Has anybody bought Real Estate and but it in a ROTH IRA? I understand that there is no limit as to how much a year you can put in there as long as its an asset. Is this true? Has this been good for you to do? Any answers to these questions are appreciated.
No, not true. Your information is largely incorrect. You can contribute a maximum of $3000 per year to your Roth IRA (seniors can contribute a little more). Contributions must be from W-2 income. If you use your IRA to acquire real estate, the purchase must be accomplished with money already in the IRA. Your IRA custodian can fill you in on all the details.
It just seems as though you have it a little bit confused. First, there is a limit as to how much you can CONTRIBUTE to your Roth IRA, but there is absolutely no limit as to how much your IRA can EARN. This gets confusing to some people. Think of it as your investment being a mutual fund and you had $1000 in this mutual fund. If your fund does 500% in one year, your account will be worth approximately $6000. Your investment EARNED $5000. Still, the maximum you can CONTRIBUTE to your IRA from your discretionary income is $3000 ($3500 for catch-up seniors) for the year 2004. It will rise to $4000 ($4,500 catchup) in 2005.
When you get a SELF-DIRECTED IRA, you can invest in real estate. If you truly have a no-money down deal. The only requirement is that your account be open. (There are a few other minor regulations.) If there is any money to be put into the property to acquire it, it must come from the IRA.
Contact Equity Trust Company (www.trustetc.com). They will guide you through to the end.
I just took an options course from Jack Miller … he indicated that you could use say a $1,000 in your Roth IRA to purchase an option on a real estate deal you are doing … then when your IRA custodian exercises the option a lot of money can flow to your IRA tax free forever!
Jack also indicated that there was a way to sell investment properties so that all the profit flowed to your Roth and you therefore do not have to pay any taxes or bother with a 1031 exchange… I have a bunch of Jack’s Material but have not had anytine to go through it …
The responses above are right on target. It is a good idea to get with someone who handles self-directed IRAS to walk you through this process though because it needs to be done correctly to avoid the penalties that BIG DOG speaks of. The laymans explanation is like this:
You have 20k in a S-D IRA and you use it to go into a deal where you buy a house for 100K.
First, the way I understand it, you cannot borrow money against your IRA so you will have to be in partnership with another entity or person (lets just say your sister). She can then get the loan or the other 80% needed.
Now lets say you sell the property for 200K…well thats a 100K profit right? Since your IRA was a 20% partner in the deal that means 20% of the profits can go back into your IRA and go to work for you!!! So now you will have 40K in it rather than 20K. Does that sound right to everyone else?
Now, as for you…like the others said, “you can only contribute a max of 3K a year (at least for 2004)”, but this is a seperate issue.
This is a way to get your IRA on …um lets just say muscle enhancers ;D
Anyway, I hope that helps and please let me know if I got it wrong. Thanks.
I’m still trying to understand the details from Jack… but as I understand it, you have your Roth IRA agent buy the option on a property using money in the Roth IRA.
Later you then authorize your Roth IRA agent to sell the option to your buyer at a price that covers most of the profit in your transaction…
… I think the devil is in the details meaning that this has to be done properly so you are not dealing with yourself (self dealing) but with an agent that manages your IRA … you most likely need to pay a fee for the agent handling these transactions for you.
Jack Miller publishes a manual (I bought a copy) on the ins and outs of this titled -
“Roth IRA’s and Other Tricky Stuff”… you can contact his company as follows:
Cashflow Concepts LLC, P o Box 21172, Tampa Fla 33622
Its been some time since I looked it up, but I thought I read the code and it was not ok to do it with mother, father (UP) or your spouse or kids (down); however, siblings (sideways) was ok. I could be mistaken I admit, but either way get with the professionals. I have a mentor who is a big student of Jack Miller and he highly recommends Mr. Miller. I also heard Curtis DeYoung talk about it ata conference. This is where I am getting my info. His website is www.aps-utah.com if you want more info. You can also call thema nd ask questions and they will be more than happy to help. I will be on a conference call with one of their CPAs Weds and I will clarify and get back to you guys. Sorry if there was any confusion.