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3 Types of Self-Directed IRAs You Can Utilize to Invest in Multifamily Real Estate

3 Types of Self-Directed IRAs You Can Utilize to Invest in Multifamily Real Estate

In recent years, the real estate market has emerged as a popular avenue for investors seeking to diversify their portfolios and build long-term wealth. Among the various investment options, multifamily real estate stands out as a lucrative and stable choice. To maximize the potential of such investments, many individuals are turning to self-directed Individual Retirement Accounts (SDIRAs) that allow for greater flexibility and control over their retirement funds. In fact, 25% of REEP Equity investors have invested via this type of IRAs.

Here are three types of self-directed IRAs that enable investors, like so many we work with, to delve into the multifamily real estate market and secure their financial future.

  • Self-Directed Traditional IRAs:

Traditional IRAs have been a staple retirement vehicle for decades, allowing individuals to contribute pre-tax dollars toward their retirement savings. With a self-directed traditional IRA, the account holder gains the freedom to invest in a broad range of assets, including multifamily real estate. By leveraging the tax-deferred growth characteristic of traditional IRAs, investors can reinvest the profits earned from multifamily properties, leading to exponential growth over time.

The process involves finding a reliable custodian that specializes in self-directed IRAs. The custodian will guide the investor through the necessary steps to set up the account and adhere to IRS regulations. It’s important to note that the income generated from multifamily real estate investments within the traditional IRA will be taxed upon withdrawal during retirement, but could be eligible for tax benefits from depreciation to offset this. 

  • Self-Directed Roth IRAs:

Roth IRAs differ from traditional IRAs in their tax treatment. With a Roth IRA, contributions are made after tax, meaning investors fund the account with money on which they’ve already paid income taxes. Consequently, the growth and earnings on investments within the Roth IRA are tax-free, including any profits earned from multifamily real estate ventures.

Investing in multifamily real estate through a self-directed Roth IRA can be particularly advantageous for those anticipating higher tax rates during retirement. Additionally, Roth IRAs do not have mandatory minimum distributions, allowing investors to preserve and grow their investments for as long as they desire. As with the self-directed traditional IRA, a custodian well-versed in self-directed investments must be chosen to facilitate the process and ensure compliance with IRS rules.

  • Self-Directed Solo 401(k) Plans:

The Solo 401(k), also known as the Individual 401(k) or Self-Employed 401(k), is designed for self-employed individuals or small business owners with no full-time employees. This retirement plan offers substantial contribution limits, enabling higher annual contributions compared to traditional or Roth IRAs. Moreover, the Solo 401(k) can be self-directed, granting investors the opportunity to diversify their retirement savings into multifamily real estate and other alternative assets.

A key advantage of the Solo 401(k) is the potential for a checkbook control feature, allowing investors to act quickly on real estate opportunities without custodial delays. This level of control empowers investors to negotiate and close deals more efficiently, potentially enhancing returns. It is essential to engage with a competent plan provider to establish and administer the Solo 401(k) properly, ensuring compliance with IRS regulations.

Investing in multifamily real estate through self-directed IRAs offers a compelling strategy for retirement planning. The flexibility and control provided by self-directed traditional IRAs, self-directed Roth IRAs, and self-directed Solo 401(k) plans allow investors to seize opportunities in the real estate market and build wealth for the long term.

However, it’s crucial to conduct thorough research and seek professional guidance before venturing into self-directed investments. Understanding IRS rules and regulations is paramount to avoid potential pitfalls and penalties. By combining prudent decision-making with the power of self-directed IRAs, investors can unlock the immense potential of multifamily real estate and pave the way to a secure financial future.

Getting started is simple. Check out the 6 Easy Steps to Redirect Your IRA to Multifamily

Here at REEP, our mission is to help accredited, sophisticated, seasoned, and first-time investors build their wealth through passive income and long-term appreciation. We leverage our 20+ years of real estate experience to guide you through the investment process and can help answer any questions you may have on redirecting from your IRA to REEP the rewards of multifamily real estate. Want to Learn More? Join our Investor Network!

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