Real estate is widely recognized as a valuable investment, and increasingly, individuals are leveraging their qualified retirement accounts, such as IRAs, to invest in property. This strategy can serve as a means to grow the value of your retirement funds or generate income.
However, it’s crucial to grasp the tax consequences, legal considerations, and other complexities involved in purchasing real estate within your IRA in Atlanta Metro, Georgia.
Now, let’s explore some insights on how to navigate the process of buying real estate with your IRA in Atlanta Metro, Georgia.
Tips on Buying Real Estate With Your IRA in Atlanta Metro
For those who haven’t ventured into the world of self-directed IRAs, the first step is to consult with a trusted financial advisor. They can help you navigate the options and find a reputable, low-fee self-directed IRA provider. Alternatively, reaching out to our team can provide you with access to a curated list of top-notch self-directed IRA companies that we have successfully partnered with previously.
Open a Self-Directed IRA
Embarking on the journey of acquiring investment properties in Atlanta Metro through your IRA begins with establishing a self-directed IRA. This can be accomplished by consulting with a certified financial advisor or a reliable fiduciary who will serve as the custodian of your IRA. Opting for a fee-only financial advisor could streamline the process of setting up your account, whereas a commission-based advisor might dissuade you from investing in physical assets within your IRA due to the lower earnings they would receive from such investments.
Types of Properties You Can Buy With Your IRA and Rules
An IRA can be a versatile tool for diversifying your investment portfolio, allowing for the ownership of a variety of property types, including residential, commercial, and industrial real estate, as well as undeveloped land. Savvy investors often opt for low-maintenance properties like parking lots and storage units that provide a consistent revenue stream.
However, there are clear rules about the personal use of IRA-owned properties. You cannot use any property owned by your IRA for personal living or vacationing, not even for a single night. This restriction also extends to “renting” from your IRA or to immediate family members like your spouse, children, parents, or grandparents. Interestingly, you are permitted to rent to siblings, cousins, or friends. A common strategy among investors is to buy a property through their IRA, rent it out to generate income, and then move in upon retirement.
How Does Income Work With Real Estate In An IRA?
Income accrued in your IRA is not for immediate personal use. Essentially, all income from the property must stay in the IRA until retirement. When you sell the property, profits must also remain in the IRA. Furthermore, all expenses related to the property, such as taxes, insurance, and maintenance, must be covered by the IRA. Not adhering to these rules can lead to the disqualification of your IRA, resulting in taxation on the property’s full value and a 10% penalty for early distribution.
It’s crucial that the distribution regulations tied to an IRA, including those for taxation, required minimum distributions, beneficiaries, and other aspects, remain unchanged when a self-directed IRA is used for property investment. Investing in real estate through your IRA can be greatly beneficial, but being fully informed is key.