IRA – Go Beyond Stock Market Investments

Retirement vehicles such as individual retirement accounts come with an common understanding regarding how they can be used. This understanding can sometimes be incorrect as it is with IRAs.

The idea of buying a home through an individual retirement account may seem out of sorts. It is not. Most people incorrectly assume they can only invest in mutual funds, stocks or bonds.

The average person will always invest in the stock market in some form or another with their IRA. The question is whether you want to be average when planning for your financial future. If not, you need to think outside the box.

Before we go on, I should mention this is not a wealth building strategy that involves loopholes or dubious interpretations of the tax code. The IRS readily approves of such investments.

The simple fact is the law governing individual retirement accounts allows for a broad field of investments. You tend to only hear about mutual funds and stocks for one reason. That is what the investment firms are selling! They don’t make money on real estate investing.

To buy a home with your IRA, we need to back up a few steps. You cannot open an IRA at your stock broker. Instead, you must open a self-directed IRA. IRAs held by investment firms restrict you to stock marketing investing since that is where they make their money.

This form of IRA can be held both as a traditional or Roth IRA. The structure, however, is a bit different. There is an independent custodian overseeing the account. It is required by law to make sure people don’t crazy with investments. The custodian is not expensive.

Once up and running, it is time to put money into the account. How you do this is entirely dependent upon your specific situation. You can roll money in from another account or perhaps just make contributions. Consult with your financial advisor for the best answer.

With money on hand, it is time to invest in property. There are surprisingly few rules. The only limitation is on self-dealing. You cannot buy your current home or a property you already own. Most people buy second homes or rentals.

From a procedural point of view, you do no actually purchase anything. The IRA does. Technically, the custodian of the IRA will sign on behalf of the account and so on. You then relax and watch your balance grow as rental payments come in or appreciation occurs.

While buying property with an IRA is a good strategy, doing so with a Roth IRA is a much better one. It works the same way, but the tax benefits are tremendous. All distributions made from the Roth with be tax free. It is a nice way to build your retirement nest egg.

Using this strategy to purchase property is fairly straightforward. If you are looking to build wealth in your IRA, make sure to speak with a financial advisor familiar with this strategy.

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