There are three primary reasons people invest with self-directed IRAs:
1- Alternate source of funding
When you are considering investments in real estate, private loans, private
companies, etc., you may not realize that IRA funds can facilitate those
investments. You may simply look to your personal savings accounts to
acquire these assets. However, you are allowed to use funds from a self -directed IRA to make these investments and more. By doing so, you may
find a potentially large source of additional monies to make these different
types of investments.
2- Looking for higher returns
Most retirement funds (close to 95 percent) are invested in accounts
through a brokerage firm or bank, which offers limited investment
choices. Most people have been conditioned to think that only securitized
investments like stocks, bonds, and mutual funds are the only options for
investing their retirement dollars. Individuals who are unsatisfied with the
returns these accounts earn often look for alternative investments, leading
them to discover the self-directed IRA.
3-Tax-free or tax-deferred growth (time value of money)
The time value of money simplified is the assumption that at the present
time, money is worth more than the same amount will be worth in the
future. Why would you want to pay the IRS capital gain taxes after each
investment sale when you have the ability through an IRA to pay taxes later?
The money you save in taxes can be invested to create even higher wealth.
Frequently Asked Questions
What is a self-directed IRA?
A self-directed IRA gives account owners the ability to use their own knowledge and expertise in choosing their own investments from a large variety of alternative assets that can potentially build tax-free or tax-deferred wealth faster pace than traditional investment methods.
If my self-directed IRA doesn’t have enough funds to buy an investment, can I partner my IRA with my personal funds or with anyone else?
There are several options for partnering funds:
Your IRA can partner with your personal funds. With this option, your IRA would own a designated percentage it can afford, and you would personally own a percentage.
You can partner your IRA with funds that you personally guarantee, such as a home equity line of credit.
Your IRA can partner funds with someone else’s IRA or their personal funds. It is permissible to partner with your spouse, parent, or child. Since you are not transacting with the individual, the disqualified persons rule may not apply in this situation. Check with a professional to be sure to avoid a prohibited transaction.
How are income and expenses handled in my IRA?
Income flows directly into the IRA and expenses must be paid with funds from the IRA. You are not allowed to pay expenses personally and reimburse yourself.
If you partnered your IRA funds to invest, income and expenses are received and paid based on the percentage of ownership the account holds.
Can other plans be self-directed besides a traditional IRA?
Yes. Traditional, Roth, SEP and SIMPLE IRAs can be self-directed, along with individual 401(k) plans, and also health and education savings plans. Visit our Self-Directed Plans page to view details of each of these accounts.
How do I get started self-directing my IRA and other accounts?
You can get started in 4 easy steps:
Open an account with Advanta IRA.
Fund your account.
Identify which investment(s) you want to purchase.
Contact your Advanta IRA representative and we make the purchase on behalf of your account.
How can I fund my Advanta IRA account?
There are three different ways to fund your account:
Make an IRA-to-IRA transfer
Roll funds over from your 401(k) or another employer-sponsored plan
By annual contribution
Do I have to invest my self-directed IRA in the stock market?
No. The point of self-direction is that you can buy real estate, including rental properties, mortgages and notes, private stock, foreign exchange, precious metals, and a myriad of other alternative investments that extend far beyond the limitations of the stock market.
What are alternative investments?
Alternative investments are those that are not the typical stock, bond, or mutual fund offered by mainstream brokerages or banks. Every administrator chooses which types of investments they allow. Advanta IRA, as a self-directed plan custodian, allows clients to use alternative assets they are familiar with to build wealth for retirement.
Alternative investments include:
Real estate (residential, commercial, raw land, rentals, rehabs, private lending, tax liens/deeds)
Precious metals (gold, silver, platinum, palladium)
Trust deeds (like and unlike exchanges, building bonds, contract options)
LPs and LLCs
Private placements and private stock (certificates of deposit, foreign stock, tangible asset deeds, accounts receivable)
Commercial paper (futures, commodity and option exchanges)
Where can I learn about real estate investing with my IRA?
Advanta IRA provides investors complimentary and empowering educational programs (live seminars and online webinars) designed to help you understand real estate investing and the wealth-building potential these assets present. Visit our event calendar to find webinars, workshops, and other events where you can learn about acquiring real estate in your IRA. The Advanta OnDemand page has many short videos and recorded webinars that cover all aspects of self-direction.
The information we provide shows how a self-directed IRA, or real estate IRA, offers you the freedom to invest in real estate related entities such as commercial property, rental properties (single-family and multi-unit), mortgage notes, tax liens, and much more. Real estate continues to be an attractive investment option; it is familiar, fairly easy to navigate, and secure.
Can I invest in real estate with an old 401(k)?
As long as you are able to move your 401(k) into an IRA, you can use those funds to invest in real estate. To ensure that your 401(k) funds (or any other employer-sponsored plan) can be rolled over into an IRA, you should contact your plan’s administrator.
How are rental income and expenses handled in a real estate IRA?
All expenses and income flow through your self-directed IRA. For example, your tenant makes rent checks payable to your IRA and sends them directly to Advanta IRA to deposit into your account. To pay expenses associated to your assets, contact Advanta IRA and we cut checks from your IRA to pay them.
What happens if my real estate IRA does not have adequate funds to pay for unexpected expenses?
You have a few options if your IRA does not have enough money to pay unexpected expenses.
If eligible, you can make an annual contribution to your IRA to make up any shortfall.
Your IRA can take out a non-recourse loan from a bank or private third party, although unrelated debt-financed income (UDFI) tax may apply.
Find someone to partner funds with who is not a disqualified person.
