Using Retirement Funds to Invest in Property

The U.S. government allows individuals to own property in foreign countries through using his/her retirement account.

Investing in real estate by using a self-directed IRA (SDIRA) is an excellent opportunity to diversify your portfolio while building real wealth. However, there are some important rules you must follow to take advantage of this opportunity. Once you understand the rules, learning how to invest in real estate through your SDIRA becomes easier to understand.

The Basics

In the end, you own a property free and clear for your retirement years.

The funds used to purchase the home must be from a retirement account. These funds can be rolled over into your Real Estate IRA without incurring any penalties.

You and “qualified persons” may not occupy, rent or vacation in the property until you retire. Qualified persons include yourself, your spouse, parents, grandparents/great-grandparents, and children/grandchildren/great-grandchildren and their spouses. None of the above persons can provide labor for property maintenance either.

You may, however, occupy the property at the age of 59.5 At that time, you will pay the deferred taxes and close out the account. Taxes will be based on a current appraisal, the amount of rental payments held in the account, and your tax bracket. Keep in mind the tax rate may be based on retirement income, not your current employment.

All expenses related to property owned by your self-directed IRA are paid from funds available in your IRA.  A special checking account must be opened through which to pay all expenses. These expenses include structural repairs, remodeling, maintenance, improvements, property taxes, association fees, general bills, Home Owners Association fees, etc. Yearly contributions may be made to the IRA to cover such fees.

All rental income generated from the property must be deposited directly to your SDIRA checking account. Never mix these rental payments and your personal checking account.

You must keep diligent and timely records for the IRS. The self-directed is just that, self-directed. If this is not your style, do not attempt to use the SDIRA.

Investing in real estate through your IRA offers many benefits. However, there are strict rules to follow on how real estate IRA investments work. Failure to adhere to the laws can lead to fines from the IRS as well as potentially negative tax implications.

Getting Started

First, identify your funds. You can use any retirement funds. Funds must be rolled over into the SDIRA to incur no tax penalties. Funds must cover the purchase price of the home plus additional reserves to cover property taxes, insurance, Home Owners Association fees, maintenance, and so forth.

If this sounds like an intriguing opportunity to end up with a free and clear property, give John a call or an email for more specifics.