Self Directed IRAs – Tax Free Investment Tool
A Self-Directed Individual Retirement Account is an IRA that requires the account owner to make investment decisions and investments on behalf of the retirement plan. Investment decisions can include stocks, bonds or real estate assets. Self Directed IRAs are the fastest growing segment of the $3.7 Trillion IRA market, growing at 25 to 40 percent annually. The reasons behind this meteoric growth are the advantages that this IRA brings to you, the investor; diversification, control, and tax benefits to name a few.
Many investors use self directed IRAs to invest in real estate because they wouldn’t have the funds to buy properties otherwise. Do you have $30,000 sitting in your checking account? Most folks don’t. But how much is sitting in your IRA account? Wouldn’t it be grand to take that, and use it to buy real estate without tax penalties? Here’s how.
IRS regulations require that either a qualified trustee, or custodian hold the IRA assets on behalf of the IRA owner. Generally the trustee/custodian will maintain the assets and all transaction and other records pertaining to them, file required IRS reports, issue client statements, assist in helping clients understand the rules and regulations pertaining to certain prohibited transactions, and perform other administrative duties on behalf of the Self-directed IRA owner for the life of the IRA account.
Self-directed IRAs, by allowing a wide range of investment choices, improve the account owner's opportunities to diversify their IRA portfolio(s). Some investments, such as life insurance or collectibles as defined by the Internal Revenue Service, are not permitted in IRAs. Real estate is allowed. Real estate IRAs or private placements can help balance your retirement portfolio by diversifying your retirement investments. You can roll over your tradition IRA into a self directed option. Using this option, your IRA makes real estate purchases on your behalf. Your IRA owns the property, not you. Income and expenses go to the IRA. It must be an investment. You can not live in the investment, neither can relatives, and the rents must be at market rates. But, you make all the decisions and control the account.
However, if the real estate asset held in a self-directed IRA has been employed for personal use, or to gain any other personal benefit, in the view of the IRS, the IRA(s) may become immediately taxable. You could be charged a 10% penalty and excise taxes. In addition, if the IRA owner is younger than 59 1/2, the IRA will be subject to an early withdrawal penalty of 10%. It is important, therefore, that those interested in self-directed IRAs work with qualified custodians.
Why not build your real estate empire in an IRA: TAX FREE? Imagine purchasing your retirement home now, through your IRA, renting it out until you turn 60, then taking it out as a distribution: TAX FREE. Sound good? Consult your trustee. AskRey.net can connect you with local custodians that can set up your low cost self directed IRAs. Just…AskRey.