You’ve built your career helping your clients create long term wealth with real estate. What if you could use your knowledge to strengthen your own financial future? With a self-directed IRA (SDIRA), you can do exactly that.
Your deep understanding of the real estate market means you already have ninja-level investing skills. You just need to know the 3 keys to help you connect your expertise with the tools to unlock your dream retirement.
Unlock Your Retirement Success with These 3 Keys
Key 1: SDIRAs Are the Key to Leveraging Your Realtor Skills
Most IRAs available from investment firms only offer standard investment vehicles, like stocks and bonds. SDIRAs, however, give you the power to invest using your passion: real estate.
What is an SDIRA?
As the name suggests, an SDIRA gives you total control over how your retirement funds are invested. Nothing happens without your direction, and you decide on how, what, and when you invest. This allows you to build a portfolio that is truly tailored to your needs, goals, risk tolerance, and of course, understanding of the real estate market.
However, it is important to keep in mind that in the eyes of the IRS, an SDIRA is exactly the same as an IRA offered by banks or investment firms. Subsequently, just like stocks are part of your bank-managed IRA’s portfolio, any real estate investments you make are part of your SDIRA’s portfolio.
This means rental income and profit are directed back into the SDIRA, which allows for either tax-deferred or tax-free growth. It also means any and all appreciation of the asset grows in a tax-advantaged manner as well.
Key 2: IRAs Are the Foundation of Any Retirement Portfolio
An SDIRA can be traditional or Roth. Keep reading to learn the key differences between these two accounts.
Traditional IRA
With a Traditional IRA, in most cases, you can contribute tax-deductible, pre-tax dollars, and the growth in the account is tax-deferred. In other words, you won’t have to pay taxes on the growth in the account until you distribute it in your retirement.
Roth IRA
With a Roth IRA, contributions are made with post-tax dollars. You cannot deduct them from your income when you contribute them, but any growth in a Roth IRA can be distributed tax-free after age 59 1/2 as long as certain conditions are met.
Funding Your IRA
You can contribute to your self-directed accounts each year, but for faster growth, you can use the funds you may already have in an old 401(k) or existing IRA.
One way to do so is to transfer the funds from an existing IRA to a new IRA. For example, you can move funds from your existing IRA held at a brokerage to your new SDIRA held at Entrust. You can also do a rollover, which is when you move funds from an old 401(k) that you had with a previous employer to a new SDIRA.
To learn more about funding your SDIRA, check out the differences between transfers and rollovers.
Key 3: Partner Your Self-Directed Retirement Account Funds
Partnering allows you to leverage your portfolio and aggregate capital for a large investment without a non-recourse loan.
You can partner your self-directed account with anyone, including yourself and other disqualified persons on a new transaction. All prohibited transaction rules, however, still apply to the investment after the initial partnering phase to purchase the investment. For more information on this topic, download your copy of our SDIRA rules guide.
Partnered accounts cannot be commingled and the contributed percentage of each partner determines the proportionate percentage of ownership each partner has in the investment. All expenses and profits must then be allocated proportionate to each partners’ ownership percentage.
Key Tip:
Your self-directed account can also form an LLC to invest in real estate, and the LLC can invest through your self-directed retirement account. Some investors choose to create an LLC for more streamlined transactions or the limited liability this structure often provides.
How to Open the Door to a Stronger Retirement Plan
Without the traditional safety net of an employer-sponsored retirement account, it might be tempting to put off retirement planning. But the truth is that thanks to the flexibility and accessibility of SDIRAs, realtors are in a unique position to capitalize on their knowledge and skills to create a resilient, tax-advantaged retirement portfolio.