Enhance Your Real Estate Portfolio With Self-Directed Ira Options

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In every crisis there is chance for those who do their homework to take advantage of the opportunities caused by the market turmoil.

In the case of the current housing crisis, it is important to remind buyers that in order to receive the first-time homebuyers tax credit, a property must be in escrow no later than April 30, 2010 and the purchase must be completed by June 30, 2010.

The same dates apply for the repeat homebuyers tax credit.

Another opportunity that is presenting itself is the ability to convert your traditional IRA to a Roth IRA.

While it is outside the scope of a real estate column to discuss this issue, it may be time to discuss this with your financial adviser.

It could provide you with a unique opportunity to invest in a self-directed IRA which has the potential to enhance your real estate portfolio with long term non-taxable income.

A traditional IRA forces you to take taxable income when you reach the age of 70 and a half.

A Roth IRA does not force you to take distributions.

If you buy a rental property with a self-directed Roth IRA you must have a custodian who oversees the account.

There are rules you must follow to comply with a self-directed IRA so you do not trigger a taxable event.

Let’s look at a scenario where you put a rental property into a self-directed Roth IRA.

A property generates $1,000 a month in gross rental income. After expenses you net $800.

If you are under 59 and a half years of age, you must let the income accumulate in the Roth IRA to avoid potential tax or penalty consequences. After 59 and a half you have some choices. You may sell the property and take the proceeds tax free.

You may take out the rental income tax free to supplement your income or you may let the income accumulate to the point where you can purchase another property in the Roth IRA which will generate more income.

With the deflated values in the housing market, there is the prospect of benefiting in many ways from the above scenario.

You can receive tax-free income for life assuming the property stays rented and when the housing market turns, you may receive capital appreciation on the property.

This article cannot cover all the nuances, benefits, or pitfalls of this type of investment.

If it has sparked an interest, you need to consult, just as I have, with your financial adviser and accountant to discuss if this type of investment would be advantageous for you.

Ray Pugel is a designated broker for Coldwell Banker Bishop Realty. Contact him at (928) 474-2216.

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