Buying Real Estate in a Tax Sheltered Account (SEP, IRA, 401K)?

[Adam Jernow]

Hi,

I have some money in my SEP and a potential investment in rental real estate (mixed use, cash flow positive multifamily to be specific). The question is, would there be any benefit to buying the property in my SEP or should I (because of depreciation, liquidity/accessability and cash flow) simply buy it outside of a tax sheltered account.  

SEPs, for those of you unfamiliar, are similar to IRAs but they seem focused on business owners.

Thanks for your input!

[Brian Eastman]

@Adam Jernow

There really is no single, best answer to this question.  It depends very much on your situation and goals.

The tax treatment of the investments will be very different.  

If you purchase the property with non-retirement funds, then you get the income now and there are many write-offs that come with investing in property.

If you have the IRA purchase the property, the gains will be tax-deferred into the SEP IRA. When you eventually take distributions from the IRA in retirement, they will be treated as regular income, but, by deferring the taxes over a period of time, you should have a larger pot to draw from.

Often times the better comparison when evaluating an IRA investment into real estate is to weigh the expected performance of the real estate with other investments the IRA can make. If the returns are better with real estate than the current stocks/funds in the SEP, then this could be a good way to boost your retirement savings.