I’ve been researching the possibility of placing some of my IRA funds into a self-directed IRA, so that I can purchase some real estate now, with IRA funds, that willbe somehow transferred later to my own ownership after I’ve reached 59 1/2 in about 2 years. I do NOT profess to be an expert, far from it – I am hoping that writing about this subject here on this blog may glean more information regarding this type of investment. Perhaps there are others out there that are also researching…perhaps we can help each other. Most of the information that I am able to obtain seems to focus on the investment companies who just want you to invest the money with them…and then, check with your tax person, check with your real estate person, check with your accountant! Help!
Here’s what I think I know: If I transfer some of my IRA funds from a typical stock fund manager, i.e., Fidelity, Janus, etc., to a “self-directed” fund manager, i.e. Pimco or Guidant, then the funds will be placed into an IRA Trust for my usage. After the money is in the new IRA trust, I can buy and sell items that are approved IRA investments (real estate, stocks, etc., but not stuff like antiques) with the money in the IRA trust. Real estate bought with funds in an IRA can only be used as investment property and I would need to rent the property out, as an investment. Any costs associated with the purchase, upkeep and repair must come from the IRA, and any income such as rents paid for use, or profits from the sale, if sole, must flow to the IRA. It is important not to mingle funds from the IRA trust with my own money, nor can you do “prohibited transactions” such as pay your sister to sell you the property, or sell the house to your child. Accountsand moneys must stay separate. Furthermore, investment real estate held within an IRA trust cannot be depreciated for tax purposes.
We are all familiar with the normal IRA disbursement rules: once a person reaches 59 1/2, funds from the IRA can be withdrawn, and income taxes must be paid on the entire amount if it’s a traditional IRA. If funds are withdrawn from a Roth IRA, no income tax is needed to be paid on any of the funds, as long as the Roth IRA was initially started a minimum of 5 years previously.
Here’s where my information seems to get a bit hazy: after age 59 1/2 and after the 5 year holding period required for Roth IRA’s, how do I “disburse” the real estate to my self? Is it required that the real estate be sold for the money to be disbursed from the IRA? Or, can the property revert to me at that time if an appraisal is done and I pay taxes on the appraised amount of the property? What’s the recommended method to avoid audit? And here’s a biggie: If I purchase property in Ecuador with money from an IRA trust, will this satisfy the pensioner’s residency requirement for Ecuador (must invest $25K if you don’t have a minimum monthly income such as Social Security income)? I welcome any and all suggestions, advise, hints, warnings, you name it.
Alta and hubby preferred to rent in Cuenca, as opposed to buying anything with all that stress involved. They rented an unfurnished apartment just off the Tomebamba river with 3 bedrooms, 3 baths, a lovely patio and gorgeous wood floors. And then had a blast furnishing the place. I am including a picture or 2 of their extremely comfortable and eye pleasing place.