New Post

Cedar River Properties Newsletter (2/4/23)

This week’s newsletter involves the topic of using Self-Directed IRAs to invest in real estate.

Many people like the idea of investing passively in real estate, but do not have enough cash on hand to invest.

This makes sense as most of their money is tied up in other investments or retirement accounts leaving little money left over to invest in real estate.

This is obviously better than leaving money in a bank with little to no interest. However, learning about other options to place your money and diversify is always a good idea.

To begin, most retirement accounts are either a 401(k) through your employer where they match part of your contribution or an Individual Retirement Account (IRA).

Typically, 401(k)s and IRAs consists of stocks, bonds and mutual funds. This is what most people are used to. They contribute money from their jobs to these retirement accounts on a regular basis and then it is invested for them.

However, there is another option.

A self-directed IRA is similar to the regular IRA options with one major difference; it allows you to invest in alternative investments including real estate.

Self-Directed retirement accounts (SDIRAs) tend to be confusing and misunderstood, which leads to missed opportunities.

However, once you learn the basics, it opens up a whole new world.

Contributions for the SDIRA are the same as Traditional and Roth IRAs. As of January 2023, you can contribute up to $6,500 annually to your IRA or $7,500 annually if you are 50 years or older.

Tax advantages are also similar between the different retirement accounts.

The biggest difference is the asset classes that you can invest in.

Another big difference includes who holds the money. Instead of your retirement account being with a large company, it would be with an SDIRA custodian.

The custodian administers where you want your assets directed, but does not give advice as to where to invest as that is left up to the account holder.

The downsides to SDIRAs are that they are more complicated to put in motion and may come with higher fees.

For company 401(k)s, you cannot use that money when you are still working for the company without significant penalty withdrawals. However, if you are no longer with the company, you can roll it over to an SDIRA.

I know this newsletter didn’t go into too much detail and specifics, but I hope it provided you with a new view on retirement accounts and the ability to use them to invest passively in real estate.

Disclaimer: I am not an accountant or financial planner. I am simply pointing out the possibilities of using a self-directed IRA to invest in real estate. Use this information as you wish.