How to Invest in Real Estate with Your IRA
Written By John Bowens on May 16th, 2024
Investing in real estate through a self-directed IRA can be a powerful strategy for building retirement wealth, offering significant tax advantages and investment diversification.
With a truly self-directed account at a company like Equity Trust, you can invest in all sorts of alternative assets like real estate, precious metals, tax liens, private equity deals and more. This gives you a lot more options to build wealth outside of Wall Street... options that can produce income, provide a hedge against inflation, and minimize your taxes!
Benefits of Real Estate in an IRA
Portfolio Diversification: Real estate can serve as a hedge against the volatility of the stock market and provide increased portfolio diversification.
Leveraging Tax Benefits: The tax advantages of self-directed IRAs can significantly enhance the profitability of real estate investments by deferring taxes on rental income and capital gains.
Long-Term Growth Potential: Real estate has historically appreciated over time, offering the potential for substantial growth of retirement funds.
Imagine owning a rental property in your Roth IRA worth $100,000 that escalates to $500,000 over 20 years, plus accumulates rent— all tax-free. This contrasts sharply with the ongoing taxes on similar investments in regular taxable accounts.
Key Steps for Real Estate Investment with an IRA
Account Setup: Open a self-directed IRA through a qualified custodian like Equity Trust. This setup can be facilitated online or with the assistance of specialized counselors who guide you through the process.
Finding Opportunities: Explore potential real estate investments using various resources such as real estate listings, connections with other investors, and investment platforms. Consider different types of properties, including residential, commercial, and undeveloped land.
Funding Investments: You can fund real estate purchases directly using IRA funds, combine IRA funds with personal funds, or use non-recourse loans that comply with IRA regulations.
Tools and Resources: Platforms like Equity Trust’s Real Estate Wizard provide technology and the ease you want to manage your property and investment. Equity Trust’s educational courses and guides provide information about IRA rules so you can avoid penalties.
Many investors are surprised (and even relieved) at how easy it is to purchase real estate through your IRA. Fill out the info below and get the guide!
Real Estate Investing in Your IRA Made Easy.
👇Get the Guide. 👇
Important Rules and Regulations
Arm’s Length Principle: Investments must be made at arm's length, meaning the IRA owner cannot personally use or directly benefit from the property. This ensures that the IRA’s benefits are strictly for retirement purposes.
Prohibited Transactions: Avoid any transactions that involve direct or indirect benefits to disqualified persons, which include the IRA owner, certain family members, and entities they control. Violations can lead to severe tax penalties.
Expense and Income Management: All expenses related to the property must be paid from the IRA, and all income generated must be returned to the IRA. This maintains the tax-advantaged status of the account.
Real Estate Investing Case Studies
How to Invest in Real Estate with an IRA
Written By John Bowens on May 16th, 2024
Investing in real estate through a self-directed IRA can be a powerful strategy for building retirement wealth, offering significant tax advantages and investment diversification.
With a truly self-directed account at a company like Equity Trust, you can invest in all sorts of alternative assets like real estate, precious metals, tax liens, private equity deals and more. This gives you a lot more options to build wealth outside of Wall Street... options that can produce income, provide a hedge against inflation, and minimize your taxes!
Benefits of Real Estate in an IRA
Portfolio Diversification: Real estate can serve as a hedge against the volatility of the stock market and provide increased portfolio diversification.
Leveraging Tax Benefits: The tax advantages of self-directed IRAs can significantly enhance the profitability of real estate investments by deferring taxes on rental income and capital gains.
Long-Term Growth Potential: Real estate has historically appreciated over time, offering the potential for substantial growth of retirement funds.
Imagine owning a rental property in your Roth IRA worth $100,000 that escalates to $500,000 over 20 years, plus accumulates rent— all tax-free. This contrasts sharply with the ongoing taxes on similar investments in regular taxable accounts.
Key Steps for Real Estate Investment with an IRA
Account Setup: Open a self-directed IRA through a qualified custodian like Equity Trust. This setup can be facilitated online or with the assistance of specialized counselors who guide you through the process.
Finding Opportunities: Explore potential real estate investments using various resources such as real estate listings, connections with other investors, and investment platforms. Consider different types of properties, including residential, commercial, and undeveloped land.
