Hi BP-
I am really interested in learning more about Self-Directed IRAs.
From what I gather, this is a tax savings account (like a 401k), but the advantage of having this IRA is you can purchase a property with it.
My question is:
1. Is this true?
2. How do I get started?
3. How much can I contribute towards it?
4. Is there an income limit restriction (i.e. if you make over certain amount per year, you can't put your money towards it)?
Here's my goal: I want to save money to towards a down-payment. and I want to keep my money protected and still purchase properties with it. Please, if you are familiar with self-directed IRAs, help answer above questions and how I go about starting it.
Really looking for specific examples. Thanks!
- Scott
@Scott Kim There are many discussions on BP on Self directed IRAs. Do some research here and you will find a lot of insights from fellow investors who have gone the same route.
1. It is true that with a self directed IRA, you have the tax benefits plus the ability to invest in real estate, including properties and notes.
2. To get started, you will need to talk to a self directed IRA provider. They will help you set up the IRA. You can then fund it with a rollover from a 401k with a previous employer, or from a regular IRA. You can also make contributions to the account. Once the fund is in the IRA, you can start investing.
3 &4. A self-directed IRA has the same contribution rules as a regular IRA, same contribution limits, etc.
One thing to note about investing in a self-directed IRA is that the investments have to be at arm's length. Meaning all income and expenses related to your IRA investments have to go in and out of the IRA only. You cannot combine IRA and personal funds on an investment. That would be a prohibited transaction.
Another note is that if you are self employed, you may want to consider having a Solo 401k instead, which allows higher contribution limits and no UBIT tax for leveraging real estate purchases.
There are quite a few things to learn, but investing with a self-directed IRA/401k is a great strategy. If you have any question, feel free to post here or reach out to me.
@Scott Kim There are many discussions on BP on Self directed IRAs. Do some research here and you will find a lot of insights from fellow investors who have gone the same route.
1. It is true that with a self directed IRA, you have the tax benefits plus the ability to invest in real estate, including properties and notes.
2. To get started, you will need to talk to a self directed IRA provider. They will help you set up the IRA. You can then fund it with a rollover from a 401k with a previous employer, or from a regular IRA. You can also make contributions to the account. Once the fund is in the IRA, you can start investing.
3 &4. A self-directed IRA has the same contribution rules as a regular IRA, same contribution limits, etc.
One thing to note about investing in a self-directed IRA is that the investments have to be at arm's length. Meaning all income and expenses related to your IRA investments have to go in and out of the IRA only. You cannot combine IRA and personal funds on an investment. That would be a prohibited transaction.
Another note is that if you are self employed, you may want to consider having a Solo 401k instead, which allows higher contribution limits and no UBIT tax for leveraging real estate purchases.
There are quite a few things to learn, but investing with a self-directed IRA/401k is a great strategy. If you have any question, feel free to post here or reach out to me.
While an IRA can invest in real estate, certain rules apply such as not using the property for personal use. To learn more about the prohibited transaction rules, see the following.
If you decide to invest your IRA in real estate, IRA Services Trust Company is in your area so it may be worth reaching out to them so that they can explain what their requirements are to hold IRAs for investing in real estate, as most big banks like Wells Fargo and Chase don't offer IRAs that allow for investing in real estate.
For the most part, the types of investments that cannot be held inside an IRA are:
@Scott Kim you have asked several questions and I will do the best I can to answer them.
1. It is true you can set up a self directed IRA and purchase property with it.
2. You can research self directed IRA custodians on the internet.
3. Depending on your income level you have the ability to contribute $5,500 per year to an IRA
4. Income limits depend on filing status
If you are self employed consider a self directed 401k as the contribution limits are much higher.
If you do end up using an IRA, consider using a ROTH IRA. You lose the tax deduction for contributions to the account, but earnings grow tax free.
Hope this helps.
Ed