Why Buy Real Estate in Your (IRA) Retirement Accounts?

Question

The single most powerful way to accumulate (and keep wealth) through real estate is to purchase it in your ROTH IRA account.

Purchasing within a ROTH IRA is using "Post-Tax" dollars, in other words, you have already paid taxes on this money. What this allows you to do is to GROW these dollars "Tax-Free" moving forward.

Granted there are always exceptions, the laws could change, and I'm not an accountant or tax attorney, so please do your research. But, the benefits I've discovered far outweigh the disadvantages.

Also, a comparison between purchasing within a ROTH (post-tax) and traditional 401k (pre-tax) can yield similar profits depending upon the terms, so you will need to do your own calculation.

Here is an example:

I purchased a portfolio of 7 properties in my ROTH IRA with partial seller financing. I paid $6k down for each property with my limited ~$50k in my retirement accounts. The total loan was ~$200k, for a total price of ~$250k. I am now looking to sell these properties for ~$395k (the properties still have an appealing NOI of ~10.3%!!!).

You can see the deal here: https://kansascity.craigslist.org/reo/d/kansas-city-103-cap-house-investment/6887776974.html

Any "profit" that I earn in this account is essentially "tax-free." And you can continue to do this over and over again.

Additionally, I'd like to build a network of people using this powerful tool so that we could be each other's bank for short and long-term deals. Thanks.

-LanceWills.com

Jay Hinrichs · Answer

I like land in the path of progress plays for a roth.one deal I put together for my clietns that had roths and am a principal in this one I control 50% the other 50% went to just what your talking about small roth investors who are betting big time life changing gains. I optioned 117 acres in Hillsboro Oregon.. currently farm ground will be next to be annexed into the city residential.We got a nice deal on it at 5,400,000 with ONLY 250k cash down and we make, get this payments of 120k a year NO interest all the payments are principal.. Once the property comes into the city Next 5 to 10 years.. it gets upzoned to resi and commercial.. value shoots from 50k an acre to over 650k an acre or 76,000,000 .. now of course depending on when this happens will dictate the return but we might have only 2 mil in cash in it over 10 year period.. small group of mid 30s successful business guys here In Oregon who each took it in their roth.. so less than 10k a year so maybe invest 100k or so over the 10 year and get well in excess of 2 to 3 mil tax free.. and completely passive nothing to do but wait and make one payment a year..With houses that fine as long as you flip them.. I don't particularly like then as buy and hold.. many people find themselves undercapitzed in the IRA and get in trouble.. and you don't get to take the deprecation deduction but have to pay for it even though you don't get it.. These are my ideal Roth projects. I have others of course.. but this one is a meaty one.Land I like.. quick flips I like. just don't use all your money and not have any decent reserves if your flipping you could find yourself in trouble.. Also you have to get the seller to write a NON recourse loan other wise you have violated your retirement account retirement accounts may not bring on recourse debt.. so unless those notes are specifically written your whole plan could get disallowed.. so make sure if your doing seller carry back you understand this. you may not or you may.some sellers may go for it most wont.

Justin Windham · Answer

Account ClosedYes, the tax benefits of a Roth IRA can be amazing. A Roth Solo 401k can be even more powerful, especially when investing into real estate. If someone is eligible for a Solo 401k, it's usually a good idea to start with one rather than an IRA. In addition to the many benefits the Solo 401k offers, A Roth 401k can be transferred to a Roth, but a Roth IRA cannot be transferred to a Roth Solo 401k. That means starting with the wrong structure can carry long-term consequences.

George Blower · Answer

Account ClosedCongrats and great post!Keep in mind: If you are self-employed with no full-time w-2 employees, you can set up a Roth Solo 401k which enjoys certain advantages over a Roth IRA.Higher Contribution Limits: Roth Solo 401k accounts enjoy much higher contribution limits than Roth IRA accounts.For example, if you select a Solo 401k provider which allows for voluntary after-tax contributions and in-plan conversion to a Roth sub-account (and you have sufficient self-employment), you would be able to make a combination of Roth and voluntary after-tax contributions for 2019 which would result in up to $56,000 (or $62,000 if you are 50 or older) in your Roth Solo 401k sub-account. Exempt from Unrelated Debt Finance Income Tax: While investment income from real estate that is acquired with debt (which must be non-recourse financing) and held in a Roth IRA is subject to UDFI tax, the same property held in a Solo 401k is generally exempt from UDFI tax.