While many people recognize real estate as a valuable investment, some are now utilizing qualified retirement accounts to acquire real estate as a means of appreciation or generating income, such as IRAs.
It is crucial to fully comprehend the tax implications, legal consequences, and other complexities that come with purchasing real estate in Jacksonville within your IRA.
Now, let’s delve into some valuable advice on purchasing real estate in Jacksonville, Florida with your IRA!
Invest in Jacksonville or Yulee Real Estate Using Your IRA
If you don’t already have a self-directed IRA, it’s important to connect with your trusted financial advisor to find a reputable and low-fee self-directed IRA. Alternatively, you can reach out to us, and we can provide recommendations for excellent self-directed IRA companies we’ve partnered with in the past.
Open a Self-Directed IRA Account
The first step to purchasing investment properties in Jacksonville within your IRA is to open a “self-directed” IRA account. To do this, consult with a qualified financial advisor or trusted fiduciary who can act as the IRA custodian. A fee-only financial advisor can assist you in setting up the account with minimal hassle, while a commission-based financial advisor might discourage tangible asset investments within your IRA due to lower potential earnings.
Types of Properties You Can Acquire and IRA Rules
Within your IRA, you have the flexibility to own a wide variety of properties, including residential, commercial, industrial structures, and even undeveloped land. Many savvy investors opt to purchase parking lots, storage unit facilities, and other low-maintenance properties that yield consistent income.
It’s important to note that your IRA cannot own any property where you reside or vacation. Legally, you are not permitted to spend even one night in such a property. Renting the property from your IRA, or renting it to your immediate family members, such as your spouse, children, grandchildren, parents, or grandparents, is also not allowed. However, you can rent the property to a sibling, cousin, or friend. One common strategy employed by investors is to purchase a home for their IRA, generate rental income until retirement, and then choose to reside in the property after retirement.
How Does Income Work With Real Estate In An IRA?
The income generated in your IRA may not be used for your “personal current benefit.” This means that all income generated by the property must remain within the IRA until you retire. Selling the property will require you to leave all profits within your IRA. Also, property taxes, insurance, improvements, and other costs associated with the property must be paid by the IRA. Failure to comply with these regulations could disqualify your IRA, subjecting you to income taxes on the entire value of the property, plus a 10% early distribution penalty.
When utilizing a self-directed IRA to invest in real estate, it is crucial to understand that all distribution rules relating to an IRA (or Roth IRA), such as taxation, required minimum distributions, beneficiaries, and other factors, remain the same. This means that while there can be significant advantages to investing in real estate within your IRA, it is essential to be well-informed about the specific details involved.