We had Amanda Holbrook on the podcast a few months ago (episode 66) and she talked about retirement accounts and how you can use them to invest in real estate and grow your nest egg. We talked about the different kinds of investing you can do, but so many of you reached out to me and wanted to know how to use your retirement accounts.
This week we go a little further into using your self-directed IRA account to do real estate investing deals. We talked about it with Amanda in a previous episode and we still get a lot of questions about it. Let me help you figure out how to get some deals going in your IRA account!
Why A Retirement Account?
A big thing you need to know is that you can own real estate in a retirement account. Your IRA can be where you repair the house and all the cashflow goes from your investment. You have a few IRA account options to do this from and I love the Roth IRA. The Roth IRA grows tax free, but the major difference is that you do not get taxed when you take the money out at retirement age. The Roth IRA makes sense for the people who would like to continue making more money the older they get, rather than less money than they make now.
Let’s Talk About Roth
If you go the traditional IRA path now and you make more money when you pull it out than when you began your IRA account, the government will tax you at your current tax bracket. That could mean a lot more money will come out of your account than would have come out if you used a Roth and put in money post taxes from your paychecks. I believe this is the best bet for those wanting to invest in their retirement accounts with real estate.
The other great thing about a self-directed Roth account is that you can hold a title in the account. If you decide to sell a property you bought 15 years ago, you can, AND you do not have to pay any capital gains tax because it is in your retirement account.
You can also lend money from your retirement account for real estate investment opportunities. It has the same level of security as a bank would. There is no tax exposure from lending from a retirement account. It is one of the most passive ways to invest in real estate because you don’t have to fix the toilets or collect rent from tenants.
Wholesaling can be done in self-directed Roth IRA accounts. You can sign the title to the FBO of your retirement account/+. If you put down any earnest money on the deal, IT HAS TO COME FROM YOUR ROTH IRA. If you turn around and sell that to a seller, and they pay you a 10k fee, that money will be a gain. Not an investment. That money will go into your Roth IRA. This might be confusing because most people will say “I’m limited to my $5500.00 contribution a year, how can I grow my Roth quickly?”. The answer is: the contribution only applies to what you take out of your own pocket and place into the account, the money you get from doing a real estate investment does not count as a contribution because it is all done inside the Roth IRA Account.
The coolest part of the Roth IRA, in my opinion, is that you can take the money out without penalties or taxes (as long as it is contribution money). If you want to pull out money from gains, you will get hit with a 10% penalty and no taxes.
This Is How I Leave You…
As always, you need to check with a tax attorney about using a retirement account to do deals. Each state is different and I can only tell you what I can do in my state of good ‘ol Ohio. Everyone is entitled to figure out the best way for them to do some real estate investing. You may want to only do 1 deal a month in your retirement account and 5 with your regular checking account. There might be some of you out there that knows someone who doesn’t want to make more cash flow, but would be willing to take some depreciation. Real Estate investing has a lot of options and you guys have to figure out what works best for you.
Until Next Week…
If you love the returns of real estate investing, but don’t want to deal with any people, you have the option to be the bank. You can be part of a trust or a fund. Right now, I have a fund set up for accredited investors with over $5 million in assets. The fund has preferred interest and 70% profit sharing. Visit me at investwithdrmatt.com to find out if you have the opportunity to invest with us.
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