Funding Investments: You can fund real estate purchases directly using IRA funds, combine IRA funds with personal funds, or use non-recourse loans that comply with IRA regulations.
Tools and Resources: Platforms like Equity Trust’s Real Estate Wizard provide technology and ease you want to manage your property and investment. Equity Trust’s educational courses and guides provide information about IRA rules so you can avoid penalties.
Many investors are surprised (and even relieved) at how easy it is to purchase real estate through your IRA. Fill out the info below and get the guide!
Real Estate Investing in Your IRA Made Easy.
👇Get the Guide. 👇
Important Rules and Regulations
Arm’s Length Principle: Investments must be made at arm's length, meaning the IRA owner cannot personally use or directly benefit from the property. This ensures that the IRA’s benefits are strictly for retirement purposes.
Prohibited Transactions: Avoid any transactions that involve direct or indirect benefits to disqualified persons, which include the IRA owner, certain family members, and entities they control. Violations can lead to severe tax penalties.
Expense and Income Management: All expenses related to the property must be paid from the IRA, and all income generated must be returned to the IRA. This maintains the tax-advantaged status of the account.
Self-Directed IRA Case Studies
Tax Advantages for Retirement
Written By John Bowens on April 9, 2024
If you're like most hard-working Americans, you want to keep more of your money and pay as little in taxes as possible. The key is having investment accounts that provide tax advantages - like an IRA or 401(k). Of course, you're probably already familiar with these accounts if you're reading this. But what you may not know is that you can hold a lot more than just stocks, bonds, and mutual funds in a self-directed IRA.
With a truly self-directed account at a company like Equity Trust, you can invest in all sorts of alternative assets like real estate, precious metals, tax liens, private equity deals and more. This gives you a lot more options to build wealth outside of Wall Street... options that can produce income, provide a hedge against inflation, and minimize your taxes!
The Power of Tax-Advantaged Accounts
Traditional IRAs offer tax-deductible contributions, allowing your investments—interest, dividends, capital gains—to grow tax-deferred until withdrawal, usually during a lower-tax retirement phase.
Meanwhile, Roth IRAs provide tax-free growth and withdrawals, ideal for assets like real estate or private equity that appreciate significantly. But what you may not know is that you can hold a lot more than just stocks, bonds, and mutual funds in a self-directed IRA.
Imagine owning a rental property in your Roth IRA worth $100,000 that escalates to $500,000 over 20 years, plus accumulates rent— all tax-free. This contrasts sharply with the ongoing taxes on similar investments in regular taxable accounts.
Fill out the info below to download your FREE IRA GUIDE! 👇 Where you will learn:
Tax Benefits: Self-directed IRAs allow earnings to grow tax-deferred or tax-free. These accounts include Traditional and Roth IRAs, each offering unique tax advantages. Funds in these IRAs grow in a tax-advantaged environment until distributed after age 59½, avoiding current year taxation and enabling reinvestment of tax savings.
Investment Options: These IRAs offer nearly limitless investment choices beyond typical stocks, bonds, and mutual funds. Investors can diversify into real estate, tax liens, promissory notes, private equity, cryptocurrencies, and more. This flexibility includes investments in residential and commercial properties, developed and undeveloped land, and various alternative assets that have shown competitive returns.
High ROI Potential: By investing in what you know, self-directed IRAs can significantly enhance your returns, especially with alternative investments like real estate flips, rentals, private lending, and more. These accounts also cater to small business owners with plans like SIMPLE, SEP, and Solo 401(k), which offer higher contribution limits and potential tax deductions.
Estate Planning: Self-directed IRAs can also serve as a means to create a tax-advantaged legacy, allowing beneficiaries to inherit tax-benefited assets.
Take Control of Your Wealth With Equity Trust
Don’t limit your IRA to mere stocks, bonds, or mutual funds. Equity Trust enables a truly self-directed IRA, allowing investments in:
Rental, commercial, and international real estate
Real estate notes and tax liens
Precious metals & cryptocurrencies
Private equity & small business opportunities
Energy investments like oil & gas, renewables
Farmland, timber, and natural resources
And much more!
With rising inflation and potential tax increases, leveraging a self-directed IRA for alternative investments means significant tax savings and robust wealth compounding.
