By now, you should be getting a feel for the possibilities of real estate investing inside your IRA. Maybe you’re even getting excited about it. Before we go further, let’s take a quick look (recap) at your IRA options. Remember that you can invest in real estate with any IRA but here are some quick pluses and minuses for each of the most popular ones.
With a Traditional IRA, you can deduct yearly contributions, which are currently set at $3,000 for individuals and $3,500 if you’re 50 or older. The down side is any withdrawals will be taxed as regular income as you tap the assets you’ve built up.
A Roth IRA works just the opposite. You don’t get to deduct your contributions when you put them in but they are tax free when you withdraw them. The Roth IRA works best with real estate if you’re planning to buy the property with the account and hold it for a long time. The big gain you’ll almost certainly make from appreciation will more than offset the tax deduction you lose at the beginning.
The SEP-IRA is for small companies and the self-employed. One big difference is you can contribute 25% of your compensation or up to $40,000, whichever is less. The effect is to allow you to build up funds for property purchases more quickly.
Before you jump in and acquire a multi-billion dollar investment property portfolio, why not make an appointment to sit down and talk about it with a tax professional? Empowered Investor does not do tax advice but we do think investing in real estate inside your IRA can be a great idea.
