Real estate investment comes with numerous advantages. In fact, it is one of the most popular investment opportunities for many Americans. The consistent property appreciation and the rental income it promises are enticing attractions of investing in real estate. Many people don’t realize that they can invest their retirement funds in real estate. In fact, you can invest your 401K retirement plan in real estate and gain numerous advantages including tax benefits. Here are some of the outstanding advantages of real estate investments for a 401K.
Usually, when an individual invests in real estate, he or she has to pay tax on the rental income. Whereas, if he or she sells the property for a profit, they have to pay taxes on the profits even if they plan to reinvest the money in real estate. An IRA can delay the taxes on your real estate income as long as the money is in your IRA account. This delay will help the individual to earn a higher after tax return on the property portfolio over time.
In fact, 401K plans are long-term saving accounts that offer certain tax advantages when you comply with the regulations laid down by the IRS or Internal Revenue Service. Although some financial firms will not permit investing your 401K in real estate, the majority of them do allow. That is why it is important that you consult the retirement plan administrator before deciding to invest in real estate. That way you can determine whether your IRA is eligible to invest in real estate. The administrator may have advice for you on how you should move the retirement funds to access the real estate market.
An individual can borrow half of the value of the sum in his/her 401K plan. However, if you are not in a position to directly invest your 401K in real estate, you have the tactic of rolling over your 401K into an IRA tax-free account. These proceedings can be used to invest in real estate. When you purchase real estate through an IRA account, you are not in a position to actively manage the property. That is where you need the services of a reliable property management company in the area. In fact, you have to get an outside agency to manage, maintain, and collect the rent of the building promptly. That way you can enjoy the tax advantages on your IRA account.
When you purchase real estate from your 401K account, all funds that are used to buy the property should come from the IRA account. If you can follow these restrictions, your IRA account won’t have any tax issues in the long run. There are countless items that you need to consider when investing in real estate using your 401K plan.
All expenses that you incur in the process of buying real estate using the 401K fund should be paid using the funds in your retirement account. Partnering with any other party when buying property with your 401K plan is not allowed. It could trigger IRS prohibitions if apprehended. You have to keep exact records of all income and expenses generated by the 401K account owned real estate investment. All legal matters of the property should be clear, especially if you purchase a property in another state. Beware of any fraud when buying the property from a promoter. These are some of the most important things to consider when investing in properties using your 401K fund.
You have to pick the right property management firm to manage the assets that you purchase in your 401K plan. With hundreds of property managers in the area, finding a reliable manager is not an easy task.