Build A Nest Egg With Real Estate Retirement Options.

Investigate Your Options

Investigate Your Options

Your 401K plan may not offer real estate, but you can own real estate within your retirement plan. There are a few things you should understand first. Since retirement plans are considered long-term investments, you will only be able to invest for income and appreciation. You will not able to deduct depreciation as with a taxable investment.

It is recommended that you speak with a tax consultant before making any changes. Because this is a complex matter, you should not try to do this on your own. If not done correctly, it could create major tax problems for you down the road.

Know the Law

The law allows your qualified plan to own any kind of real estate. You can invest in single family homes, multiple units, co-ops, apartment buildings, condos, and land. You can also invest in real estate investment trusts, but the overhead is high, so this may not be a good idea.

If you purchase property for your IRA, the income and appreciation builds and is tax-free until the time you start taking withdrawals. Keep in mind that there is a special tax on debt-financed income in retirement plans called "UBIT"-- Unrelated Business Income Tax. If the real estate is mortgaged, you must file a 990-T Form with the Internal Revenue Service. This allocates the income earned between debt and non-debt financing, and the tax due. The way the UBIT works is you are able to shelter 70% of your income and the rest of the income from the property is subject to regular income tax rates.

Things You Should Know

You cannot transfer property that you already own into a retirement account. You cannot buy property, such as a vacation home and rent it yourself. This is called "self-dealing" and is not allowed. This applies to your family members as well. So you cannot purchase property and rent it out to members of your family.

Cash Transactions Are Best

Because of the UBIT, cash transactions are the easiest to work with. If you don't have enough cash, your retirement plan can purchase a partial interest on the property or a "tenant in common interest." You can also borrow the money to finance the property and pay the UBIT.

Two great advantages of investing in real estate for your retirement plan are the potential for high rate of return and the overall lower risk. If you want to protect your nest egg from the ever-changing stock market, investing in real estate is a wise decision.

by: Tasha Gill

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