IRA Investing

Advantages of using a Self-Directed IRA LLC to purchase Real Estate

Income or gains generated by an IRA generate tax-deferred/tax-free profits. Using a Self-Directed IRA LLC to purchase real estate allows the IRA to earn tax-free income/gains and pay taxes at a future date (in the case of a Roth IRA the income/gains are always tax-free), rather than in the year the investment produces income.

With a Self-Directed IRA LLC, you can invest tax-free and not have to pay taxes right away or in the case of a Roth IRA-ever! All the income or gains from your real estate deals flow through to your IRA tax-free!

Why Buy Real Estate using a Self-Directed IRA LLC

  • Gains are tax free
  • Positive cash flow is tax free
  • No time limit for holding property
  • IRA can borrow money – Leverage your investment with non-recourse financing

Potential to earn a larger rate of return on invested capital

Tax Advantages of Buying Real Estate with a Self-Directed IRA LLC

When purchasing real estate with a Self-Directed IRA LLC, in general, all income and gains generated by your pre-tax retirement account investment would generally flow back into the retirement account tax-free. Instead of paying tax on the returns of a real estate investment, tax is paid only at a later date, leaving the real estate investment to grow unhindered. Generally, self-directed IRA real estate investments are usually made when a person is earning higher income and is taxed at a higher tax rate. Withdrawals are made from an investment account when a person is earning little or no income and is taxed at a lower rate.

For example, if Joe established a Self-Directed IRA LLC with $100,000 to purchase real estate and make other investments. Assume Joe kept his Self-Directed IRA LLC open for 20 years. Further assume that Joe was able to generate an average annual pre-tax rate of return of 8% and the average tax rate was 25%. By using a tax-deferred Self-Directed IRA LLC strategy, after 20 years Joe’s $100,000 investment would be worth $466,098 – a whopping $349,572 after taxes on the earnings. Whereas, if Joe made the investments with taxable funds (non-retirement funds) Joe would have only accumulated $320,714 after 20 years.

Types of Real Estate Investments

Below is a partial list of domestic or foreign real estate-related investments that you can make with a Self-Directed IRA LLC:

  • Raw land
  • Residential homes
  • Commercial property
  • Apartments
  • Duplexes
  • Condos/townhomes
  • Mobile homes
  • Real estate notes
  • Real estate purchase options
  • Tax liens certificates
  • Tax deeds

time-to-invest

Most people mistakenly believe that their IRA must be invested in bank CDs, the stock market, or mutual funds. Few Investors realize that the IRS has always permitted real estate to be held inside IRA retirement accounts. Investments in real estate with a Self-Directed IRA LLC are fully permissible under the Employee Retirement Income Security Act of 1974 (ERISA). IRS rules permit you to engage in almost any type of real estate investment, aside generally from any investment involving a disqualified person.