Real estate can be a great investment, and many people don't know they can also put property into their IRAs. However, they have to be careful: one small mistake and an IRA's tax advantages disappear.
So what are the rules to follow to have a qualified real estate purchase?
Any investment made by your IRA must be considered an arm's-length transaction: You can't use money in your IRA to buy or sell real estate to or from yourself or family members. You can't receive any indirect benefit either — you can't pay yourself or a family member to be the property manager.
For a traditional IRA, you must take required minimum distributions at 70 1/2 and that applies with real estate as well. It can be awfully hard to sell real estate off in portions, so then how do you cover the required distributions without cash? These are problems you need to solve before you start your retirement investing. However, you can roll over money from the sale of one property to the purchase of another without any tax consequences, inside the IRA.
Three more points to weigh when thinking about investing in real estate IRAs:
There are a lot of working parts to keep in mind if you want to hold real estate in your IRA, and it might not be right for everyone. Let us know if you're considering it, or if you have other retirement account questions, and we'll see what's right for your situation.
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