Buy a Second Home with Your IRA

Owning a home is a good investment in the view of many people. If one is good, two must be better! Before you rush out to buy a second home, you might consider doing it through your IRA.

The idea of buying a home through an individual retirement account may seem out of sorts. It is not. Most people incorrectly assume they can only invest in mutual funds, stocks or bonds.

Investing in the stock or bond market with your IRA is an in the box strategy. You can make a decent return, but is that really what you want? I doubt it. Leveraging your IRA account to buy homes and condos has much more potential.

Using your IRA to buy homes and such might sound like an aggressive idea that might raise the ire of the IRS. In truth, it is not and the IRS has said as much. The language allowing it is right in the tax code, to wit, this is not a loophole strategy.

Section 408 of the tax code states clearly you can invest IRA contribution in a variety of property. The wealthy have used this approach for a long time and more than a few now own big portfolios of commercial property, rental properties and so on through their IRAs.

To buy homes, commercial properties, rental properties and so on, you need to open a particular type of IRA. It can be a traditional or Roth version, but it must be self-directed and have a custodian. Most banks and trust companies offer them at a small cost.

As the name suggest, you are in control of the individual retirement account. This means you get to set the parameters of what can be invested in and what cannot so long as it is legal. Homes, condos and so on are legal investments under the tax code.

Once up and running, it is time to put money into the account. How you do this is entirely dependent upon your specific situation. You can roll money in from another account or perhaps just make contributions. Consult with your financial advisor for the best answer.

Most people use their IRA to purchase secondary properties. The classic example is using the strategy to buy rental properties. Millions of Americans now own second homes, and the IRA strategy is a perfect way to pursue ownership. Heck, you can even buy an RV.

From a procedural point of view, you do no actually purchase anything. The IRA does. Technically, the custodian of the IRA will sign on behalf of the account and so on. You then relax and watch your balance grow as rental payments come in or appreciation occurs.

You might recall I mentioned the Roth option above. Yes, you can use this strategy with the Roth account. In fact, it is preferable. Why? When you retire, all distributions from the Roth will be income tax free. That makes for an excellent investment.

The above represents a very simplified look at maximizing your IRA investment with property. That being said, it is one of the outside of the box wealth building strategies that can produce tremendous returns.

Learn more about the real estate IRA strategy at UFCAmerica.com.
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