house-insurance-419058_1280Retirement investing isn’t always an exciting topic. It is easy for investors to fret over the stock market behavior or stick with safer but less profitable investment products.

However, our clients, Debra and Tim, took retirement investing to a different level with a Self Directed IRA. Unlike a traditional investment portfolio with stocks, bonds, and mutual funds, they purchased a piece of land in Belize and decided to spend their retirement years enjoying the Caribbean coastal scenery.

Is that even possible with a retirement account?

Traditional retirement funds often restrict investment options to the stock and bond market. That’s where self-directed IRAs come in. In addition to the traditional investment options, they extend the plan owner’s ability to invest in alternative investment tools, including real estate, precious metals, private lending, structured settlements, and many more alternatives.

MP900422277In case of Debra and Tim, they plan to settle in Belize for their retirement, after falling in love with this tropical paradise in a sailing trip. One of the primary issues that Debra and Tim faced prior to their offshore purchase was the limited access to their retirement funds. A large portion of investors approaching retirement face a similar situation, which Debra calls “retirement rich but cash poor.”

Unable to invest with personal money, they decided to look into Self Directed Checkbook IRA options that could help them invest in real estate while deferring taxes until distributions. After a decent amount of research, a self-direct IRA plan made perfect sense to them.

Purchasing Real Estate with self Directed IRA

Debra and Tim established a self-directed Checkbook Control IRA. In Debra’s words, setting up a self-directed IRA was super easy and they were able to rollover funds in their IRA within three weeks.

01-20-15 - 401k-Real-Estate-InvestmentThe checkbook feature of Self Directed IRA makes investing easier and with Debra & Tim, they were able to wire the money directly to their realtor’s escrow account. They ended up purchasing two adjacent pieces of land in Placencia, Belize. The couple plans to build a small yet decently luxurious vacation home, which they would like to rent until retirement.

The IRA rules do not allow the plan owner to live in the property owned by the IRA. Upon retirement age, Debra and Tim plan to distribute the house to themselves and pay taxes.  Until then, they will rent the property out to other expatriates and earn extra income for their retirement savings.

For investors looking to establish a Self Directed IRA, it is important to note that not every  Self Directed IRA service provider offers checkbook control; so a detailed research will go much further in offering investment freedom.

3 Things to Know Before Investing with Self Directed IRAs

Solo 401k planSelf Directed IRAs come with investing flexibility and offer control over retirement funds; however, it is important to be aware of some key rules before investing with them.

  • Self Directed IRA account holds title of the property: Always purchase the property in the name of your Self Directed IRA plan, although the plan owner must sign on behalf of the plan. The property should be for investment purpose only. The plan owners cannot live in the property or rent it out to a disqualified person.
  • Never use personal funds for earnest deposit/expenses: Another key thing is to avoid using personal funds in any form whatsoever during the transaction. All the expenses incurred in the purchase must come out of the retirement account.
  • Property income must flow into the Self Directed IRA account: In a similar manner, any income generated by the property must come back to the Self Directed IRA account only. Using the income for personal benefit may impose different types of penalties.

At the same time, it is important to understand prohibited transactions and other regulations governing self Directed IRA plans. While the plan requires careful organization, an experienced service provider could ease the management while keeping you out of any prohibited actions.

Establishing a Self Directed IRA retirement account puts the investor in the driver’s seat, allowing them to guide their retired life towards prosperity. Still having second thoughts about it? Start your research and gain control over your retirement.

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