Contrary to what most people have been told by the Wall Street bankers and stock brokers, investments into Real Estate with an IRA, 401(k) and other pension and retirement plans IS POSSIBLE. By transferring funds to a Trustee or Custodian that allows real estate investing and setting up a Self Directed IRA LLC as an investment platform controlled by the IRA account owner, you can legally buy investment property without taking a taxable distribution from your IRA. The whole process usually only takes about 3 to 4 weeks before you can enter into a purchase agreement.
FAQ
Top 3 Frequently Asked Questions
Is It Legal To Invest In Real Estate With Retirement Funds?
YES…In 1974, Congress passed the Employee Retirement Income Security Act (ERISA) making IRA, 401(k) and other retirement plans possible. Only two types of investments are excluded under ERISA and IRS Codes: Life Insurance Contracts and Collectibles (works of art, jewelry, etc.). Everything else is 100% legal. – IRS Code Sec. 401 IRC 408(a) (3) -
Why Haven’t I Heard About This?
It’s really quite simple. Government regulators decided the Securities industry was best suited to inform the public and bring these new products to market. From the beginning, brokers and bankers created the misconception that buying stocks, bonds and mutual funds was all that was allowed. It wasn’t true then…and it’s not true now. You can probably guess why they kept it a secret.
How Do I Get Started?
We’ll take you through a simple, step by step process designed to put your investment future into your own hands…immediately. Everything is handled on a turn-key basis. You take 100% control of your Retirement funds legally and without a taxable distribution.
The Process
Establishing A Self-Directed IRA
STEP 1
Every IRA must have a custodian. Traditional custodians only allow investments into stocks, bonds and mutual funds. Therefore, funds must be transferred from the current custodian to self directed custodian that allows investment into real estate.
This is not a taxable event since it is a transfer and not a withdrawal.
STEP 2
A Limited Liability Company (LLC) is formed as an investment platform and a bank account is established. Funds are transferred to the LLC from the self directed custodian. You, as the Manger of the LLC, control the account. *
STEP 3
The investment property is identified and the transaction is executed with the Self Directed IRA serving as either the down payment or as an all-cash purchase. The closing is handled by appropriate title and escrow agencies.
Qualification
Are My Funds Qualified?
1. QUALIFIED RETIREMENT FUNDS
In most cases, you cannot use funds in a 401(k) or pension plan with a current employer. Almost all retirement funds from self-employment or a prior employer are eligible for conversion to a Self Directed IRA. These accounts include, but are not limited to: Traditional IRA, Roth IRA, SEP IRA, SIMPLE IRA, Rollover IRA, 401(k), 403(b) Educational IRA, Qualified Annuities, Profit Sharing Plans, Money Purchase Plans, Government Eligible Deferred Compensation Plans, and Keoghs.
You may combine separate IRA funds into a Self Directed IRA LLC. A husband and wife may also combine their IRA funds into a single IRA LLC for the purpose of purchasing property.
2. PROHIBITED TRANSACTIONS & DISQUALIFIED PARTIES
Real estate purchased with IRA money must be for investment purposes only. You may not occupy the property or rent it to a disqualified party, which includes direct lineal ancestors and descendants such as your parents or children. You can purchase a property that you intend to move into after retirement, but you must pay market price when you occupy the property and this will be considered a distribution from your IRA. Depending on the structure of your IRA, you may pay taxes on that distribution amount.
3. SUFFICIENT FUNDS AVAILABLE
You must have funds to purchase the property outright and cover any expected incidental expenses. Alternately, you must have required funds and reserves to purchase the property using a non-recourse loan per the underwriting guidelines to be used.
4. CO-MINGLING OF FUNDS
All expenses for the property must be paid for out of IRA funds. Conversely, any income from the property must be returned to the IRA. You may not use personal funds to pay for the earnest money deposit if you will be purchasing the property with IRA funds.
5. PARTNERING
Your IRA may partner with other parties to make a property purchase. If you or a disqualified party are a partner, that partner may not own more than 49% of the partnership. All expenses and income from the partnership must be divided on a proportional basis per ownership share.
