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Buy a Second Home with Your IRA

By: Barry Waxller

Retirement vehicles such as individual retirement accounts come with an common understanding regarding how they can be used. This understanding can sometimes be incorrect as it is with IRAs.

If I have an individual retirement account, I have to invest in the stock market. Everyone know this is the way it works, right? Well, the literature and commercials spewed out by investment firms might suggest as much, but it is not true.

Investing in mutual funds, stocks and bonds is a way to make gains, but not huge ones unless you get lucky. The wealthy do not do so. Instead, they think outside of the box on the issue and investing in property through an IRA is a tremendous strategy.

Before we go on, I should mention this is not a wealth building strategy that involves loopholes or dubious interpretations of the tax code. The IRS readily approves of such investments.

Section 408 of the tax code states clearly you can invest IRA contribution in a variety of property. The wealthy have used this approach for a long time and more than a few now own big portfolios of commercial property, rental properties and so on through their IRAs.

To buy homes, commercial properties, rental properties and so on, you need to open a particular type of IRA. It can be a traditional or Roth version, but it must be self-directed and have a custodian. Most banks and trust companies offer them at a small cost.

This form of IRA can be held both as a traditional or Roth IRA. The structure, however, is a bit different. There is an independent custodian overseeing the account. It is required by law to make sure people don’t crazy with investments. The custodian is not expensive.

After setting up your account, you can invest in property. That being said, there are some minor limitations put forth in the tax regulations by the IRS. You cannot buy, for instance, your own home, which would be self dealing.

With money on hand, it is time to invest in property. There are surprisingly few rules. The only limitation is on self-dealing. You cannot buy your current home or a property you already own. Most people buy second homes or rentals.

From a procedural point of view, you do no actually purchase anything. The IRA does. Technically, the custodian of the IRA will sign on behalf of the account and so on. You then relax and watch your balance grow as rental payments come in or appreciation occurs.

To really maximize the strategy, many people will look to a different type of individual retirement account. You guessed it. The Roth. The strategy works the same, but the benefits are better. All distributions for the Roth are tax free, so you can set yourself up for retirement.

You probably have a number of questions regarding this strategy. This article is admittedly a simplification of the strategy. To find out more and take advantage of it, speak with an advisor experienced in the field.

Article Source: http://www.simplepetcare.com/pet-articles

Learn more about the real estate IRA strategy at UFCAmerica.com.
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