Purchasing A Property With Your Self-Directed IRA
Once you have your SDIRA
set up, you can acquire investment properties. Remember, this is an investment
account. The goal is to increase the value of your investments, so the intent
needs to be purchasing assets that will increase in value over time or that
will generate income now, like rental properties, for example. Your SDIRA
account holds the assets, and you direct the custodian to make purchase
transactions on behalf of your account.
Real Estate and all
investment assets purchased through your SDIRA are titled in name of your IRA
trust (which is assigned to you by your custodian), not your name. It will look
something like this: “Trust company, FBO Your Name IRA.” The steps are
straightforward:
1. Open account with
authorized custodian.
2. Prepare asset purchase
agreement in name of SDIRA.
3. Instruct custodian to
complete the purchase and wire the funds.
4. Custodian executes the
purchase and signs, assisting you in ensuring the investment doesn’t violate
rule or laws.
5. All income and expenses go
through the IRA only, never to you as the owner directly.
And you should always maintain a cash balance
for unexpected expenses related to assets held in your SDIRA. This is
important: It’s a prohibited transaction with a
disqualified person to personally pay for any expenses related to assets held
in your SDIRA. I am sure to always have cash in a money
market account owned by my SDIRA to promptly pay insurance premiums or a
maintenance issue that may come up with one of the rental properties owned by
my SDIRA.
It’s important to remember that through the SDIRA, you’re building your retirement nest egg, and the funds are not available until you retire (without penalty and taxes in most cases). And that’s good news because until you withdraw funds at retirement, your investments are growing tax-deferred. You’ll pay income tax on the funds when you withdraw them—and, most likely you’ll be in a lower tax bracket at that time.
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