The Self-Directed IRA allows investors to buy (i.e. buy and hold / fix and sell) property with tax-free dollars within a traditional IRA and collect rent or investment earnings, tax-free, until they are make distributions upon retirement. The Roth IRA allows earnings and rentals to remain tax-free for life. Once Roth IRA distributions are made upon retirement, only earnings after distributions are taxed. The power of tax-free dollars provides tremendous growth potential for your personal real estate investment portfolio and typical returns of 10% to 14%, including asset appreciation.
A self-directed IRA allows you to invest your IRA savings in what you know and understand. Some examples include, but are not limited to: Rental Properties, Cash Loans, Wholesale, Buy-Fix-Flip, Mobile Homes, and Auctions. These are just a few examples of real estate investments that can greatly increase the purchasing power of your IRA.
What is a traditional self-directed IRA?
Depending 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 you withdraw those funds, generally starting at age 59½ to avoid early withdrawal penalties. You can convert your traditional IRA to a Roth IRA at any time, but you must pay taxes on the amount of the conversion.
What is a Roth Self-Directed IRA?
A Roth IRA contribution is an after-tax contribution to your IRA. However, any gains made within a Roth IRA are tax-free for life. An example would be rental income from the purchase of a rental property (which was purchased using Roth IRA contributions) would be tax-free as long as that property remains within the Roth IRA.
Are there investment restrictions on IRAs?
Yes, they are called Prohibited Transactions which include:
1. Life insurance premiums
2. Collectibles such as: works of art, antiques, stamps, etc.
3. Conduct business transactions and / or combine assets or services with a “Disqualified Person”
Who is a disqualified person?
Virtually everyone in your or your spouse’s vertical family tree: parents, grandparents, children (and your spouse’s) and grandchildren (and your spouse’s).
This opportunity is for everyone, just take the first step
Many people are well versed in exchanging, selling and renting properties. However, there are those who would like to invest in real estate but hesitate to take the first step. A recommendation for these people would be to contact a wholesaler who will work with you both in investment projects (flips) and in the purchase of rental properties. They must also provide property management services, usually a fee of 10% 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 on your IRA and ask yourself if I can do better. Choosing to control your own investments through real estate could significantly increase your retirement savings and provide more opportunities to enjoy those golden years.