More and more investors are taking greater control of their retirement savings by utilizing the power and flexibility of individual retirement accounts to diversify their portfolios and grow their nest egg. Although legal for many years, the IRA has gained greater exposure as individuals demonstrate that the risks and challenges of using an IRA can reap great rewards. The Individual retirement account allows individuals to use their retirement funds to invest in business, precious metals, futures, and, more importantly, real estate. While there are very specific rules and regulations about how to use these funds, the benefits far outweigh the drawbacks if you are an investor looking to be involved in your financial future.
What is Allowed in an IRA?
The IRS outlines what cannot be held in your IRA in their Publication 590. It is important that anyone interested in IRAs become very familiar with the rules and regulations governing their use. Mistakes made in the management of your IRA can be costly and outweigh any financial benefits you would reap.
Investors are Drawn to Real Estate
Investors with experience in real estate are drawn to IRAs as a way to buy, rent, and sell property to fund their retirement accounts. All IRAs can hold real estate, including foreign property, but you must find a custodian for your accounts who will accept foreign real estate. Since it is harder to appraise foreign properties, some custodians shy away from such investments.
Checkbook Control for an IRA
When shopping around for an IRA for your foreign real estate investments, there are some basic guidelines to follow. Look for an account that provides you with checkbook control; checkbook control means you can write your own checks directly from the account, greatly reducing any additional transaction costs. Hand-in-hand with checkbook control comes independent decision making; ensure that any transactions you make do not require the permission of your custodian. You want independence. Another excellent approach is to put your IRA in the form of an LLC which provides litigation protection and more powerful appearance.
Your Property is Not Your Residence
Buying, renting, and selling foreign property offers a rich landscape of investment potential. Using the IRA allows investors to free up underperforming assets and give them new legs for growth. However, be aware of the rules and regulations of using an IRA. All profits must be returned to the account and you will need to ensure there are enough funds to pay for taxes, expenses, and maintenance. Also, be aware of self-dealing; your property cannot be used as a residence or vacation home for you or your family. However, at 59.5 years or older, you can withdraw your real estate from your IRA to use it as a primary or second home without a penalty. Depending on the type of IRA that held the real estate, there may be taxes associated with the process. Violation of the many rules surrounding IRAs results in stiff fines and penalties.
Despite the rules and regulations, the IRA offers many individual investors to opportunity to use their expertise to buy and sell real estate, including foreign property, as a way to fund their retirement. If you are of the mindset to take control of your retirement, begin investigating the use of an IRA today.
Jeremy Davis was a councilor for financial expenses for years. He now enjoy his retirement by writing blogs to help with the difficulties of financial issues and retirement. Aside from writing blogs Jeremy enjoys walks with his wife, gardening and tutoring young children in math and history as part of his retirement routines.
