Using Retirement Assets to Purchase Real Estate
Accelerate your knowledge on the process and advantages of using IRA funds to invest in real estate.
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USING RETIREMENT ASSETS TO PURCHASE REAL ESTATE
It is a common misconception that retirement assets or funds should only be used for investment in mutual funds, debentures, or stocks. They can be redirected to the real estate market as well and properties can be bought with IRA accounts. The biggest benefit of buying a house with retirement assets is that the profit made in the future after selling the property is tax-deferred till the time of distribution and tax-free if it is a Roth account.
Here are a few tips that can come in handy while using retirement assets to purchase real estate:
- Any real estate purchase entails the payment of the deposit and purchase price. These payments need to be made via the retirement account funds only. The funds of a disqualified individual cannot be used.
- Even the additional costs of buying and maintaining a property should be sponsored by funds from the retirement account including the maintenance expenses, taxes, and repairs.
- In case the funds in the retirement account fall short of the requirement, the extra funds need to come from the account of a non-disqualified person.
- A non-recourse loan can be taken for financing the purchase transaction if additional money cannot be arranged for completing the purchase transaction. This loan does not hold the borrower responsible for the repayment of the loan but the property acts as the security.
- The owner of the retirement account is provided all the losses, income, and profit from the real estate investment through the account.
- If you are planning to buy a property using a self-directed IRA LLC, the LLC should be formed in the state where the property is located. This is recommended in order to avoid the additional fees for filing the property in your name.
- The title of the property purchased is required to include the name of the retirement account in it.
- Buyers are not allowed to use the nonrecourse loan funds to purchase a property if they apply the self-directed IRA system.
- A property cannot be bought by a retirement account holder in partnership with a disqualified person as it is prohibited by the IRS.
- The retirement account is not to be used in a way that could lead to a conflict of interest. This means that the retirement account funds cannot be used to buy the primary residence and the property purchased cannot be used as a vacation home. Even a relative cannot benefit from it. Only after the buyer crosses the retirement age the property can be claimed as the residence. This conflict of interest arises because the tax benefits of retirement accounts are used for material gain which is prohibited.
Follow this guide and carefully study the prohibitions to make a successful property investment using retirement assets.
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