I would like to know about any experiences that people have had with using their Roth 401k to invest in real estate. Also, is it possible to buy property with as little as 10k in the IRA and what is the relationship with the mortgage?
I have read that any payments on mortgages must be made from the IRA as well as any rehab costs if needed. Also I currently have my self directed IRA with Ameritrade.
I don’t have any experience in this yet, Sean, but using a self directed Roth IRA or 401k is an exciting concept. I don’t have a retirement account to roll into a Roth. I think I am eligible to put $4000 into one for 2005, but as I understand the rules, my income will be too high in 2006. So my challenge will be to turn the $4k into a bigger number so I can have the flexibility to do different types of deals.
It is a powerful concept, and it is tailor made for aggressive, knowlegeable real estate investors
Absolutely, and you are right about not being able to make contributions to a Roth if your income is over a certain amount I believe about 110k if you are single.
However you making too much money in 2006, that is a nice problem I wouldn’t mind having!
I was at a seminar last July and one of the speakers, I can’t remember his name but I could probably find it if you want, anyway he mentioned something about opening a SEP account where you can contribute X% of your income if you own your own business and then convert this retirement money into a Roth IRA. Again, If interested, I can go back and look over my notes from the meeting and give you more details.
I wish I had more details to give you but I wanted to respond immediately to you but am at work while my notes are at home.
I appreciate the feedback it isn’t necessary to get your notes as I am familiar with the concept. The way that it works is that you contribute to your SEP account now and then roll those funds to your Roth.
However, you do have to pay taxes on any funds from the SEP that are rolled over I believe as those funds are pretax and a Roth is funded on an after tax basis. This is not a blig deal though as I would much rather pay tax now and have all future earnings be tax free in the future.
Something I am unclear on is whether or not you can keep rolling these funds over or is it a one time thing?
I want to tell you that you cna do this once a year but don’t quote me. Again I will have to look at my notes
The amount of wealth that you can build in a Roth is really mind blowing especially considering none of it is ever taxed and this includes distributions after you are 59 1/2.
I am trying to get the max into my Roth but unfortunately I don’t have a lot of extra cash right now. I recently put the 4k in for 2005 and want to get another 4k in sometime soon for 2006. The nice thing is that you can still make contributions for 2005 up until April of 2006. So if you started a Roth today you could actually put 8k into it.
Any suggestions on what to do with my IRA with only about 10k in it? Right now I am investing in equities but I think the opportunities in REI provide much better returns.
I am not sure how to purchase real estate with your ira or roth but I am invested in a real estate partnership fund where we pulled our monies to buy several units in waterfront property. Once the units are sold through the partnership we would receive our principal plus appreciation. If you elect to have the account setup you can have the money rolled into your IRA. Therefore the money will stay tax deferred until you retire.
I have both a traditional ira from a previous employer 401k rollover and I have a roth IRA. I just transfered my traditional ira to a company called equity trust. They are for self directed iras and I plan to use this either to purchase Tax liens or to buy property in upstate NY where it is so much cheaper than downstate NY. Then flip. All of it is tax deferred until I am an old lady. Equity Trust is very reputable and they were recommended to me by several other investors that I recently met.
I don’t have alot in my ira maybe 30K but it is enough to get started. If you have family/friends and you use your IRAs with equity you could pool your $ together and will have enough for something.
Missy
The self-directed Roth IRA is going to be the next BIG GUN tool in the aresenal available to the investor. What’s going to be the real test of it is how well it works in real life. Buying a property with a portion of the IRA and then putting the profits back in on the sale of said property, tax-free, will be a boon to us.
What’s going to be bad is when people don’t know what is really going on and they’ll say it’s an UNFAIR advantage and will get some lawmaker to change it. Then another concept will have to be created to find another way to make money.
It will definitely change the way we could pay for college in the future, using a self-directed Roth Coverdell Account. Tax-free profit going in, college tuition and expenses going out, and the remainder to stay for retirement. Sounds like a pretty good deal to me.
You can do tax-lien investing pretty easily with a self-directed IRA with $10k in it.
My understanding with the IRA is you can’t mix non-IRA funds to buy property. You’d be limited to whatever you can do with $10k to aquire a property and get positive cash flow to put back into the IRA.
NEW FOR 2006
Roth 401(k)
After tax contributions, tax free growth like the Roth.
$15,000 contribution limits like the traditional 401(k).
tell your employer to check into it.
If you start your own c-corp, couldn’t you buy shares with a self-directed IRA? Then you’d essentially be able to mix IRA and non-IRA funds. Then whatever dividends you pay per share just need to be the same for IRA and non-IRA shares.
The Roth self directed IRA is a powerfull tool investing in real estate or any traditional investment. All the profits that you make are tax free. If you flip houses and have paid taxes, then you can understand how powerful a tool it really is. The only problem is, you can’t have your cake and eat it too. When you signed up for a retirement plan, you made a deal with the government to use the money for retirement. If you need it to make a living, then I would suggest that you don’t buy the property with you IRA. IRAPLUS.com is a good website to look at, you can search through the article on self directed retirement plan. I know a lot of the national real estate speaker suggest that you get a self directed IRA right away.
The key is you can do one of these each year by IRS rules. Use the deal that provides your largest profit and sock it away.
Yes, you can’t touch it untill retirement, but look at how much it will grow in 10 or 20 or 30 years, with just that single investment. You will have to learn to just use other funds to live on.
Kevin,
Could you point me to the tax code section that says this? I can’t seem to find it.
As near as I can tell, an active income business – such as property flipping – is a prohibited activity within the IRA
You can do flips, it just has to all be done thru the third party administrator. Basically the IRA can do anything that the individual can do except:
investment property, including debt financed investment property, rehabs, foreclosures, et al are completely ok. It just must ALL be done through the administrator. The IRA can even sell the property and finance the transaction (seller financed). Of course, the fees to the TPA will not be insignificant for these types of transactions…
from Sterling FAQ:
How are expenses and/or improvements handled for real estate held in my Sterling account?
All earnest money deposits, insurance premiums, taxes, debt payments, or other expenses of the property (including any improvements) must be paid by the account to an unrelated third party . Since Sterling requires your written authorization to pay invoices, it is important that you use your mailing address when setting up utilities, etc. so that bills are sent directly to you (or property manager) for your approval. A copy of the invoice or tax notice must then be faxed to Sterling along with the your written authorization to pay the expense from your account. You may not pay for an expense on a credit card and remit the statement for payment. Sterling will not process payments to a credit card issuer.
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Does rental income have to be deposited in my Sterling account?
Yes. All rental income must return to your Sterling account. Sterling requires you to appoint an unrelated third party to act as the property manager for income producing property. The property management agreement will be provided by the property manager and will be signed by you and the property manager. Your third-party property manager may also pay expenses from rents received as long as Sterling is provided with a monthly or quarterly report of income received and expenses paid. The report should accompany the property manager’s deposit check (if any).
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Does Sterling provide any management services with regards to the property?
No. You must appoint a Real Property Servicing Agent to handle all property servicing functions including monitoring the performance of the property manager. A servicing agent is required for all types of property. Please see the Real Property Servicing Agent Agreement in the Processing Checklist for Real Estate for the specific duties of the agent.