I often speak with people who want to invest in real estate but feel like they can’t because they don’t have the money. What if I told you can use an old 401l(k) or an Individual Retirement Account (IRA) to invest in real estate? Many people have retirement accounts (401(k), 403(b), IRA, etc.) with a previous employer that limits their invest options. Well, you can rollover funds from your old retirement account into a self-directed IRA (SDIRA) and invest in real estate. Let me explain…
How Self-Directed IRAs Work
Self-directed IRAs are similar to traditional retirement accounts except self-directed accounts give you “checkbook” control of your retirement funds which allows you more investment options. With a SDIRA, you have the option to invest in a variety of assets, including stocks, bonds, mutual funds, ETFs, businesses, cryptocurrency, real estate and much more. Unlike traditional IRAs or 401(k) accounts, these plans have fewer restrictions on your investment type. This means you can use your self-directed retirement account to invest in real estate projects such as rental properties, land, REITs (Real Estate Investment Trusts), and syndications. The IRS prohibits certain transactions in a SDIRA, so be sure to do your research and seek professional consultation before making an investment.
Tax Benefits of Self-Directed IRAs
The biggest benefit of IRAs and other retirement accounts is they grow until retirement age tax deferred or tax free depending on whether you have a traditional or Roth account. You get to enjoy those same benefits with a self-directed IRA. Your self-directed IRA can be a traditional or Roth account. Imagine owning commercial real estate in your self-directed IRA that collects rental income and appreciates tax deferred or tax free.
Opening a Self-Directed IRA
To open a self-directed IRA, you must find a custodian that works with self-directed accounts. The custodian is the financial institution that holds the assets and handles the administration of the account. Traditional investment brokerages may not offer these types of IRAs. With some online research, finding a SDIRA custodian is not difficult. If you want to invest in real estate through your SDIRA, be sure to find a custodian that allows real estate transactions as not all custodians permit you to do so. Also, custodians will not provide guidance about real estate investments. Therefore, do your due diligence prior to making any investment.
Funding Your Self-Directed IRA
SDIRA accounts follow the same funding rules as traditional or Roth IRAs. One of the most common ways to fund a SDIRA is to rollover an old employer sponsored retirement or IRA plan. By rolling over part or all of your old retirement plans, you can direct those funds to investments that provide better returns. You also can make annual contributions in accordance with the IRS guidelines.
Final Take
With a self-directed IRA, investing in real estate is not as out of reach as many people believe. Real estate can be a powerful investment option to build wealth. Combining real estate with a SDIRA allows you to take control over your retirement future. SDIRAs offer more investment alternatives and flexibility compared to a traditional/Roth IRA or 401(k) plan. If you want to boost your retirement savings and produce monthly income throughout your retirement, you may want to rollover your retirement savings and take advantage of the benefits a SDIRA offers.
About the author: Tomond Jack is a real estate entrepreneur and syndicator who has over 20 years of investment experience. He is passionate about helping people expand their wealth through real estate.
Are you an investor who wants to generate passive income? Consider investing in multifamily syndications. Investing in multifamily real estate is a great way to improve your financial status and you can do it passively through a syndication. To learn more visit www.shhequitygroup.com.
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