Self-Directed IRA Case Studies
Frequently Asked Questions
I plan to purchase a rental property with my IRA. Does the rental income have to go back into my IRA?
Yes, all income generated by an IRA-owned property must return to your IRA. This ensures that you retain the tax-deferred or tax-free status of the investment.
When I sell a property owned by my IRA, may I keep a portion of the proceeds and send the remaining portion to Equity Trust?
No. All income generated from the sale of a property owned by your IRA must be deposited directly into your IRA.
Can I use funds from my IRA to renovate property to sell it at a higher price?
Yes. However, your IRA must pay all expenses associated with a property that it owns, including renovations. Further, all proceeds from the sale of the renovated property must be
deposited into your IRA.
Can my IRA invest in a newly formed entity that will invest in real estate?
Yes. Investments in newly formed private entities, such as limited partnerships, limited liability companies, C corporations or land trusts, are permissible under the Internal Revenue Code, with the exception of subchapter S corporations.
How do I pay funds to the seller?
You must instruct your custodian where to send the funds from your account. Some custodians give you the option to do this online, or you can submit a form with the instructions. Typically, funding to purchase real estate is sent to a title company, attorney, or escrow agent.
Can my IRA purchase real estate that my corporation, partnership or LLC owns?
No. This is considered a prohibited transaction (see IRC 4975).
Can my IRA purchase real estate that I currently own?
No. This is considered a prohibited transaction (see IRC 4975). You may not purchase a property, or interest in a property, that’s currently owned by a disqualified person, which includes yourself.
Am I restricted to only purchasing residential property with my IRA?
You are not limited to residential real estate. Your IRA can hold various investment properties such as commercial buildings, vacant land, condominiums, mobile homes and apartment buildings, in addition to residential property.
Real Estate Investing in Your IRA Made Easy.
👇Get the Guide. 👇
Fill out the info below to download your FREE Real Estate Guide.
Frequently Asked Questions
I plan to purchase a rental property with my IRA. Does the rental income have to go back into my IRA?
Yes, all income generated by an IRA-owned property must return to your IRA. This ensures that you retain the tax-deferred or tax-free status of the investment.
When I sell a property owned by my IRA, may I keep a portion of the proceeds and send the remaining portion to Equity Trust?
No. All income generated from the sale of a property owned by your IRA must be deposited directly into your IRA.
Can I use funds from my IRA to renovate property to sell it at a higher price?
Yes. However, your IRA must pay all expenses associated with a property that it owns, including renovations. Further, all proceeds from the sale of the renovated property must be
deposited into your IRA.
Can my IRA invest in a newly formed entity that will invest in real estate?
Yes. Investments in newly formed private entities, such as limited partnerships, limited liability companies, C corporations or land trusts, are permissible under the Internal Revenue Code, with the exception of subchapter S corporations.
How do I pay funds to the seller?
You must instruct your custodian where to send the funds from your account. Some custodians give you the option to do this online, or you can submit a form with the instructions. Typically, funding to purchase real estate is sent to a title company, attorney, or escrow agent.
Can my IRA purchase real estate that my corporation, partnership or LLC owns?
No. This is considered a prohibited transaction (see IRC 4975).
Can my IRA purchase real estate that I currently own?
No. This is considered a prohibited transaction (see IRC 4975). You may not purchase a property, or interest in a property, that’s currently owned by a disqualified person, which includes yourself.
Am I restricted to only purchasing residential property with my IRA?
You are not limited to residential real estate. Your IRA can hold various investment properties such as commercial buildings, vacant land, condominiums, mobile homes and apartment buildings, in addition to residential property.
Real Estate Investing in Your IRA Made Easy.
👇Get the Guide. 👇
Fill out the info below to download your FREE Real Estate Guide.
Beginners Guide To Self-Directed IRA’s
You probably know all about the most popular retirement savings accounts: a 401(k) offered by your employer, and IRAs (either traditional or Roth) that you and possibly your employer may contribute to. IRAs can at times have certain tax advantages over 401(k)s, and often give you greater control over your investments—many employee-sponsored plans let Uncle Sam and often unscrupulous financial planners have a big say in where your money goes.
Even traditional and Roth IRAs place substantial limits on how you can invest in your future; though they can be a better option than many other retirement investment vehicles, they don't always allow you the freedom you deserve.
