Real Estate & IRAs

Real Estate & IRAs

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:

  • 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.   
  • 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 New Direction IRA out of Boulder, Colorado.  (See link below.)
  • 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.
  • 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.
  • 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.
  • 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 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.  First National Bank of Durango also can do loans to your IRA for the purchase of real estate.

 

For additional, more detailed information, click here to be taken directly to the New Direction website.

View Site Map – Durango Real Estate – BuyDurango.com

You Tube   Active Rain Blog   Facebook   Linked In

Rick Lorenz, Broker, CRS, ABR, CLHMS, CNE
Team Lorenz with The Wells Group Located at
901 Main Ave, Durango, CO 81301
Phone: 970-375-7007
http://BuyDurango.com 800-955-0259 ext.1123
E-mail: Rick@BuyDurango.com

Copyright 1999-2016
All content is copyright protected as the intellectual property of Rick Lorenz