements
When purchased, these properties become assets of your Plan or account. In addition:
- You may not
personally own property which you intend to purchase with Plan funds and
you must ensure that your intended purchase is not a prohibited
transaction
- It must be for investment purposes only
- Neither
you, your spouse, nor your family members (other than siblings) may have
owned the property prior to its purchase by your Plan
- Neither you
nor your family members (other than siblings) may live in or lease the
property while it's in your Plan
- Your business may not lease or be
located in or on any part of the property while it's in your Plan
-
You may receive any property as a distribution from your Plan as a
retirement benefit
What Does All of This Mean?
Let me break it down for you.
You have some money in an IRA. Maybe you own some stock, mutual fund or perhaps it is in a CD. The investment is not performing and you wish you could do something with it that will give you a better return. So, you own up a self-directed IRA, liquidate the assets and move the money into the self-directed IRA.
Now you can use this money to buy property. You can buy land, a house, condo or commercial property.
Some Words of Caution
Always consult with an attorney and an accountant that has expertise in this field. I would be happy to recommend one. You can get quite sophisticated with the purchases. You can even buy a business with your retirement accounts.
But, there are special rules on what you can buy and how you must purchase it. There are also special tax considerations when using outside financing. I work with a few speciality firms that specialize in self-directed IRAs. Together, we can guide you and keep you out of trouble with the IRS.
Why Haven't I Heard About This Before?
You stock broker or financial advisor will not be telling how to take money away out of their pockets and invest in real estate through your IRA or 401K plan. The financial magazines run large ads for brokerage firms and mutual funds. Again, they are not inclined to anger their advertisers.
Nevertheless, you can take your retirement plans to new heights or go into business for yourself with your qualified retirement money. Many before you have done it and so can you.
Contact Information
Wayne
Unger |
718-524-0400
(office) Licensed
Agent for Coldwell Banker Hometime Realty |