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Make Real Estate Part of Retirement Planning

Oct 18, 2015

Posted by

Dmitriy Fomichenko

Dmitriy is a founder and president of Sense Financial Services LLC, and started his career in financial planning and real estate investing in 2000.  For over seven years, he worked for t Read more

With the uncertainty of the economy and social security benefits, many investors are paying more attention to retirement planning strategies.  Many look beyond the stock market for alternative assets to add to their portfolio, including real estate and trust deeds.  The use of non-traditional assets is often restricted in traditional retirement plans. However, this restriction can be removed with the use of self directed retirement accounts, such as the Solo 401k or Checkbook IRA.

Why real estate is a good fit for retirement planning

Most retirement plans, such as employer-sponsored 401(K)s and individual IRAs, often focus on stocks, bonds, and mutual funds.  In theory, this strategy can work; but the truth is that most people have no control whatsoever over the investments and are totally at the mercy of some stock broker or money manager handling their investments.  In the event of a market downturn, many retirement accounts are hit hard.  The stock market seems to be too volatile, while municipal bonds provide too little earnings.  With that, many investors are now looking for alternative investment opportunities.

Real estate stands out as one of the best options for providing a steady, promising income and with relatively low risk.  With a rental property, for example, the landlord can count on steady rental payments, usually with little regard to the ups and downs of the housing market, stock market or the economy in general.  After all, everyone needs a place to live.  Many investors decide to invest in mortgage notes, which are backed by a property and also provide predictable interest earnings.  The passive nature of real estate investments is a good fit for retirement planning purpose.

 

Invest in real estate with a Solo 401k or self-directed IRA

Investing in real estate is nothing new.  Many real estate investors have successfully built their wealth this way.  However, not many are utilizing real estate investments for their retirement accounts.  The reason is that most traditional retirement plans do not allow alternative investments.  To solve this problem, real estate investors are now switching to self-directed retirement plans instead, such as Self-directed Solo 401k or Checkbook IRA.  The self-directed option means that the plan holder can now decide not only what to invest in, but also when and how they want to invest.

 

Tax Benefits

While investors can certainly build a real estate portfolio with their personal savings, investing in real estate using their retirement plans can also provide great tax benefits.  When investing with retirement accounts, all gains and income are tax-deferred.  Investors can keep all their profit for the next purchase.  Taxes are only taken out at the time of withdrawal for tax-deferred accounts.  Other investors also make use of Roth-type accounts.  With a Roth Solo 401k or Roth IRA, the contributions are post tax, but all the gains and profits from investing the Roth money can be tax-free forever.  With investments that have large gain potentials, as often seen in real estate, the tax-saving investment strategy can add up to a significant wealth over the years.

For more information about investing in real estate with a Solo 401k plan, please visit: 

http://www.sensefinancial.com/investing-with-solo-401k/.