Are you ready to unlock the additional capital afforded by self-directed retirement accounts? These plans have been around for a while and just beginning to be more widely known and used because of their benefits.
Your retirement money is yours! Have your money work for you in ways that you think best. A self-directed retirement account can provide an edge by allowing investment in real estate with tax-advantaged dollars. Imagine a retirement account with broader diversification, more control, more flexibility and potentially better returns over a multitude of economic conditions.
There are two types of self-directed retirement accounts, self-directed IRAs and solo 401ks.
A self-directed IRA requires an account custodian be placed as an intermediary for your investments. All investing paperwork is reviewed and approved by the custodian. This added layer takes more time and cost to complete transactions, but it is well-intended and provides protections to you. There is an option to not have a custodian and can be accomplished by having the IRA form a subsidiary LLC. The custodian obligation is removed and the holder of the IRA LLC, you, are granted direct control, and responsibility, over the account.
A solo 401k is administered similarly to a self-directed IRA LLC, but it is only available to self-employed workers and their spouses. An advantage over self-directed IRA LLCs is that joint investments by spouses are allowed, increasing purchasing power. Higher contribution limits for solo 401ks provide even more tax-advantaged dollars to the investor.
When using these plans to invest in real estate, there are some restrictions placed by the IRS not found in traditional real estate investing to note. One of these prohibitions is that you and your family are considered by the IRS to be “disqualified” and cannot use or live in the real estate personally. If you have a property under this investment mechanism, that is what it is, an investment.
Also, financing real estate is more restrictive under a self-directed retirement account. Traditional, or recourse loans, are prohibited for real estate purchased with a retirement account. You can buy a property without a mortgage or finance through a non-recourse loan.
We like these plans and have unlocked the capital within our retirement accounts by using self-directed IRAs/solo 401k plans to diversify our portfolio and invest these funds in multi-family real estate syndications/(group investments). Consider looking into this as an option for your investment path.
Written by:
Agnes Wong
-San Francisco Chapter Leader
