Realtor · Memphis, TN · Member since 2015 · 54 posts · 20 votes
Suppose you are 59 and 1/2 and can withdraw from your IRA without having to pay the 10% penalty and would only have to pay taxes on the amount you withdraw. You want to start buying investment properties but is unsure of the right direction to take. Do you withdraw the money, pay the taxes and invest the money in real estate or do you roll the IRA to a SDIRA, setup an LLC and purchase investment property through the SDIRA controlled LLC? Obviously, there's pros and cons to both scenarios. I'm just wondering if it's worth it to withdraw and pay taxes to get the freedom of doing what you want with the money or setup the SDIRA and be chained to the rules and regulations and fees.
I'd love to hear from all the experts out there on what is the better choice.
As with so many things in this field, there is no one right answer. A discussion with your CPA would be the best starting point.
If you need the income that will be produced by your real estate investments, then sheltering that income into an IRA, only to have it taken out and taxed is not necessarily an advantage. Of course, you will have a lot less to work with after taking a distribution from the IRA and paying taxes.
On the other hand, you can look at a SDIRA invested in real estate much like an annuity. The principal can be in a secure, real asset, and produce reliable steady income. As compared to investments in Wall St where you typically have to liquidate assets in order to generate distributable cash, this can be an advantage.
@Brian Eastman: Thank you for your response. For my first investment I've got to get it right because all others will be built upon it. I will find a CPA and look at both options before making a decision.