At 1031 Exchange Place, our services are focused on utilizing a 1031 exchange as a means to defer tax and accomplish your investment objectives. In today’s post, though, we’ll go over another investment tool: an individual retirement account, or IRA. Not only do IRAs provide great tax benefits, but they’re also a great vehicle for those looking toward their future to invest in real estate. If you’re fond of real estate, using a self-directed IRA – which isn’t mentioned as often as it should be – might be particularly beneficial to you. Here are some basics.
A standard IRA is a long-term savings account where you add cash or cash equivalents over a long period of time. Your account will have an administrator, who is in charge of using your contributions – which are tax-deferred – to buy various securities, such as stocks and bonds. The goal is to moderately grow this account based on smart, safe investments; when you reach retirement age, you can access both the original principal and your investment returns.
As the name would suggest, with self-directed IRAs, you decide where these investments are made – not an administrator. Instead, you have a “custodian” appointed by the IRS – you can direct this entity to make purchases for you through what becomes a separate account. Essentially, any property purchased under this agreement belongs to this IRS entity and your IRA, not you directly.
There are several distinct positives with a self-directing IRA:
There are also a few things to watch out for here:
If you don’t have a self-directed IRA but are interested in investing in real estate in your IRA, we can help you get one setup. If you already have one, talk to one of our advisors about viable real estate options.