Buy Real Estate in a Retirement Plan?

Did you know that you can roll-over money from your existing IRA or 401k and create self-managed IRA or self-directed 401k or 1k retirement plan?

Although purchasing real estate in a retirement plan is nothing new, there are still many people who have never head of this concept. Investors have been able to do this since the IRAs were first created in the mid 1970’s. But unless you had a tax attorney or CPA that knew of these plans and which company to send you to that would allow you to hold non-traditional assets in the retirement plan, you would probably never have heard of it.

The real benefit of investing in this manner is that it allows an investor to purchase real estate and not have to pay any taxes on the profits and gains until they start using the money at retirement age. Depending on the type of retirement plan, the profits are either tax deferred or tax free. The fees to set up a retirement plan of this sort are extremely reasonable.

Considering the current and recent past history of Wall Street and what can happen to your retirement savings, it may make sense to look at diversifying some of your retirement assets into a tangible investment like real estate.

There are rules when a person is investing in this manner. First, the investor cannot have any personal benefit from what the IRA or 401K is purchasing. Meaning, the IRA investor cannot live in the property, vacation to it, let their college age children live in it, etcetera. It must be for investment purposes only. In addition, the investor is not allowed to create an income for themselves right now off what the IRA investment is generating. An example of this would be if your IRA owns property, it would not be a good idea to manage the property yourself and take a management fee.

This obviously would not be a suitable way to purchase a second home for you to enjoy using, but it is a very effective method in investing money that is currently in an existing retirement plan to purchase further investment properties or if you were not interested in having a second home but would just prefer to diversify your retirement plan. Remember, they do not have to be investment properties forever! You may at retirement age want to enjoy using one of them.

You will see these methods of purchasing real estate become much more popular as establishments realize there is more demand for these products and financial professionals become more educated in handling these requests from their clients.

I truly believe that after the banking and Wall Street financial mess that has recently occurred and seems to repeat itself in some fashion or other just when it seems your retirement plans are recovering from the last “market adjustment,” investors will want to have more control over their life savings. Real estate when purchased astutely and held over the long-term is a safe and tangible area to invest in.

I am not a Certified Public Accountant or a Tax Attorney; however, if you are interested in learning more about this, I would be happy to point you or your attorney or accountant to the financial institutions and advisors that specialize in managing these types of retirement plans. Please don't hesitate to contact Andrew for more information, or call (970) 453-2200 for assistance.