Monday, January 07, 2008

Down Real Estate Market - Use Your Ira For Great Deals

By Aazdak Alisimo

An individual retirement account is familiar to most when it is referred to by its abbreviation IRA. What most people are not familiar with, however, are the strategies you can use to crank up your return on investment.

If I have an individual retirement account, I have to invest in the stock market. Everyone know this is the way it works, right? Well, the literature and commercials spewed out by investment firms might suggest as much, but it is not true.

Investing in mutual funds, stocks and bonds is a way to make gains, but not huge ones unless you get lucky. The wealthy do not do so. Instead, they think outside of the box on the issue and investing in property through an IRA is a tremendous strategy.

Before we go on, I should mention this is not a wealth building strategy that involves loopholes or dubious interpretations of the tax code. The IRS readily approves of such investments.

Truth be told, you have the right to invest your retirement dollars in many more investment areas then you are led to believe. So, why haven't you been told this? Well, most stock investment brokers don't make money in real estate, so why would they promote it?

To buy a home with your IRA, we need to back up a few steps. You cannot open an IRA at your stock broker. Instead, you must open a self-directed IRA. IRAs held by investment firms restrict you to stock marketing investing since that is where they make their money.

As the name suggest, you are in control of the individual retirement account. This means you get to set the parameters of what can be invested in and what cannot so long as it is legal. Homes, condos and so on are legal investments under the tax code.

After setting up your account, you can invest in property. That being said, there are some minor limitations put forth in the tax regulations by the IRS. You cannot buy, for instance, your own home, which would be self dealing.

Most people use their IRA to purchase secondary properties. The classic example is using the strategy to buy rental properties. Millions of Americans now own second homes, and the IRA strategy is a perfect way to pursue ownership. Heck, you can even buy an RV.

From a procedural point of view, you do no actually purchase anything. The IRA does. Technically, the custodian of the IRA will sign on behalf of the account and so on. You then relax and watch your balance grow as rental payments come in or appreciation occurs.

You might recall I mentioned the Roth option above. Yes, you can use this strategy with the Roth account. In fact, it is preferable. Why? When you retire, all distributions from the Roth will be income tax free. That makes for an excellent investment.

The above represents a very simplified look at maximizing your IRA investment with property. That being said, it is one of the outside of the box wealth building strategies that can produce tremendous returns.

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