Investing in Real Estate Syndications with a Self-Directed IRA & Solo 401(k)
- Multifamily
- Office Building
- Shopping Center
- Luxury Homes
WHAT IS A SELF-DIRECTED IRA?
A self-directed IRA is similar to a traditional or Roth IRA in that it allows you to save for retirement tax-free and has the same IRA contribution limits. The only distinction between self-directed and other IRAs is the type of assets held in the account. Only equities, bonds, and other relatively common investments are normally held in a conventional IRA. However, a self-directed IRA offers a lot more options. You could, for instance, invest in real estate or a closely held business. All you need to do is locate a custodian who will take the funds, and you’re ready to go.
Syndications can be the ideal investment
To build long-term wealth growth in your tax-sheltered IRA or Solo 401(k) retirement portfolio, several important measures come to mind:
• Where can I make reliable, dependable profits over time?
• What can I do to reduce risk?
• How can I find investments and manage them with the least amount of effort possible?
Benefits Of Investing In Real Estate Syndications With Self-Directed IRA Or Solo 401(K)
DEFERRED TAXES
The profit generated, as with any traditional IRA investment, has the potential to grow tax-deferred until you make a withdrawal. If it is a Roth IRA, profits may accumulate tax-free, which means you will not have to pay taxes when you withdraw funds.
ASSET PROTECTION
A person who invests in a Syndication using a Self-directed IRA or Solo 401 (k) has several exit options, including selling or refinancing value-add improvements/repositioning, and more. This provides greater protection than investments in stocks, bonds, and other assets in the event of a downturn. Furthermore, even if real estate values fall during a recession, investors will often benefit from consistent cash flow.
UDFI Tax Implications for IRA & 401k Investors
The majority of property acquisitions in syndication arrangements are funded by a combination of mortgage debt and investor funds. An IRA investor who uses debt financing may be subject to tax on Unrelated Debt-Financed Income (UDFI). At the end of the day, the IRA pays a small amount of tax in order to benefit from the higher cash-on-cash returns produced by leverage. Even with a little tax, the advantages of leverage will still be realized. A Solo 401(k) is exempted from UDFI if the debtfinancing is utilized to buy real estate since it is a qualified employer retirement plan.
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