Using Your IRA to Acquire Investment Properties (Updated)
Depositing savings into a self-directed IRA could be a wise choice for those who are looking for long-term tax-free real estate investment (specifically buying investment properties). Whether this is a good choice for you depends on the circumstances.
The purchased real estate must be used for business purposes an example would be private homes, secondary residences or weekend estates do not qualify. Similarly, purchasing a property already in your possession is not allowed.
The governing rules state that in any case, it has to be a new purchase directly into the IRA.
On the other hand, you would be allowed to buy real estate into a self-directed IRA for flipping purposes. There is an annual limit on the number of purchases and sales you can make, all profits will be tax-deferred or tax-free. Thus your IRA will grow without any deductions.
IRA investment concerns
You are not allowed to get a mortgage loan in an IRA. If you’re planning on keeping real estate as a long-term rental it’s essential to have enough cash from your IRA to purchase the property. Don’t forget the IRA carries administration costs, that should be considered in your financial plans.
The IRA investment depreciation or other kinds of losses will not result in tax savings.
Have a Plan B
Most people will lose out because they fail to diversify their savings. Considering the option of failure and spreading out your investment. Investing wisely and having a plan B can save you a lot of money in the long term.
Disclaimer: The Company introduces general information and education concepts about self-directed retirement accounts (such as 401(k) and IRA accounts). Like any investment, there is a risk in using retirement funds for investing in real estate assets.
It is possible to lose a portion or all of an investment in real estate – including those purchased with retirement funds.
Please review IRS Publication 3125 regarding the use of retirement funds for alternative investments. The document can be found at http://www.irs.gov/pub/irs-pdf/p3125.pdf. Every individual is different, with unique circumstances. We do not offer tax, accounting, financial or legal advice.
Prior to acting upon this information, consult your own accounting, legal and financial advisors to evaluate the risks, consequences, and suitability of that transaction. The Company is not a retirement account custodian, trustee, or securities dealer.