Investing with IRA funds

[Ravi Renduchintala]

While using an IRA to invest in property that's been foreclosed on is a fantastic option for increasing tax-free earnings, it's just as important that long-time and new investors know the potential pitfalls and benefits of such a move. Below are a few of the important considerations to make before investing your self-directed IRA into a foreclosed property.

Tip #1: Buy the foreclosed property.

Self-directing IRA investments into real estate has been legal since 1974. Of course, mot financial institutions don't allow the practice because they'd prefer you invest in their chosen stocks, funds and bonds instead. Makes sense, right? That being said, you can and in many cases should use your IRA to purchase a foreclosure property. Doing so could even open up more funds for other investments. If your retirement fund doesn't have quite enough in it yet to purchase a property outfit, you could even choose to own a portion of a home or property through a partnership with undivided interest or even get a non-recourse loan.

Tip #2: Put that property to work.

Owning the property isn't even half of the story. The key is to put that property to work earning money for you. Whether you decide to rent or to sell the property, the key is to make that income replenish and ultimately grow your IRA account over time.

Tip#3: Consider tax advantages and disadvantages.
The Roth IRA lets you grow all of your earnings tax-free because you're putting "after-tax" money into the fund. The Traditional IRA is a tax shelter until you're 59.5 years old, meaning you won't have to pay taxes on any earnings until you start taking qualified distributions at that age. Consider the potential earnings that investing in a foreclosure property will bring and that those earnings will be tax-free using a Roth IRA. Are you starting to see the obvious benefits of a Roth IRA now?

Above all else, it's important to educate yourself about your options. Do the due diligence and find the best self-directed IRA custodian to help you reach your goals and soon you too will begin enjoying all of the benefits of self-directed IRA real estate investing!