Arminius
Well-Known Member
- Oct 30, 2019
- 1,068
- Boat Info
- Bowrider 200 Select, 2003
- Engines
- 5.0L MPI, 260 hp w/Alpha 1 Drive
I raised the issue of whether one's IRA could buy a marina. The WSJ seems to say one could: Today's issue:
Glenn Ruffenach
April 14, 2022 10:00 am ET
"Given the turmoil in the markets, I’m worried about my IRA. I’m looking for investments other than stocks and bonds that might work for me. What are your thoughts about buying and holding real estate inside an IRA?
PHOTO: WSJ
In short, real estate and IRAs typically don’t mix well.
I’m hearing more questions along these lines. Yes, markets are unsettled, to say the least (the S&P 500 index has been down as much as 13.67% since the start of 2022), and many economists are anticipating tepid returns for the foreseeable future. As such, retirees are asking whether alternative investments, including real estate, might help shore up their nest eggs.
Alternative investments certainly can help diversify a portfolio. But to your specific question: Using IRA funds to invest in real estate tends to be problematic.
To start, you can’t use money inside your IRA to buy property for personal use, such as a primary residence or vacation home. The Internal Revenue Service labels this as a “prohibited transaction.” Translation: The government wants you to use your IRA and its tax advantages to generate retirement savings—not to buy a place at the beach for you and your family.
This doesn’t mean you can’t own property inside an IRA. For instance, you can invest your IRA dollars in a real-estate investment trust, which, in turn, owns or finances real estate that generates income. (Presumably, you wouldn’t be using the properties inside the trust for your personal benefit.) Or you can use your IRA simply to buy an investment property—say, a multifamily home—and manage the investment yourself.
The problem: These approaches can produce any number of tax headaches. A simple example: required minimum distributions from IRAs. Normally, a person who is required to pull funds annually from his nest egg uses the IRS’s life-expectancy tables and calculates the size of the withdrawal. But that process gets tricky quickly with a piece of property. How much is the property worth? (You will need an appraisal each year.)"
The penalty for failing to take the RMD is high. As long as rents are paid, there should be an account to draw on. Factor in the services of an accountant.
Just wondered.
Glenn Ruffenach
April 14, 2022 10:00 am ET
"Given the turmoil in the markets, I’m worried about my IRA. I’m looking for investments other than stocks and bonds that might work for me. What are your thoughts about buying and holding real estate inside an IRA?
PHOTO: WSJ
In short, real estate and IRAs typically don’t mix well.
I’m hearing more questions along these lines. Yes, markets are unsettled, to say the least (the S&P 500 index has been down as much as 13.67% since the start of 2022), and many economists are anticipating tepid returns for the foreseeable future. As such, retirees are asking whether alternative investments, including real estate, might help shore up their nest eggs.
Alternative investments certainly can help diversify a portfolio. But to your specific question: Using IRA funds to invest in real estate tends to be problematic.
To start, you can’t use money inside your IRA to buy property for personal use, such as a primary residence or vacation home. The Internal Revenue Service labels this as a “prohibited transaction.” Translation: The government wants you to use your IRA and its tax advantages to generate retirement savings—not to buy a place at the beach for you and your family.
This doesn’t mean you can’t own property inside an IRA. For instance, you can invest your IRA dollars in a real-estate investment trust, which, in turn, owns or finances real estate that generates income. (Presumably, you wouldn’t be using the properties inside the trust for your personal benefit.) Or you can use your IRA simply to buy an investment property—say, a multifamily home—and manage the investment yourself.
The problem: These approaches can produce any number of tax headaches. A simple example: required minimum distributions from IRAs. Normally, a person who is required to pull funds annually from his nest egg uses the IRS’s life-expectancy tables and calculates the size of the withdrawal. But that process gets tricky quickly with a piece of property. How much is the property worth? (You will need an appraisal each year.)"
The penalty for failing to take the RMD is high. As long as rents are paid, there should be an account to draw on. Factor in the services of an accountant.
Just wondered.