If you’re interested in buying real estate with Roth IRA funds, take some advice from an experienced investor. There are successful examples of an IRA rollover buying real estate and there are some failures. Learn from the mistakes of others and you can be one of the last success stories.
Everyone makes mistakes, but when it comes to buying real estate with money from your Roth IRA, mistakes are costly. Let’s start with choosing the wrong custodian and go from there.
Here is a failed example of an IRA rollover buying real estate. One man chose to rollover from his traditional account and chose a custodian that offered self-investment. He deposited the funds into the account within the 90-day period to avoid IRS penalties.
Once she started reading the fine print, she realized that the custodian she had chosen took 45% of her interest earned on uninvested cash balances. He also learned that for each transaction, he would be charged fees ranging from $25 to $150. He did some research and found a different custodian who only charged a reasonable annual fee, while offering more investment options.
When you buy real estate with money from your Roth IRA, you will almost always have an “uninvested cash balance” and you will likely make many transactions each year. So the transaction fees can really add up.
The man really believed that an IRA investment to buy real estate was the right choice for him, but he realized that he had chosen the wrong custodian. Instead of transferring the funds, he made another rollover that year.
The IRS only allows one tax-free rollover per year. Therefore, the full dollar amount of the fund had to be included in “other income” at tax time. The result was a devastating bill that nearly bankrupted him.
This man, whose name I will not mention, made two mistakes. First of all, he didn’t read the fine print or shop around BEFORE signing with the custodian. Second, he didn’t read the IRS rules for rollovers and didn’t know rollovers were a better option.
Breaking the rules of indirect benefits or self-dealing is responsible for some of the failures, when it comes to an IRA rollover to buy real estate.
Purchasing real estate with Roth IRA funds must be kept “at arm’s length.” Your account may not purchase from or for you. Those are some of the rules you need to know before you get started.
Knowledge is everything when it comes to the success of an accumulated IRA to buy real estate.
Another man grew his account value from $20,000 to over a million in less than three years. He started small by selling vacant lots, making a profit of $1000 on each transaction.
Now, he has mortgages on various properties. It’s just one of the success stories.
Buying real estate with money in a Roth IRA can be very profitable, as long as you get the information you need ahead of time.
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