Access your IRA or 401(K) funds at your local bank with an IRAcheckbook or 401Kcheckbook Plan. An IRAcheckbook or 401Kcheckbook Plan affords you complete control of your retirement savings. Yes, you can use either of these plans to purchase investment real estate. If desired, you can even obtain a loan to purchase the investment property using retirement funds as the down-payment. This creates diversification without tying up all of your retirement funds.
The IRS requires a non-recourse loan for all real estate purchases that use funds from the IRAcheckbook or 401Kcheckbook Plan as the down-payment.
Many people think that they cannot use their IRA or 401(K) to purchase investment real estate. The truth is, YOU CAN and with many benefits. One of the main benefits of real estate IRA is to diversify your portfolio. By purchasing rental property; multi-family apartments; a commercial building; land or even a rental property on the beach, you can tap into your IRA or 401(K) money without paying a penalty and invest in what you know. Where do you see opportunity? By leveraging part of your retirement, real gains are once again possible. Be your own wealth advocate!
What all hard-working taxpayers should know.
Using self-directed IRA or 401(K) funds to purchase income-generating real estate is a profitable strategy an ever-growing number of savvy investors are experiencing, especially given the current market conditions. With an IRAcheckbook or 401Kcheckbook Plan, you can buy rental property as an investment – just as you would buy stock market securities. This means our customers can use their retirement funds to buy real estate without incurring early distribution taxes or penalties, and they can realize the rental payments as tax-deferred income within their IRA or 401(K); and in the case of Roth IRA funds, tax-free growth. That’s right! Rent does not show up on the tax return. There’s also no Schedule E because the rent is seen as a return on investment to the IRA or 401(K), not income. The same is true with capital gains. Profits upon sale are seen as a return on investment to the IRA or 401(K) and there is no Schedule E involved. All that is required is a one-time report of value for the self-directed IRA at year-end. In the case of a self-directed 401(K), there’s no requirement for a year-end report if the value is less than $250,000. The power of this is evident!
Who’s promoting self-directed investment into real estate?
Buying real estate in an IRA or 401(K) is not new. Commonly called a Self Directed IRA or 401(K), it has been an option since the passing of the Employee Retirement Income Security Act (ERISA) in 1974.
However you’re not alone if you are one of many investors who are not familiar with the self-directed concept. It isn’t promoted or supported by brokerage firms who would rather sell you stocks, mutual funds and bonds over and over again for multiple or ongoing investment fees instead of the one-time fee for buying real property.
Using your retirement funds in conjunction with a loan.
Using a non-recourse loan in conjunction with your IRAcheckbook or 401Kcheckbook Plan can create a powerful wealth-building tool. It’s very important when you set up a self-directed IRA or 401(K) with a non-recourse loan that you work with an experienced and reputable facilitator, real estate lender and tax professional. We believe our team and affiliates are the best in the business. In fact, our company, IRAcheckbook, is one of the top five facilitators recommended by NASB, North American Savings Bank.
There are a limited number of banks that will provide non-recourse loans, and it’s worth your while to seek them out. Be prepared for the possibility of some confusion unless you’re dealing with a bank that specializes in non-recourse lending or a commercial lender. Many banks that have provided non-recourse loans in the past have usually done so for multi-unit or commercial purchases, not single-family homes bought by self-directed IRA or 401K funds. The right tax and real estate professionals can help you get through this confusion.
With the right counsel and professional direction, you can open the door to many more investment opportunities for your IRA or 401(K). Real estate investments you once thought were “out of reach” can now be part of your portfolio!
Right here are some examples:
(1) If you choose to purchase a retirement community and you’re years far from retiring, utilize your IRA or Real Estate 401k to purchase the property and rent it out in the meantime. The earnings you get in rent is tax deferred until you start to take withdrawals, so you can put it away up until you do retire. When you prepare, you just direct your Individual Retirement Account or 401k to turn it over to you as a distribution at the current market value.
(2) If you decide to buy a domestic rental building for a $100,000 and the leas are $1,000 per month, utilize your IRAcheckbook or 401Kcheckbook Plan to buy the property. When possessed, deposit the rents into your IRAcheckbook or 401Kcheckbook account which’s it; no fancy accounting, no Arrange E, simply a one-time annual report for the IRA and no requirement for the 401(K) if the value is under $250K. The leas are considereded a return on investment to the IRA/401(K) so they don’t show up as taxable income on the income tax return. Let’s state you discover a better deal for a rental, so you offer. Again, there is no capital gain for the IRA or 401(K); all revenue is viewed as a return on investment under the umbrella of the IRA/401(K) provisions. You can purchase numerous properties by doing this and the same holds true. Everything is deemed assets of the IRA or 401(K)!
(3) If you choose to acquire a net-leased business home for a $2,500,000 and the net operating income is $250,000 annually, use your IRAcheckbook or 401Kcheckbook Strategy to buy the building. Once owned, deposit the rents into your IRAcheckbook or 401Kcheckbook account and that’s it; no elegant accounting, no Schedule E. The leas are considereded a roi to the Individual Retirement Account or 401(K) so they do not appear as gross income on the income tax return.
(4) If you choose to buy land for a $250,000 and are land-banking for numerous years, utilize your IRAcheckbook or 401Kcheckbook Strategy to purchase the lot or system. When offered, all earnings is deemed a return on investment under the umbrella of the IRA or 401(K) arrangements. You can acquire multiple properties this way and the exact same is true. Everything is viewed as properties of the Individual Retirement Account! That’s it; no expensive accounting, no Set up E. Some limitations for the examples above:
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