1. Does the IRS allow real estate in an IRA?
A: Yes. The IRS has had that question so many times they answer it directly on their website (www.irs.gov). In their retirement Q & A section they say “IRA trustees are permitted to impose additional restrictions on investments. For example, because of administrative burdens, many IRA trustees do not permit IRA owners to invest IRA funds in real estate. IRA law does not prohibit investing in real estate but trustees are not required to offer real estate as an option. To invest in real estate your IRA custodian must allow it. True self-directed custodians do.
2. Why didn’t I ever hear about real estate investment in IRAs before?
A: Real estate in IRAs is a well-kept “secret” opportunity that, until recently, hasn’t been talked about much. Retirement investing has been dominated by the securities industry since 1974 but has always been available. The opportunity to invest IRA funds directly in real estate is an option that many people are just learning about.
3. How do I actually buy real estate with my retirement plan?
A: You find the real estate within the parameters of what you have in your plan budget, including partners, yourself and debt financing in any combination. You direct us to purchase the property. You will have selected a proper escrow/title company/attorney to work with us to close the transaction We will follow your directions as you specify. We fund the escrow as required and sign all closing documents after you have read and approved them. On closing, the title is vested as shown in the closing documents. Income is received by the plan and expenses are paid in accordance with your instructions from the plan.
4. I have a 401(k). Can I invest that in real estate?
A: Your 401(k) plan may, at your direction, be invested in real estate if the investment provisions of the plan permit it. The employer establishes the plan for the benefit of the employees. The employer will have specific investment language incorporated in the plan, which states what options are available to the employee. If the employer contributions to your plan have been made, and the plan permits self-directed investments, there will be rules governing the amount you may invest from that portion you are vested in. You may also have an Individual (k), which limits participants to owners only, plus spouses and partners. In this case you may decide on the investments to be completely self-directed by you.
5. How long must my IRA own a property before selling it?
A: There are no time restrictions or limitations on buying or selling a property, you could choose to sell a property the day after closing if you wanted.
6. Do I have to pay capital gains taxes if I sell the property?
A: Because the property is owned within a tax deferred (Traditional IRA) or tax free (ROTH IRA) plan no capital gains taxes need to be paid.
7. Where does rent income go?
A: Income from the investment goes directly into the IRA, and just like expenses the IRA may only receive its portion of the income.
8. How are the expenses paid?
A: Expenses are to be paid directly from the IRA. If the IRA owns 100% of the property it is responsible for 100% of the expenses. If your IRA is a partner, it is responsible for its portion of the expenses. Because the IRA must pay the expenses it is important to make sure there are sufficient funds in the IRA to cover the expenses. When purchasing the property don’t forget to take expenses into account.
9. Are there any pitfalls to self-directed IRA plans?
There are many potential pitfalls with respect to both prohibited transactions and timely reporting at the state and federal levels. Adelphi Retirement Management's specialty is structuring transactions in "safe harbors" to avoid such problems and ensure statutory compliance.
10. Who makes the IRA’s investment decisions?
You do. Your account is truly "self-directed," which means that you make the investment decisions for your retirement assets in much the same way as you invest outside of your retirement plan. But you don’t invest alone. Adelphi Retirement Management will help you navigate the complex rules that govern prohibited transactions so you can focus on making the best investment decisions.
11. How are my assets managed?
Your assets are co-managed by you and Adelphi Retirement Management. You make all investment decisions, and we take care of all of the paperwork and reporting details. Once you make an investment, Adelphi Retirement Management will keep your books and records, coordinate the custodianship of your assets, oversee the annual asset valuation, and file all required annual reports.
12. What are the benefits of having a Limited Liability Company (LLC) own my IRA’s assets?
There are many advantages to using an LLC to own your IRA’s assets. The LLC structure offers maximum investment flexibility, provides asset protection, allows for “checkbook control”, simplifies asset titling, eases pooling of assets, and enables immediate response to investment opportunities.
13. Can I combine personal money with my IRA money to make an investment?
Yes. You and your IRA can purchase an investment together. However, since you cannot sell property to your IRA, transactions between you and your IRA involving an asset after that asset is purchased are prohibited.
14. How much support can I expect from Adelphi Retirement Management?
Adelphi Retirement Management is proud of its superior customer service. We have full-time CPAs and attorneys on staff who are available to answer your technical questions at any time. Adelphi also provides frequent webinars and other educational events for our clients and their professional advisors.
15. What is Adelphi Retirement Management fee's structure?
Adelphi Retirement Management's has an initial fee that covers the setup of yourself directed IRA’s LLC and all associated transactions and documentation, and we have an all inclusive yearly administrative fee.
16. Are there restrictions on where my IRA can purchase real estate?
No. Your IRA can purchase real estate anywhere.