Anyone who truly wants to take control of their retirement ought to consider a self-directed IRA. They've been around for decades, but few people know about them—the freedom of investment options they offer doesn't give commission-based retirement planners much of an incentive to educate clients about this product.
You can take an in-depth look at self-directed IRAs here, or keep reading for a basic overview and to see if a self-directed IRA might be right for you.
What Is A Self-Directed IRA?
A self-directed IRA allows you to make your own investment decisions. This is the retirement vehicle choice that will interest you if:
You like remaining in the driver’s seat when it comes to how to invest your funds
You see the financial benefit of investing in other types of commodities beyond stocks and bonds
You’re not afraid of diversifying your financial risk
If you’re not afraid of rolling up your sleeves to take a more proactive stance over your retirement funds, and you have an open mind about the types of investments that are at your disposal to invest in, then perhaps a self-directed investment fund is right for you.
How Does Self-Directed IRA Management Differ From Traditional IRA Management?
The most obvious question is how a self-directed IRA (SDIRA) management differs from traditional IRA management. The fact is, you can invest in the same financial products within a SDIRA that you can with the traditional IRA. And, both types of retirement accounts are held at a financial institution.
However, the traditional account is managed by a financial officer, and the confines of the traditional IRA only allow you to invest in financial products such as stocks, bonds, and mutual funds. If you’re an investor who doesn’t have much confidence in any of these products, or if you’d simply like to explore investing in other type of financial products, then investing in a traditional IRA could leave you feeling confined.
On the other hand, the type of products at your disposal to invest in within a SDIRA create a plethora of retirement income streams for you to take advantage of.
What Are The Specific Advantages Of Self-Directed IRA Management?
There are all sorts of financial possibilities and investments that become available to you once you decide to create a SDIRA fund. Common investment vehicles include:
Limited Partnerships
Tangible Asset Deeds
Tax Lien Certificates
Accounts Receivable Financing
Building Bonds
Commercial Paper
Contracts of Sale
Crowdfunding
Equipment Leasing
Factoring
Foreign Sales Corporation Stock
Improved or Unimproved Land (Leveraged or Un-Leveraged)
Joint Ventures
...And more.
And, the best part is, you can use your current industry education (or expertise) to select the best types of investments you’re interested in. You don’t have to blindly invest in a financial product without understanding its industry or its probability factor to generate revenue.
You won’t be confined into investing in finanBullet listcial products you don’t believe in, or you feel won’t offer you the best returns on your investments. Instead, you’ll gain far more control over your investment portfolio within a SDIRA as you see fit.
Are Self-Directed IRA Vehicles Worth Considering?
A SDIRA is definitely worth considering if you’re the type of new or experienced investor who keeps their finger on the pulse of news in various industries. If you’re this type of investor, then you’ve done your homework, and you’re probably eager to take advantage of revenue generation in all sorts of exciting new industries that were previously non-existent, even as recently as 10 years ago.
Or, perhaps you’re the type of investor who enjoys the idea of investing in solid, long-standing institutions such as real estate, livestock, or precious metals. Perhaps these are the types of investment vehicles that were previously out of your reach but now they’re an investment option that you’d like to take advantage of.
Not only will a SDIRA allow you to finally take advantage of revenue generation in the products you’ve kept your eye on, but a SDIRA will also allow you to decide how aggressively or conservatively you’ll invest and control your retirement funds.
Special Considerations For Self-Directed IRAs
While there are plenty of advantages you could realize by investing in a SDIRA, there are special considerations you’ll need to keep in mind.
For example, the IRS forbids investments in products such as works of art, certain types of metals, life insurance products, antiques, or alcoholic beverages. There are also IRS statutes that forbid you from making harmful financial decisions that involve self-dealing or conflicts of interests. For more information, talk to the SD-IRA experts at Equity University.
If you think you're better at handling your money and planning for your retirement than the government or a financial advisor, then a self-directed IRA could be an important part of your portfolio. SD-IRAs give you the freedom and control to plan for retirement your way, and give you the most opportunities to create your own fantastic returns without limiting the specific retirement instruments you select.
Don't restrict your retirement potential. Visit Equity University today and get started on your own self-directed path to retirement enlightenment.
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