Pretty much everyone knows that real estate can be a great investment, but many are starting to understand the value of buying property with a retirement account such as an IRA.
It is very important to be fully aware of the tax implications, legal ramifications, and various other intricacies of purchasing Parkersburg real estate within your IRA. It can get very tricky and we of course recommend hiring the right person to help you through that process. We can give you a couple tips to help you out, but make sure you obtain legal advice before doing anything with your IRA.
So, let’s dive into some tips on buying real estate with your IRA in Parkersburg WV!
Tips on Buying Real Estate With Your IRA in Parkersburg
First off, if you don’t have a self-directed IRA you’ll need one. It’s best to connect with a trusted financial advisor to find a reputable and low fee self-directed IRA that makes sense for this objective. You can always connect with us and we will try to steer you in the right direction in finding a great financial advisor.
Start by Opening a Self-Directed IRA
Before you can buy any investment properties in Parkersburg with your IRA, you need to open a “self-directed” IRA. To accomplish this, you can visit your financial advisor or another trusted fiduciary to act as the IRA custodian. A fee-only financial advisor can help you set up this account with minimal hassle, while a commission-based financial advisor may attempt to steer you clear of purchasing tangible assets within your IRA (he or she won’t earn much on the investment). Both can be right for different situations so consider what you are looking for before using one of them.
What Properties can you buy with an IRA and What Rules Apply?
You can buy a very wide array of different properties when purchasing with your IRA. Many investors are starting to see the merit in buying low maintenance investments such as parking lots, storage unit facilities, and other types of property that require little maintenance while creating a reliable stream of income. This can be a great option, but you can also purchase more standard real estate such as single family homes, multi-family homes, and apartments.
The catch is that the IRA cannot own any property that you plan to live in, vacation in, or rent to family. It has to be purely purchased for investment reasons. Legally, you aren’t even allowed to spend one night in the property. You can’t even buy a property with your IRA if it comes from anyone in your immediate family. A solution that many investors implement is to purchase a home for their IRA, rent it out for income until retirement, then assume residence upon retirement.
How Does Income Work With Real Estate In An IRA?
The rental income that the property generates can not be used for your personal current benefit. This means that all of the income generated by the property goes back in to the IRA until retirement where you will have access to it again. If you decide it makes sense to sell the property you must leave all proceeds in the IRA after the sale. Also, property taxes, insurance, improvements, and other costs associated with the property must be paid by the IRA. Failure to comply with these regulations could disqualify your IRA, subjecting you to income taxes on the entire value of the property, plus a 10% early distribution penalty.
It’s important to remember that all distribution rules associated with an IRA (or Roth IRA) including taxation, required minimum distributions, beneficiaries, and other factors do not change when using a self-directed IRA to purchase a property. There can be a huge upside to real estate in your IRA, but it’s best to know exactly what’s in store. Find a trusted financial advisor to walk you through the process. We are always willing to help in any way we can!