Down Real Estate Market – Use Your IRA For Great Deals

By Aazdak Alisimo

Retirement vehicles such as individual retirement accounts come with an common understanding regarding how they can be used. This understanding can sometimes be incorrect as it is with IRAs.

If I have an individual retirement account, I have to invest in the stock market. Everyone know this is the way it works, right? Well, the literature and commercials spewed out by investment firms might suggest as much, but it is not true.

The average person will always invest in the stock market in some form or another with their IRA. The question is whether you want to be average when planning for your financial future. If not, you need to think outside the box.

Every time I read about a new wealth building strategy, I do so with a healthy bit of skepticism. If it sounds to good to be true, it often is. This strategy, however, does not push any limits or validate itself because of a loophole. It is basic IRA planning.

Truth be told, you have the right to invest your retirement dollars in many more investment areas then you are led to believe. So, why haven’t you been told this? Well, most stock investment brokers don’t make money in real estate, so why would they promote it?

The nuts and bolts of the strategy are fairly simple, but the devil is in the details. In general, you open a self-directed IRA and use that vehicle to invest in property entities. Get it right and you can make a bundle. Get it wrong and it is a nightmare, so do this with professional help.

Regardless, a self-directed individual retirement account works a bit different than the ones most people use. The account has a custodian who acts much like a trustee for a trust. The custodian can be a bank or other advisor and the fees are low.

After setting up your account, you can invest in property. That being said, there are some minor limitations put forth in the tax regulations by the IRS. You cannot buy, for instance, your own home, which would be self dealing.

You cannot buy property from yourself or family members. That is it. Doing so would be considered self-dealing, which is a no-no in the tax world. The prohibition applies even if you buy the property at fair market value.

When the actual property is obtained, it will be signed off on by the IRA custodian. Self-directed IRAs have an independent custodian who oversees the account do to IRA rules. After that, you just collect earnings from the property tax free in your account.

While buying property with an IRA is a good strategy, doing so with a Roth IRA is a much better one. It works the same way, but the tax benefits are tremendous. All distributions made from the Roth with be tax free. It is a nice way to build your retirement nest egg.

The above represents a very simplified look at maximizing your IRA investment with property. That being said, it is one of the outside of the box wealth building strategies that can produce tremendous returns.

Barry Waxler is a financial planner who writes about financial planning for UFCAmerica.com.

Article kindly provided by UberArticles.com

Topics: Uncategorized | No Comments »

Reprint Rights

Comments are closed.