The IRS allows IRAs and 401(k)s to purchase investment real estate, but most people don’t know where to start or how to do so.
Clay Malcolm from New Direction IRA – a self-directed IRA service, recently joined us for a webinar to share how to generate more commissions from your existing client base via IRA investment. As a real estate expert, you can also use this IRS rule to invest your own SEP IRA or Solo 401(k).
Two benefits of self-directed IRAs benefits for you and your business. The first benefit is to be aware that by putting your real estate expertise to work within your own traditional/ROTH IRA, SEP IRA, SOLO 401(k), or HSA, you may be able to retire with more savings and/or sooner. Secondly, by working with IRAs, you are opening up a new source of business. As a real estate professional, this knowledge base can allow you to create more business out of the same relationships you already have. Your existing clients and contacts may have IRA money that is sitting on the sidelines, and you can help them put that to work.
Tax-deferred/free plans eligible for self-direction. Traditional IRA, ROTH IRA and HSA (Health Savings Accounts) are the three individual plans that can be used for a real estate investment -- although they all have different contribution and distribution rules and different tax advantages.
Employer plans. Simplified Employee Pension (SEP IRA), Savings Incentive Match Plan for Employees of Small Employers (SIMPLE IRA) and a 401(k) Plan, as long as the plan document allows for it, can also be used. If you’re self-employed, a SEP IRA or individual 401(k) may be a good option as it gives you a higher annual contribution limit than individual plans.
Due diligence lies with the account holder. The IRS does not endorse or approve investments (nor does the IRA provider). It’s important to remember that the due diligence of these investments lies with the account holder (you or your client) and their team.
While these types of accounts can invest in real estate, they cannot invest in life insurance or collectibles – i.e., any work of art, rug or antique, alcoholic beverage, stamp or coin, or any other tangible personal property specified by the IRS for purposes of this subsection. Possible assets include precious metals, public or private entities, lending and real estate. One of the key set of rules that the IRS does engage in is the self-dealing concept. A personal benefit derived from your plan that does not come to you as a distribution is not permitted.
Prohibited transactions include selling something you own to or buying from IRA, personal use of plan assets, use or assets by fiduciary or providing services for IRA.
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Real estate investment choices are varied:
Single family and multi-unit homes, apartments, condominiums and commercial property - Improved or unimproved land, mortgages, lease/options, foreign property investments, trust deeds and leveraged and un-leveraged property
- Fix and hold, fix and flip or redevelop, hold for appreciation, short sales and foreclosures
Setting up an account takes just three easy steps. You can download an application online, fund your account and acquire assets so you are ready to make your first purchase. You can fund your account by doing a transfer, distribution/rollover, former employer 401 (k) rollover or annual IRA contribution. Those procedures are not taxed or penalized.
Whichever IRA provider you or your client use, it’s important to select an IRA provider who understands these types of investments, since they’re a bit different from the standard IRA. In addition, make sure they offer free educational and technological, ongoing support services. You want to have an expert in your corner to make sure that you never end up in a bad situation.
Watch the full webinar here and learn more at newdirectionira.com.
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