Use your Self Directed IRA to invest in real estate and turbo charge your tax deferred returns.
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The following are the most common questions asked from investors looking to use their 401k to invest in real estate. The questions were presented to Travis Watts from Direct Source Wealth for answers.
Q: What are the benefits of opening a self-directed IRA?
A: Freedom & Choice to invest in the things you want to invest in, ie: large scale real estate.
Q: Why invest in real estate using a self-directed IRA?
A: Opportunity for larger return in a real estate investment that regularly produce higher rates of return.
Q: Can I use a Self Directed IRA to purchase a property I buy for investment?
A: Yes, subject to many rules; ie you cannot personally manage the property.
Q: Can I use a Self Directed IRA to invest in a Syndication?
A: Yes, the most common use of Self Directed IRA funds is investment in syndicated real estate deals. A syndication is a group of investors pooling their funds for investment. The investment is typically larger than one the investor could accomplish on their own. These real estate investments are professionally managed and require that you do nothing.
Tax Implications ?
Q: Is there any tax or penalty to move my current Retirement Funds to a Self Directed IRA?
A: A Self Directed IRA retains the same tax implications as your traditional IRA. You are only changing the custodian from your current provider to another that will allow you to direct the investment.
If you elect to convert your traditional IRA to a Roth IRA, you will be responsible for the tax.
Q: Can I take the distributions?
A: Any distributions from the Self Directed IRA are subject to tax and penalties for early withdraw. A Roth IRA is not subject to tax when funds are withdrawn.
Setting up Your Self Directed IRA
Q: How long does it take to set up a Self Directed IRA?
A: It can take as few as 3 or 4 days if you are currently in cash or it can take a couple of months to liquidate your current positions. Consult with your current custodian and tax professional for your specific timeline.
Q: What documents are required to open a Self Directed IRA?
A: Standard documents; driver license, photo id and social security card, etc.
Q: What documents are required to fund a deal?
A: Standard documents include:
- Operating Agreement
- Private Placement Memorandum
- Syndication Agreement
Every deal is different. Check with your syndicator or investment for specifics.
Q: What happens to the investment returns & distributions?
A: Distributions are returned to the Self Directed IRA as cash.
Q: Can distributions be invested in the next deal?
A: Accumulated cash distributions can be invested in another investment.
Summary: Look into a self directed IRA and learn what the possibilities are and remember, learning is earning.
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