As real estate investing continues to grow in popularity worldwide, it’s important to understand the advantages of buying real estate with an IRA account, since this option opens up a world of new opportunities for would-be buyers.
“Few investors realize that the Internal Revenue Service (IRS) permits retirement accounts, such as an IRA or 401(k) plan, to invest in real estate and other alternative investments”' wrote Forbes. “The two most common vehicles for purchasing real estate with retirement funds is the self-directed IRA and employer sponsored 401(k) plan”.
Since most 401(k)s don’t offer real estate as an investment option within the plan, however, the self-directed IRA has become the most popular way to buy real estate with retirement plan savings. Due to the ongoing effects of consistent property appreciation and rental income, real estate has become an increasingly attractive option for investors and is one of the best ways to make money available today.
Here are four major advantages of investing in real estate with a self-directed IRA account:
1. Delayed Taxes on Gains
When you invest in real estate outside of a retirement plan, taxes are owed right away on any rental income you might have, and similarly when you sell property for a gain you will also owe taxes. In an IRA, however, taxes are delayed as long as the money is kept in the retirement account, which can help you earn a much greater after-tax return on your income producing property.
“One of the primary advantages of purchasing real estate with retirement funds is that all gains are tax-deferred until a distribution is made”, Forbes writes.
2. Rental Income
Speaking of income, when you buy real estate that can be rented out as income producing property – such as a turnkey vacation home – the rental income can be used to pay off expenses associated with the property and any extra rental income will stay in the IRA account, where it will grow tax deferred and can also be used for other investments. Best of all, when you finally do retire, you can continue to collect rental payments as a supplement to other income sources.
3. Protection Against Market Volatility & Inflation
Real estate tends to be much more stable than the stock market or other traditional investment vehicles like mutual funds and bonds, because real estate investing lacks the day-to-day volatility of other markets. Consequently, investing in real estate is often less stressful for the buyer and offers a lower-risk option to make major progress towards saving for retirement. In addition, since buying property has historically outpaced inflation, your retirement spending will grow at a greater rate and provide greater financial security for the long term.
4. It Can Pay for Your Retirement Home!
Do you have a dream home in mind that you would love to spend your golden years in? Buying real estate with an IRA can help you make that dream a reality! By using the property’s rental income to pay for the home’s expenses and grow your retirement savings, you can become financially secure even faster and with less headache than traditional investments. When you reach retirement age, simply withdraw the property title from your IRA and move into your perfect new home, or sell it and use the proceeds to fund your dreams!
Do you have any questions about buying real estate with an IRA account that we haven’t answered? Let us know in the comments!