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HOLDING REAL ESTATE IN YOUR RETIREMENT ACCOUNT
Are you holding any real estate in your retirement
account? Did you know that you can? That is right.
Your IRA, your SEP, your 401K, your Roth….even the new HSA's are all legitimate
accounts that can
own real estate. Even though there will be an administrator, these accounts
are called self-directed.
Here are a few of the highlights:
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There is no income tax due from the rental income as
well as the profit when you sell the property
for properties that are held free and clear. When you retire and take
distributions, then income tax
will be due at a time when your tax bracket will generally be less. For
rental properties, you may
not pay yourself a management fee for being the property manager.
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Not everyone's retirement account is set up to hold
real estate or other unconventional assets,
hence you may need to rollover your assets into a different account/company.
The company that
I am using is Entrust New Direction IRA out of Boulder, Colorado. (See
link below.)
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No self-dealing. The property that your IRA buys
cannot be bought from you, your spouse, your
kids, grandparents or parents. You are allowed to buy from your
brother or sister, nieces or nephews.
Similarly, when your IRA sells the property you cannot sell to those
parties, either. Lastly, none of the
prohibited parties is allowed to "use" the property as a tenant or any type
of occupant. That would also
include a company that you own or have a significant ownership interest in.
The eligible properties
are intended to be investment properties.
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So long as the property is held for investment, pretty
much any type of real estate is OK. Vacant lots,
rental homes, apartment complexes, condominiums, a commercial building, etc
are all examples of
acceptable investment property.
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If you do not have sufficient funds in your retirement
account, it is possible for your IRA to borrow funds so a more valuable
piece of real estate could be purchased.
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Another way to buy property would be in a partnership
with your IRA. Here is an example. You find a very nice rental
building selling for $500,000. You only have $300,000 in your
retirement account. The transaction could be structured as follows:
The IRA puts up $250,000 and gets an undivided 1/2 interest.
Simultaneously, you and your wife personally purchase the other undivided
1/2 interest for $250,000 cash. From that point forward you and the
IRA share the expenses and the income 50/50. Just to make sure you are
understanding this: you cannot sell your 1/2 interest to the IRA nor can you
buy out your IRA's interest.
Obviously there are other rules that have to be followed, so that
is why Team Lorenz recently sponsored a
seminar on the subject of using your retirement funds to buy real estate.
Participants included the principals
from Entrust New Direction
IRA who would be the plan administrator and The Bank of Colorado which is
now
set up to make loans to your retirement account in the event you would need to
borrow some money
to make a transaction work.
For a DVD of that seminar plus copies of the materials
used, please click here, fill out the form and we
will mail those items to you.
For additional, more detailed information,
click here to be taken directly to
the Entrust New Direction website.
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