For people looking for a retirement savings plan, often a self-directed Roth IRA plan is a great option. People have the option of investing in your typical stocks and bonds, or they may choose to invest in real estate. In this article we’ll take a look at the self-directed Roth IRA real estate rules, as well as a basis “how to” when it comes to getting started. With just a bit of research and time you can become an expert where real estate ivesting with self-directed Roth IRAs is concerned.
Getting Started in Self-Directed Roth IRA Real Estate
We’ve put together this article for those looking to get starting in this type of self-directed retirement plan, and are currently feeling a bit overwhelmed and confused. First things first, you aren’t alone. There are people looking to make these kinds of investments all the time who have little, to no knowledge in the area. This isn’t a reason to shy away. Instead it’s an opportunity to jump in feet first and get yourself acquainted with the rules of real estate in relation to self-directed Roth IRAs.
Now it’s time to dispel that old myth that it’s not possible to hold real estate in your retirement plan. In fact, a self-directed Roth IRA in real estate can prove to be quite lucrative. Once you understand the rules, its relatively easy to get involved in. Remember there is no set age when you should start thinking about and taking action for your retirement. This means you’re never too young or too old to get started.
What Kind of Real Estate Holdings Can You Have?
Of course the next logical question is what kind of real estate holdings are you allowed to have? Again, you’ve got lots of flexibility here. You can have such things as a condo, an apartment, co-op, a house, a multiplex house, and even just land. Granted there are more steps involved in buying real estate, but as noted your return can be much higher than that of buying into stocks and bonds. For many people it’s well worth considering.
Clearing Up the Self-Directed 401K Real Estate Rules
Just as you would expect, there are self-directed 401K real estate rules that you’ll need to brush up on. The factors you need to consider, and be aware of, are the income limits and contribution limits. These change on a yearly basis, and are set by the IRS. Make sure you aren't looking at old information, as you'll find yourself using the wrong totals.
The first requirement you need to be aware of are the rules of eligibility. This is determined by taking a look at your tax filing status and your year-end income for the current year. Your income must take into account all the income you have earned for that year. The government determines the limit, and you can't be over it. You'll find the limits and contributions differ depending on whether you are married and filing your taxes jointly, married but file your taxes separately, or you are single.
Are there Any Negatives?
We’ve discussed the fact that a Roth IRA in real estate that is self-directed can be quite lucrative, but what about the negatives? Are there any? Just like any sort of investment, there are a couple of negatives. It’s a question of whether the positives out-weigh the negatives for you.
One glaring negative is the fact that in order to purchase the real estate as part of your self-directed Roth, you need to have the funds available to you in your retirement savings. This isn’t the case for everyone. If you’ve just started to save, likely you won’t have enough money to make this kind of big ticket purchase. If you have to purchase the real estate using other funds then you won't be able to take advantage of the tax-free earnings that is available on the financed portion of the real estate.
When you set up the self-directed IRA, it needs to be done with a "Custodian". As well, you can't use that real estate property in a way that offers personal benefits. You can go ahead and rent the property to someone, but you can't use it yourself or manage it. Whatever the property makes (the income) must be fed right into your IRA. That money needs to remain there until you have retired.
You will pay for home insurance, property taxes, and even maintenance/improvement fees out of the IRA, rather than your own personal money. There are also rules and regulations that prevent you from purchasing real estate from a family member for your self-directed IRA. Again, it’s all about looking at the pros and cons and deciding if this option works for you.
We always recommend diversifying your investments. In these times of relative volatility, investing in gold and other precious metals is a great way of protecting your wealth. Regal Assets is a reputable company with excellent customer service and can help you roll over part of your IRA funds into gold.
The Final Verdict
This is one of those cases where there isn’t a clear-cut answer. A real estate holding with a self-directed Roth IRA can be a wonderful option for many people who are planning their retirement plan. While there are a few steps involved in setting it up, once you get started you’ll see the process is smooth sailing from there. With just a little work you could find yourself with a hefty retirement savings to enjoy.