One of the most common questions I get when I speak is,
“How can I buy real estate or any expensive asset in my IRA when I am only allowed to contribute $5,500 each year?”
There are several different types of IRA accounts that can be established to purchase real estate or any other investment permitted by the IRS. Whether through contributions or rollovers, below are the types of IRA plans and the contribution limits for 2013:
1. Traditional IRA – tax deferred $5,500 ($6,500 if you are over age 50)
2. ROTH IRA – tax-free $5,500 ($6,500 if you are over age 50)
3. Simple – Savings Incentive Match Plan for Employees “SIMPLE IRA” – tax deferred $12,000 ($14,500 if you are over age 50)
4. SEP – Simplified Employee Pension – $51,000 (limited to 25% of compensation)
If you are self employed both the SIMPLE and the SEP can help you achieve the fastest growth on a tax-deferred basis.
If you are in a financial position to take advantage of a SEP (Simplified Employee Pension), you will be able to build your account even more quickly and have the money necessary to buy alternative assets with your Self-Directed IRA.
A SEP Plan is great for a small business owner. They are generally tax-deductible for the business. You may annually contribute the lesser of 25% of compensation or $51,000. Contributions can be made by your business tax filing deadline, including extensions, for both 2013 and 2014, thereby putting up to $100,000 into this account tax deferred. Refer to IRS Publication 560 for the details of this particular IRA.
The goal with any IRA is to accumulate wealth on a tax deferred or tax-free basis. With a self-directed IRA, you get to take it a step further. You invest in what you know best and can diversify your portfolio with alternative investments you understand and control. Any of the IRA types can help you grow your wealth. Even with smaller dollars, there are assets that can be acquired in your self-directed IRA. Choose which IRA best suits your needs and contribute to it.
We at IRA Innovations do not provide tax or financial advice. For more information on each type of IRA, and the rules of each, visit the irs.gov web site and seek the advice of your accountant or CPA.
As we near the end of another tax year, it is the perfect time to start your tax planning. I encourage you to look at each of the IRA types and make an investment in your IRA and your future. It is the last tax-enhanced opportunity that has been given to us by the government. Take advantage of this and grow your net worth.