What are you investing in with your IRA?

[Lue C.]

I have been researching REI with IRA money. Here are some of my thoughts, and I would love to hear what you think? More importantly, what are you investing with your self directed IRA and why.

There are many tax benefits for investing in real estate - deduction, depreciation, 1031 exchange and etc. The idea is to keep "kicking the can down the road" - keep delaying paying taxes while utilizing the profits now - living off the cash flow or investing. Let me just use rental property as an example. If my net income from a rental property is $5000 last year, I can work with my tax adviser to use depreciation to "write off" that income. To the IRS, my LLC could have operated on a negative income for 2016, so I can pocket the whole $5000 without paying tax last year. I understand I need to pay tax when I sell unless I do a 1031 exchange, but let's just focus on 2016 for now.

If the same rental property is owned by my pre-tax IRA account, does it mean I can't do any of the write off? My IRA will just grow $5000 in 2016, and I will pay tax when I withdraw the money after age 59? Will these $5000 be taxed on capital gain rate (15%) or my income bracket at the time of withdrawn?

Or, is it better to use the pre-tax IRA to invest in notes and tax liens where we don't get tax benefits, and use cash to invest in rental properties and syndication deals that can utilize tax benefits? What about Roth IRA - which niches to invest with already-paid-tax IRA?

What are your thoughts?

Lue

[Daniel Dietz]

I just wanted to throw this out there for those of you thinking about if a SOLO401K might be a good fit for you AND you already have lots of funds in a 401K where you are leaving a job or a non self directed IRA.

Even if your 'self employment income' is small, say you do 5K worth of consulting or contracting 'on the side' to your regular w-2 job. You might me thinking "it will take forever to build up enough to invest". That would be true if all you did was contribute, BUT you can also 'roll-over' many kinds of plans into a SOLO401K (except ROTH, I learned the hard way with that one :-( ).

So, if you have say 100K in an IRA, but only make 5K from your self employment work, you can roll that 100K over AND contribute a few thousand of your SE income, and you have plenty to invest with. One of my partners just set theirs up using almost this exact scenario. I have a friend that is considering starting to do some 'side work' just to be able to qualify for a SOLO401K and then roll his sizeable nest egg over and start buying rentals with that.

Dan Dietz