Did you know self-directed IRAs allow Americans to invest in assets other than stocks and bonds, while enjoying the tax-free or tax-deferred status of their retirement account? Very few Americans realize that they have the option to self-direct their IRAs, or other retirement plans, into real estate and other alternative assets. Most investors believe that the only IRA investment options are bank CDs, the stock market or mutual funds – often because of inaccurate information from their current IRA custodian.
The truth is, with government-sponsored retirement plans such as IRAs and 401(k)s, you have the option to invest in almost anything (including real estate), not just stocks, bonds and mutual funds. All the benefits those plans provide, including tax-deductions and tax-free profits, apply to whatever investment you choose, including real estate.
The power of tax-deferred and tax-free profits in real estate
“The most powerful force on Earth is compounding interest.” – Albert Einstein
One of an IRA’s greatest features is that it allows Americans to enjoy the true power of tax-deferred compounding interest. Compound interest occurs when interest is earned on a principal sum along with any accumulated interest on that sum. In other words, you are earning interest not only on your original investment, but also on the interest earned from the original investment.
Compound interest can occur with any investment you make, but the true power of compounding interest is obtained when you make an investment through a tax-deferred vehicle, such as an IRA.
By taking advantage of an IRA’s tax-deferred status, you do not have to pay tax immediately on your earnings, for example on the sale of a property or collection of rent. Thus, you are able to enjoy the power of compounding on all of your profit, not just what is left after taxes.
Now apply those benefits to real estate investing. Tax-deferred profits on your real estate transactions allows greater flexibility to make more investments, or to just sit back and watch your real estate investment grow in value, without worrying about taxes.
Is this for real?
Most investors don’t know this opportunity exists because most IRA custodians do not offer truly self-directed IRAs that allow Americans to invest in real estate and other non-traditional investments.
Many traditional IRA custodians are unaware of the fact that an IRA can invest in alternative investments, such as real estate. Only a truly self-directed IRA custodian like Equity Trust will allow you to invest in all forms of real estate or any other IRA investments as allowed by the Internal Revenue Service.
Is this legal?
It is. Since 1974, Equity Trust and its affiliate companies have assisted clients in increasing their financial wealth by investing in a variety of opportunities from real estate and private placements, to stocks and bonds in self-directed IRAs and small business retirement plans.
There are a few prohibited investments, according to IRS Publication 590, as it relates to self-directed IRAs. These investments include artwork, stamps, rugs, antiques and gems. Other investments, including stocks, bonds, mutual funds, real estate, mortgages and private placements, are perfectly acceptable as long as IRS rules governing retirement plans are followed.
Investing a self-directed IRA in real estate is simple and very similar to the way you invest in real estate. In no time at all you can be investing in real estate and other alternative assets receiving tax-free or tax-deferred profits for the rest of your life.
The main difference to keep in mind between self-directed investing and general investing is that you are a separate entity from your IRA. As such, everything related to your investment must be titled in the name of your IRA and cannot be in your name, personally. Examples of this would be the property deed, insurance and utilities. Additionally, all profits generated from the investment, as well as expenses related to the investment, must come from and return to the IRA, and cannot be co-mingled with your personal funds.
Self-directed IRA custodians such as Equity Trust are passive, which means they cannot give investment advice. For more information about self-directed IRA investing, the plans and services available to you, and how to get started, visit www.youtube.com/user/EquityTrustCompany.