How can my IRA buy an investment if I do not have enough money in my IRA account?
Typically, your IRA can purchase investments in three different ways:
By paying for the asset with cash from the account
By partnering funds with your personal funds, or with funds from another person or entity
Taking a non-recourse loan (i.e., from a typical lending institution)
What is a non-recourse loan?
Non-recourse loans are extended to the IRA, not you personally, and are secured by the asset purchased with the loan, such as a piece of property. Note: Per IRS Pub-598, unrelated business income tax (UBIT) may apply.
What Plans Are Available for Self-Direction?
A tax-deferred retirement savings plan for individuals. Contributions and
earnings are only taxed when distributions are taken. Former employer
plans can be directly rolled into a traditional IRA without tax consequences.
A retirement savings plan for individuals based on taxed contributions, not
tax-deferred contributions. The earnings are tax-free once distributions
begin provided the IRA owner is over the age of 59 1/2 and has had a Roth
IRA for at least five years.
Simplified Employee Pension (SEP) IRA
A SEP IRA allows an employer (typically a small business or self-employed
individual) to make larger retirement plan contributions into a traditional
IRA established in the employee’s name.
Savings Incentive Match Plan for Employees
The SIMPLE IRA is available to employers with 100 or fewer employees and
allows for both employer and employee contributions, similar to a 401(k)
Qualified plans, such as employer 401(k), 403(b), profit sharing plans, or
individual 401(k) accounts for the self-employed can be self-directed in
Real estate holdings in IRAs are a favored strategy that individuals use to build wealth for retirement. There are experts out there that can invest in these assets while blindfolded, but many others are unsure how to get started. If you fit into the latter category, this article’s just for you. It’s a beginner’s guide you’ll find handy to learn how you can invest in real estate with an IRA to earn tax-sheltered income for your future.
The term “real estate IRA” is used to describe self-directed retirement plans that hold real estate assets.
A self-directed account gives you the right to choose your own investments. You don’t rely on a third party to make decisions for you. You are not limited to the stressful world of stocks or the boring realm of bonds and mutual funds. You are free to invest in alternative options like private equity and precious metals, but for the sake of this article, we’re going to focus on real estate investing.
What’s so special about real estate investments?
Real estate delivers diversity to your portfolio by way of a hard asset that has the potential to earn income at a faster pace than traditional assets.
Additionally, this asset class covers an incredibly broad spectrum. Residential and commercial property, rehabs, rentals, private lending, land, and even tax liens are common examples.
Rehab-and-flips are at the forefront.
Many people enjoy today’s reality TV shows that give real-life examples of how rehabs work—and the process is nearly identical when you invest with your IRA. The only difference is your IRA owns the property and must pay for all expenses of the rehab. One expense is hiring third-parties to perform the renovations. As the IRA owner, you cannot personally perform repairs on the property. This is considered sweat equity, which is prohibited in an IRA. Upon the sale of the property, all proceeds are deposited directly into your account without incurring capital gains or other taxation.
Rental property is a favorite to achieve a steady flow of income over time.
Monthly rent payments are deposited into the IRA, tax free. Here again, expenses must be paid with IRA funds. You also have the option to sell later when the property has hopefully appreciated, presenting another boost of tax-sheltered income.
Private lending creates diversity and earns income on interest payments.
This is an ideal transaction for borrowers seeking mortgage financing. Your IRA plays the part a bank would in extending loans to borrowers that you fully vet. Principal and interest payments are made to the IRA, but you call the shots on the terms of the security of the loan and the repayment details. The property is held as collateral in case of default, and can then be sold for additional profit.
Choose a plan administrator.
Make sure you work with a firm, such as Advanta IRA, who has experience in dealing with real estate transactions. Advanta handles hundreds of these investments a year, ensuring the administrative details comply with IRS rules. You’re paired with a specific client account manager who provides concierge-style service and guides you through each investing process.
Open your account.
You can self-direct traditional, Roth, SEP and SIMPLE IRAs, solo 401(k)s, health savings accounts, and education savings accounts. Advanta IRA makes it easy to open your account on our secure online portal, or you can download and mail completed forms to our office.
Fund your account.
Transfer or rollover funds from an existing IRA or 401(k). You can also make a cash contribution, keeping in mind you can’t exceed the annual contribution limits of your plan. You can also move funds from a 401(k) that’s still housed with an old employer into a self-directed account.
Now that you’ve gotten everything in place, you can begin looking for real estate to invest in. It’s that easy.
Want a beginner’s bonus?
If you find a promising asset but lack adequate funds in your plan make the purchase, your IRA can partner funds to invest.
This is an excellent strategy to score more lucrative holdings and also to offset expenses related to asset. You can partner self-directed funds with your personal funds, and/or with another person or entity to invest in real estate. Ownership is assigned based on the percentage of the buy-in each investor contributes. Expenses are divvied up in the same manner.
If you want to learn more about how to invest in real estate with an IRA, download this free eBook: Real Estate IRAs Made Easy. You’ll get in-depth information and a better grasp of how these assets can work for you.
We at ARB GROUP are experienced in managing investment property from a simple investment or a Direct IRA account. We help you select and buy the property. You do not have to be in town to participate in this process. We will locate and select the property with best possible returns and least maintenance required. The ARB GROUP staff manages your real estate investment hassle-free for you and ensures your funds are deposited directly to your account. ARB Group is a Real Estate solution company with four entities made up of certified and licensed professionals to build your dream custom homes, REALTORS to buy/sell properties, a property management group to cater investors, and remodeling group with expertise to maintain the properties.
Reference Website: https://www.advantaira.com