Earn Tax-Free Income on Rental Property in Your IRA

Earn Tax-Free Income on Rental Property in Your IRA

The savvy individual knows a thing or two about how IRAs provide tax-advantaged savings for retirement. You may even know that self-directed IRAs allow account owners to invest in alternative assets. Self-direction gives plan owners control over their retirement funds and investing decisions.

Account owners can invest in assets that reach far beyond the traditional stock or bond. Alternative investments, such as real estate, are the most popular holdings in self-directed accounts. Real estate presents unique opportunities, including the ability to invest in rental property in your IRA to build retirement wealth.

Not only can individuals invest in rentals, realtors can use their expertise to build wealth for retirement, too. Self-direction is about investing in what you know best, after all. Realtors have an advantage here, with the potential to build themselves a tidy nest egg to secure their financial futures.

Why invest in rental property in your IRA?

Last year, Forbes published an article about rental property investments stating:

“Our Top 20 is a list of local markets where the odds of making a good investment in rental property are in your favor right now – and, equally important, where the odds of making a bad investment are low – because the number of renters is growing fast. So fast that brokers and builders aren’t yet aware of how much future demand there will be.”

Rentals are a hot topic today. Even so, many people don’t know they can invest in these assets with a self-directed IRA.

Here’s how it works: Your IRA purchases and owns the property. As the property owner, your IRA directly receives the monthly rental payments. The IRA also pays for all expenses. A third party performs any maintenance and repairs. Why? As the owner of the IRA, you cannot receive income for repairs. You cannot perform these tasks for free, either. That’s called “sweat equity” and is prohibited by the IRS.

Rentals present the potential to build retirement savings over time in another way. When the property appreciates, your IRA can sell it. The sale earnings grow tax-deferred in your self-directed plan.

It’s hard to beat the tax advantages because time is on your side. Consider this: The rental income you earn remains in the IRA. It grows on a tax-sheltered basis, building additional investing capital.

Types of rental property you can invest in:

  • Single and multi-family homes
  • Commercial property
  • Townhomes and condominiums
  • Offshore vacation property
  • and more…

The benefits of investing in rental property in your IRA are numerous. However, as any investor knows, real estate purchases are not without risk. As with any investing decision, seek knowledge in the assets you choose. As with any retirement plan, IRS rules must be followed. Due diligence is necessary to ensure the investment is viable with the potential to produce rental income. more you know, the better your chances of growing the wealth you desire.

Earn Tax-Free Retirement Income on Rental Property in a Real Estate IRA infographic

Contact Midland IRA for information about investing in real estate and the tax-saving advantages you can enjoy with a self-directed retirement plan.

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