BACKGROUND

It’s exciting to know that you can use your IRA money to not only purchase stocks, bonds, and mutual funds, but you can now purchase real estate investments and other investment vehicles. Investments within an IRA are capable of compounding on a tax-deferred or tax-free basis that allows your earnings to accumulate at a much greater rate than similar investments made outside of an IRA. You will need a custodian to perform your investment transactions. Not all self-directed IRA custodians are the same and you need to research who is the best custodian for you considering reputation, fees, experience, results, knowledge, client service, and protection of your assets.

COMMON INVESTMENT VEHICLES

As you plan to research and investigate IRAs and real estate investments, it’s important to know the various common investment vehicles available. These investment vehicles include: real estate, promissory notes, mortgages and deeds of trust, tax liens and sale certificates, private placements, limited partnership (LPs), limited liability companies (LLCs), judgments, factoring receivables, structured settlements, equipment leasing, mobile homes, and auto notes. As always, you need to evaluate your level of risk and the potential return that is not always a guarantee.

FREQUENTLY ASKED QUESTIONS

1. What is a transfer?
A transfer occurs when IRA assets are moved directly from one financial institution to another without the IRA owner taking possession of the assets. Unlike rollovers, there is no limit on how many transfers can be executed in a year.

2. What is a rollover?
A rollover occurs when an individual requests a distribution from an IRA/QRP (Qualified Retirement Plan) and then “rolls” the assets into an IRA. There are two types of rollovers: an IRA rollover and a Qualified Retirement Plan rollover. An individual is limited to one rollover per year.

3. When an investment is sold, can I keep any money that is in excess of my initial investment?
All money generated from a property owned in an IRA must return to the IRA.

4. What can’t I invest in?
Collectibles such as artwork, rugs, antiques, gems, stamps and shares of an S-corp. are not allowed in your IRA. An exception to this rule is investment in certain US gold and silver coins minted by the Treasury Department.

5. What is prohibited?
Prohibited transactions within your IRA include:
a. Personally borrowing money from your IRA.
b. Selling personal property to your IRA.
c. Receiving unreasonable compensation for managing your IRA.
d. Using your IRA as security for a loan.
e. Buying property for personal use with your IRA funds.

6. Can I loan money to family members?
You may not loan money from your IRA to family members of linear descent such as your parents, children, grandchildren or in-laws. You may lend to other relatives of non-linear descent such as siblings, aunts, uncles, nieces or nephews.

7. Can I use my own money in an IRA investment and be reimbursed by my IRA?
Your IRA must remain separate from your own investment and at no time should these two be commingled.

8. Can I get reimbursed by my IRA if I pay for repairs personally?
No, any reimbursement would be self-dealing, which is prohibited by the IRS.

FURTHER INFORMATION

To obtain further information regarding this topic, please talk to your current IRA custodian (brokerage firm, financial planner, CPA), local bank, savings and loan.

If you would like to buy or sell Wilmington, NC real estate, contact Sandy and Steve Thornton for all your home buying and selling needs.

 Specializing in Wilmington, Leland, Hampstead, Sneads Ferry, Jacksonville, Topsail Island including Surf City, Topsail Beach, North Topsail Beach, Beach and waterfront properties covering New Hanover County, Pender County, Brunswick County and Onslow County areas