Add Real Estate To Your Retirement Account

Spooked by the stock market? Wondering what kind of
return you’ll get with bonds? Getting minimal return in your money market
fund?

Here’s an option you may not know about: The U.S. Internal Revenue
Service allows you to have real estate investments in a self-directed IRA
retirement account.

“It’s a wonderful way
to increase your retirement fund,” says RuthAnn McBride (CDPE, CIAS), a real estate agent with RE/MAX
Estates in Estero, Fla. “You can take any or all of the money that you currently
have in an investment fund and buy real estate.”

You can invest in any type of real estate – single-family homes or
condos, multi-unit properties, commercial real estate, even vacant land –
through your retirement account.

The critical factor is that the investment must be in the name of your IRA –
not your own name.

Taxes are deferred
As with any tax-deferred
retirement account, income and capital gains accumulate tax-free until you tap
into the funds. Once you do so – you can begin withdrawing funds with no penalty
at age 59½ – you pay taxes on the gains. Rent or lease payments, then, flow
directly into the retirement account. Expenses – maintenance and repair, costs
for finding new tenants and so on – are taken directly from the
IRA.

“This is for your retirement,” McBride says. “Not for income that
you can use right now.”

Restrictions on real estate investments in
retirement
.

  • The limit on the amount of new money you can invest ($5,000 annually if
    you’re under 50, $6,000 if you’re 50 or older) applies to real estate, just as
    it does to any other tax-deferred retirement investment.
  • The property must be a true investment. Neither you nor your spouse can live
    or vacation in it, nor can lineal family members (parents, grandparents,
    children, grandchildren, great-grandchildren) or their spouses.
  • You can’t write off expenses or losses on your taxes.
  • The investment must be in care of a
    government-approved custodian, which holds the investment. (Only a small number
    of such custodians exist in the U.S.; a RE/MAX real estate
    agent
    experienced in investing can help you find one.) And a separate
    administrator must handle record-keeping and tax reporting.
  • If you sell the property and make a profit, the gains go into the IRA, not
    to yourself. If you choose to re-invest the profits in real estate, you can do
    so – but still in the name of the retirement account

Such investments aren’t for everyone, McBride
cautions.

“Liquidity might be an issue if you’re concerned about needing
your money before retirement,” she says. “Like any other real estate investment,
it may take time to sell. Your money is not liquid.”

McBride
enthusiastically endorses real estate investments in an IRA.

“It’s the
best of all worlds,” she says. “The beauty of it is, even when you begin
withdrawing funds, you still have the underlying asset – the property – which
can continue to appreciate in value. Over the long-term, real estate
traditionally has been more reliable and made more money for investors than more
traditional retirement investments. Another advantage is this: Suppose I buy
stock in a company that folds. That money is gone. But real estate will always
be there.”

Realtors aren’t qualified or authorized to offer tax advice,
so you should consult an accountant or other tax expert before deciding whether
real estate makes sense as a retirement investment – and how to structure the
transaction.

When you do decide to invest in real estate, contact a RE/MAX real estate
agent
experienced in investing to help you find and purchase the right
property.

The advice offered here comes from sales associates affiliated
with independently owned and operated RE/MAX real estate
offices
and may not be applicable to all areas. Contact an independent
RE/MAX agent near you for expertise tailored to your locale.