Speed-Up Retirement Fund Growth Using Self Directed Real Estate IRA’s

Posted on: January 20, 2011

Categories: Buy, Ideas, Investors, Other Articles, Profit

Author: lbuen

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Photo courtesy of Philip Taylor PT

With the tremendous earning potential in real estate investing and the velocity of money with which one can rake in earnings doing this business, financial freedom and early retirement could just be on the horizon for many successful real estate investors. If you are one of them, then perhaps, the forecast that Social Security may no longer be able to pay full benefits in the years to come as it is about to run a negative cash flow by the year 2017 is none of your concern. It may not even matter to you if you cannot yet avail of tax-free distributions from your IRA. However, a savvy real estate investor like you can make use of your expertise to accelerate the growth of your IRA. This is through self directed real estate IRA’s.

Self directed IRA’s are a type of Individual Retirement Accounts that allows the account holder have control over money and investment decisions. While the typical IRA’s involve mutual funds, CD’s, stocks and other paper assets, self directed real estate IRA’s can also make investments in the real estate. For instance, you put a rental property under your self directed IRA by putting the rental income into the retirement account. However, properties that you personally use are excluded from this account. You are also not allowed to rent out properties under your IRA to your spouse, parents, grandparents, children and grandchildren. But you can take in your siblings as your tenants. Besides these, there are many other rules that complicate self directed real estate IRA’s. Nevertheless, this type of retirement account has several advantages that outweigh its complexity.

Why Bother With Self directed real estate IRA’s

Enjoy Tax Free or Deferred Tax Advantage.

Depending on the kind of IRA, you can enjoy either deferred tax or exemption from paying tax. In the first kind, your yearly contributions, which you make using pre-tax dollars, is not taxed. You will not be taxed until you make withdrawals when you retire.

The tax-free kind is called Roth IRA. Here, you pay annual contributions using after-tax dollars. Although you do not enjoy tax advantage in the year you paid the contribution, but the growth of the retirement account and the income you withdraw when you retire are not taxed. Because of this tax advantage, the majority use as instrument Roth IRA for real estate investments. By using this, all the profits you make from your real estate deals would be tax-free.

Benefit From the Power of Compounding

Just like in other financial vehicles, the power of compound interest speeds up the growth of your retirement fund. Combine that with lucrative real estate investments in your self directed IRA, plus the fact that the amount you ought to pay as tax is also added in the total account balance also compounding interest, and witness how fast your money grows. Too bad, you will have to wait for your 59th birthday, before you can start making penalty-free withdrawals. But at least, your future is secure.

Protect Your Assets From Creditors

Under the shelter of federal bankruptcy law, IRA’s are normally protected from creditors in bankruptcy cases.

Pass On Tax-Free Inheritance for the Next Generation

Roth IRA’s allows you to pass on a growth savings instrument to your heirs after death sans the burden of assets.

Leverage On Your Expertise in Real Estate Investing

As a savvy real estate investor, you can cherry pick the real estate investments to include in your IRA. With a self directed real estate IRA, you may not always need the services of a hard money lenders. You can flip a house using funds from your self directed real estate IRA as option money or as downpayment.

In the world of real estate investing, you can make money with little to no money. Hence, it is an excellent tool to achieve financial freedom and fund your retirement. Enhance that with self directed real estate IRA’s, and you can zoom your way to financial security and bliss.

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