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With the severe beating that stock markets have taken in the recent years, people are investigating other investment options for their hard earned money. People are taking the responsibility of investing their IRA funds themselves, which allows them control contribution to the retirement fund as well as use their judgment to invest in real estate.
Investing in real estate through IRA
When you have a self-directed IRA, it gives you control over retirement funds, which you can invest in suitable real estate over a period of time. Generally, an IRA account requires the funds to be managed by a trust or bank, which holds assets of an account holder and makes investments on his/her behalf. If you want to manage your retirement funds, the only available option is to move your retirement funds into a self-directed IRA fund and the custodian trust or bank will make the investments as directed by you.
Several wage earners are investing in real estate in this manner to earn higher returns and have a secure retirement. However, some financial analysts have advised people against pulling out their IRA funds for investment in real estate as this has led to an increase in custodians’ charges. Moreover, some of them are late to react to account holders’ instructions so the opportunity is gone. Some custodians will not allow you to invest in particular areas as it is against their policy which can be a real drawback.
Investment through IRA LLC (Limited Liability Company)
Investors not keen on using the self-directed IRA route, which puts the funds at the mercy of the custodians. They can opt for a limited liability system, which allows a certain degree of flexibility. Through this technique, an investor can make a gateway between his IRA and a Limited Liability company so a custodian can transfer the required funds to it. The account holder can then manage the LLC on his own to make investments in real estate or any other source that is likely to provide good returns. Under this technique, the investor has complete control over funds transferred to the LLC and need not seek approval of anyone to make investments.
Investment option of Solo 401(k)
This investment technique allows the investor to become the sole trustee of his/her retirement plan. As a trustee, you can invest in several options available, whether it is real estate or stock market. In the Internal Revenue Service code book, everything about the workings of Solo 401 (k) has been mentioned to help investors make their own decisions while maintaining guidelines. Therefore, though all IRA 401(k) plans work the same, a Solo 401 (k) will work on the basis of its plan documents. An investor can set up his/her Solo 401 (k) either with a stock broker or investment consultant. While the former will help with investment advice on stocks, bonds or mutual funds, the latter will only provide advice and it depends on the investor to take it ahead.
Things to keep in mind while opening Solo 401 (k)
A. Experience: Since investment will have a bearing on how you spend your old age, look for a person or organization with previous experience in managing these kinds of investments in a profitable manner. The recent financial crisis, which has lead to the fall in both stock market and the real estate market and resulted in the reduction of retirement funds should not be repeated.
B. Services and Benefits: Have detailed discussions with the Solo 401(k) company to understand any additional services provided by them and also ensure that they have IRS opinion letter about favorable tax treatment.
These safeguards will ensure that you have sufficient funds for your retirement by investing in safe opportunities of your choice. By taking direct control of some part of your pension funds, you can have greater flexibility in investment choices.
