Invest in Real Estate Through IRAs and 401k Plans

401k ira real estate investing

Are you tired of trusting the jigsaw puzzle of Wall Street with all of your retirement savings? Yields are low. You are forced to go after capital appreciation in an overvalued market like a cat sneaks up on a mouse. Did you know you can invest your retirement funds in some alternative ways that don’t include the stock market? Wall Street might not be happy if you jumped in a red rush to alternative investments. We want to help you with information to implement a retirement account outside of the stock market. This knowledge will allow you to invest in real estate through IRAs and 401k plans. It will allow you to avoid paper assets that can be gamed by the financial system.

Individual Retirement Accounts (IRAs) and 401k plans are long-term savings accounts. They offer tax advantages if you comply with various Internal Revenue Service (IRS) regulations. Many financial services firms will not allow you to invest in real estate with your IRA due to increased paperwork requirements.

Here are a few things you should specifically consider if you think using an IRA to buy investment properties could work for you.

Eligible properties

Forbes tells us that there are rules you must follow to invest in real estate through IRAs and 401k plans. “The real estate you buy must be a business property, not a personal residence, second home or occasional rental. Also, you can’t use your IRA to buy a property you already own; it has to be a new purchase directly into the IRA.

“If you want to buy a rental property, you would open an IRA custodial account, transfer cash from an existing IRA account, or possibly 401(k), into the custodial account. Then purchase real estate under the IRA account name. Very specific rules outline what you can and cannot do in funding and managing the investment. You must make sure to get good advice on those rules.”

“You can also buy and sell real estate in a self-directed IRA if you are in the flipping business, but there are limits on how many you can do per year. The profits on any transaction would be tax-deferred or tax-free, which allows your IRA to continue to grow with those tax advantages.”

A traditional mortgage loan is not available in an IRA. You need to have enough money in your IRA to purchase properties for cash if you plan on having the property as a long-term rental. There are also costs to administering the IRA. Factor those into your calculations when penciling out any real estate investment. You cannot write off losses or depreciation from any investment property in an IRA. There won’t be the traditional tax savings you’d get on rental properties. Lastly, if you fail to comply with any of the rules, it may kill your IRA and cause you many tax penalties.

You can review more key information to invest in real estate through IRAs and 401k plans at udirectIRA, which is a self-directed IRA custodian. And as always you also should get professional guidance from an accountant and lawyer.

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