This post discusses real estate investing and investing deals.

Using your retirement funds to invest in real estate may likely sound tempting due to the current volatile stock market that may be stopping you from building wealth. To invest in real estate using your retirement funds you will need to locate an independent Individual Retirement Account (IRA) custodian that allows an IRA Real Estate Investing option. Then work with that company to set up the best IRA real estate investing account for you.

Many of the companies that offer IRA real estate investing options may limit your choices to stocks, mutual funds, certificates of deposit, annuities and other similar financial tools.

Real Estate Investing Tip:

The Internal Revenue Code under Section 408 permits an individual to purchase land, residential property, real estate contracts, commercial property, condominiums, or trust deeds with IRA real estate investing accounts.

The two types of IRA Real Estate Investing:

1. Tax-free IRA Real Estate Investing – Tax free retirement accounts are also known as Roth IRA where yearly donations are made with after-tax dollars. The benefit of the Roth IRA or tax-free IRA real estate investing is that the growth of the retirement account is tax-free.

2. Tax-deferred IRA Real Estate Investing – Tax deferred are the tax deductible IRAs that allow yearly contributions to a tax-deferred account with pretax dollars. This means that the money, which is deposited in the IRA is not taxed but while withdrawing the money immediately after the retirement the taxes have to be paid.

IRA real estate investing has great advantages for investors allowing them to invest in properties like:

• Raw land
• Mobile Homes
• Apartments
• Single family homes
• Real Estate Notes
• Commercial Real Estate

IRA real estate investing also has the incredible advantages of giving you benefits such as:

• Estate planning
• Reduction of taxable income
• The power of compound interest
• Asset protection

Although every IRA allows for real estate investment you should know the three types of accounts that are offered. Each of the IRA accounts has their pros and cons of IRA real estate investing.

The three types of IRA Real Estate Investing accounts:

A Traditional IRA real estate investing account allows you to annually deduct your contributions from your income. However, when you begin withdrawing the money, those funds will be taxed as regular income.

A Roth IRA real estate investing account gives you no deduction on your current contributions but it allows you to withdraw funds tax-free. This IRA real estate investing option may be a good one for you if you expect to hold it for a long period, particularly if the property rises in value over that time.

A SEP-IRA real estate investing account is uniquely designed for small companies and self-employed individuals. With a SEP-IRA you can contribute up to 25% of your compensation or $40,000 whichever is less. This is an ideal option for real estate practitioners who can make high contributions, as they are able to build funds more quickly to purchase properties. Withdrawals from a SEP-IRA real estate investing account are treated like those of a traditional IRA for tax purposes.

This entry was posted on Thursday, October 29th, 2009 at 5:50 pm. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.