Wall Street has successfully fooled the majority of American investors into believing they can only invest in stocks, bonds, mutual funds or bank CDs. If you've fallen for this, you're not alone. But we're about to teach you how to break free.
The truth is, you can you invest in virtually anything you want with a Self-Directed IRA LLC (excluding collectibles and art). Even better, you don't even need a custodian in the middle to do it.
Real estate is the most popular Self-Directed IRA LLC investment, particularly among our clients. Why? Because there are many advantages, tax benefits, and other little tricks which are only accessible to real estate investors who use a Self-Directed IRA LLC.
Let's go over the biggest perks below.
Income or gains generated by a Self-Directed IRA LLC are tax-deferred. Which means you can invest tax free and not have to pay taxes right away, or in the case of a Roth IRA, ever.
When you buy real estate with a Self-Directed IRA, instead of paying tax on the returns of a real estate investment, tax is paid only at a later date, allowing your real estate investment to grow quickly.
The key to investing in real estate with a Self-Directed IRA LLC is to do so when you're earning high income (and being taxed at a higher rate.) Then when you start making less money (and get taxed at a lower rate) you should make withdrawals because your withdrawals will be taxed at a lower rate.
After 20 years your $200,000 investment would be worth $349,572 after taxes on your earnings. Whereas, if you had made the investments with taxable, personal funds (non-retirement funds), in 20 years your investment would only be worth $320,714.
Below is a small list of real estate related investments you can make with a Self-Directed IRA LLC (foreign and domestic):
And that's actually the short list. There are many more opportunities available.
Buying real estate with a Self-Directed IRA LLC is essentially the same as buying real estate personally. Except you have way more benefits and advantages when you do it with a Self-Directed IRA LLC.
But there are a few differences as far as the "backend" is concerned:
When using a Self-Directed IRA LLC to make a real estate investment there are a number of ways you can structure the transaction:
Partnering with your family & friends to make a real estate purchase won't trigger a prohibited transaction if your Self-Directed IRA LLC is set up correctly. For this reason, it's important that you get professional help to establish your Self-Directed IRA LLC.
Also, when it comes to borrowing money, you must use a non-recourse loan. That is, unless you want to trigger a prohibited transaction and pay the taxes below.
If you do trigger a prohibited transaction, you will be paying UBTI (Unrelated Business Taxable Income) Tax. You will be taxed at the trust tax rate because your IRA is considered a trust. For 2018, a Self-Directed IRA LLC is taxed at the following rates:
There are so many benefits to using the self-directed IRA LLC for your real estate investments that we have written multiple previous articles on the subject. Check out some of our top reasons to use a Self-Directed IRA LLC in greater detail. But we'll go over the basics here. The top four reasons investors use this method include the following:
As you can see, there are so many advantages and benefits when it comes to investing in real estate with a Self-Directed IRA LLC.
However, in order to enjoy those benefits you have to make sure that everything is structured correctly from a legal standpoint. The legal aspects are what matter for protecting you and your hard-earned money from the IRS.
Royal Legal Solutions can guarantee that your Self-Directed IRA LLC is set up correctly and kept up to date with all future IRS regulations. Your satisfaction is our greatest priority.
Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.
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