START WITH THE BASICS What Self-Directed IRAs Are All About
INVEST IN YOURSELF Learn How Individual Retirement Accounts Can Work for Real Estate Investors
M ost people in America don’t have enough money for retirement. That’s a fact. Many people have retirement ac- counts, but they are lax with their personal oversight of their own investments. One way to turn the tide is by un- derstanding how the different types of IRAs work for real estate investors, and then to take action. The self-directed accounts give you more choices with more oversight on your part. Best of all, this allows you to invest in what you know—namely real estate and real-estate-related products, like mortgages and options. This is far preferable to handing over your money to a stockbroker who might not even have his own money invested in what he is selling you. I like control, and I like real estate. However, it’s not always easy to find
real-estate-related products that will pro- vide safety for your retirement. Let’s look at each type and what sets it apart. In the United States, we have Roth IRAs as well as traditional IRAs. We also have the ability to have a 401(k), which can be a Roth or a traditional account. These are the main differences: NO. 1 Traditional retirement accounts allow you a deduction for your contribu- tion, which will reduce your taxable income by the amount of your contribu- tion. You must start taking distributions at age 70.5, and all distributions are added to your adjusted gross income at that time. NO. 2 Roth retirement accounts do not allow for a deduction at the time of your contribution. You can start taking distributions tax-free at age 59.5 as long as
you have owned the account for five years. NO. 3 The big difference between a Roth and a traditional account is that while they both allow you to compound profits tax-free, only a Roth retirement account is tax-free upon distribution and there is no forced distribution at age 70.5. Clearly, it is in most people’s best interest to go the Roth route because no one knows what income taxes will look like at the age of retirement. You could be in a much better situation at retirement with a Roth due to the lack of taxation upon distribution. But it’s not an either-or consideration, because you can put both types of ac- counts to work for you. Both the traditional and Roth IRAs strictly limit the amount of your contri- bution. For anyone under 50 years old,
8 THINK REALTY INVESTOR REVIEW
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