There are a variety of ways you can pull an investment property from your IRA. Once you reach the age of 59 ½, you can remove it from your account and use it as a residence or second home. As we discussed in an earlier post, you can have the IRA sell the property or elect to take an in-kind distribution. That simply means that the account custodian will assign the title of the property to you. Remember the only two unavoidable things in life are death and taxes? Sorry to say, but it still holds true here. If you take an in-kind distribution of the property, you will have to pay income taxes on the current value of the property held inside a traditional IRA.
Unless…
Yes, there actually is a way around the tax issue and it illustrates the power of a Roth IRA. If you hold real estate investments inside a Roth, there will be no taxes due when you withdraw. Why is that possible? The way a Roth is structured, any contributions you make to the IRA are not tax deductible on the front end. That’s why they give you a break on the back end. A Roth IRA makes a lot of sense if you plan on holding real estate in an IRA long enough for it to appreciate considerably. In that case, the money you spend in taxes for contributions will not likely even approach the amount you will save by not paying taxes when you take it out.
Next time, we’ll break down the various types of IRAs.
Flickr / hawk684
