Did you know that you can use your IRA or your 401k from a former employer to invest in real estate syndications?
Most IRA custodians only allow you to invest in the typical stocks, bonds, and mutual funds. Many of those providers are closely aligned with Wall Street and they make money by selling Wall Street’s products. But you always have the choice of moving your IRA or 401k to a custodian that allows you to “self-direct” those funds into any investment vehicle of your choice. A self-directed Individual Retirement Account allows the IRA owner (you) the flexibility to select the best investments for your future.
Why haven’t I heard of SDIRA’s?
Self-directed IRAs have been around since 1974. SDIRAs are not well known because most banks and brokerage firms prefer traditional investments.
What is the transfer process?
There are many custodians that allow you to self-direct your IRA. If your account is invested in stocks, bonds, or mutual funds, it is important to liquidate some or all your holdings to ensure the cash is available to transfer. The transfer process typically takes 2-4 weeks depending on which custodian you choose.
Are there tax consequences?
Money that sits in an IRA typically grows tax free and this is a wonderful benefit of this type of account. When you invest outside of traditional stocks and bonds, it is possible that you will incur some additional tax. Unrelated business income tax (UBIT) and unrelated debt financed income (UDFI) taxes may potentially come into play. The IRA account will receive the standard depreciation benefits too but it’s possible that there will be taxes due at some point. Even if the IRA incurs some amount of tax, this is typically far less than if you invested with cash not in an IRA. This article has more details if you are interested.
A good investment is a good investment!
Regardless of the possibility of paying some amount of tax out of your SDIRA’s investment earnings, there are options outside of the traditional investment world that are far better on a risk-adjusted basis. Cash flowing real estate is one of the very best!