Buying a Home for Retirement
Did you know that you can use an IRA to invest in real estate?
Most Individual Retirement Accounts contain liquid assets, such as stocks, bonds and mutual funds. But, an IRA can do much more. Using a “self-directed” IRA, you can put investment property aside for retirement. Most IRAs are not self-directed, but a few companies (such as Trust Company of America) are willing to put you in control. They administer the IRA for you, but you can put whatever you want in it. Unlike most financial institutions, self-directed IRA custodians are prepared to support the unique requirements associated with illiquid assets such as real estate.
The easiest way to put a home into an IRA is to use money already sitting in the IRA itself. If you have $50,000 in an IRA, for example, you could use that to cover closing costs and a down payment for an investment property. If you have more, you could even use IRA funds to pay cash for a home. Income from the investment property goes into the IRA. Some of it pays the mortgage (if you have one), and whatever is left stays in your retirement account. Everything in your IRA will grow tax-deferred; you only have to settle with the IRS when you withdraw funds from the account.
When you are ready to sell the property, the proceeds from the sale go into your IRA, where it will stay – and hopefully grow – until you retire. In fact, you could use these IRA funds to purchase another investment property!
The only catch is that you do not own the property; your retirement account does. As a result, you can’t touch that money until you turn 59 ½ without paying taxes and a 10% penalty to the IRS. But, if you use money already in your IRA, that’s not a problem. The money in the account is already subject to these restrictions.
Real estate is hot. Instead of riding the stock market rollercoaster, you can put your retirement money into real estate. This will allow you to take advantage of the appreciation of the property and any rental income it generates without incurring any income tax burden until you withdraw the funds. The tax savings can be quite large, and you will take the important step of preparing for retirement. This unique way to get ready for retirement is not difficult, as long as you plan properly and talk to an expert.
Start planning for retirement with investment property today!
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