Necessary Roughness

Self Investing IRA Funds in Real Estate

By self investing IRA funds, account owners have options that are not available in other retirement accounts. For example, investing 401K money in real estate is not usually an option, but by rolling the funds (or a portion of them) over into a self directed IRA, 401K funds can be invested in real estate.

The stock market is down and most investment options are dependent upon the stock market. Some companies are still doing well, but in order to invest in the right companies, you need some control over where your funds go.

Allowing your brokers to make most of the choices for you may not be a good idea, particularly if you want or need quick returns. There are some drawbacks to self investing IRA funds.

You will have to spend more time watching the markets, so that you can make educated decisions and you’ll have no one to blame but yourself if you lose money. But, if you get the right help or advice, you can grow your account more quickly.

If your 401K balance is not growing as quickly as you would like, you might want to get your broker on the phone. You may be able to change the way your funds are invested, in order to maximize your growth.

Generally speaking, investments that make big quick profits are the riskiest. It’s just as easy to lose money, than it is to make it, but real estate is a little different.

Investing 401K money in real estate is difficult, because you cannot hold a deed in the account. With a self-directed IRA, you can purchase, manage and resale property, without ever using any of your personal funds.

So, if you have a 401K and you want to invest in real estate, you will either have to roll the funds over into a self-directed IRA or withdraw funds, make the deal that you want and return the funds, along with the profits, back to the account when you are done. The problem is that a 401K consists of pre-tax dollars, so all withdrawals are taxable.

Another type of IRA may be a better choice for the real estate investor. If you have a Roth IRA, you have already paid income taxes on the dollars in the account, so qualified withdrawals are not subject to tax.

If you purchase real estate using a Roth IRA, you can hold the property in the account until you are ready to sell it. When you make a profit on the resale, you pay no capital gains taxes. Capital gains, alone, can amount to thousands of dollars, if you make a good deal.

If you try investing 401K money in real estate, the taxes will likely eat into your profits. The best choice for real estate investors is a self-directed Roth IRA.

Self investing IRA funds in real estate can be very profitable, if you have the time and the know-how. If not, there are some experienced investors that are willing to help you find the right deals and when it comes to your retirement, it’s always a good idea to ask for help.