Are you looking for an individual retirement account that meets all of your needs while offering freedom and flexibility? Do you know which retirement account option is most favorable for owning a real estate investment? If you have ever considered opening a retirement account then you’ll want to continue reading. Because with so many available options, it’s difficult to understand the subtle differences between them. In this post, we will compare and contrast two options – the Traditional and Roth IRA.
An IRA (Individual Retirement Account) is a retirement plan designed to give tax advantages for individual retirement savings. Although this special account is heavily regulated for retirement purposes, it may also be used for funding real estate investment opportunities.
There are various types of Individual Retirement Accounts, which include:
This article examines the Traditional IRA and Roth IRA as they relate to real estate investment opportunities. Both are self-directed options that can invest in virtually any commodity you want. These investments may include: stock in private companies, limited partnerships in oil and gas, private mortgages, intellectual property, and real estate investment.
Now that we know that both IRAs share similarities as self-directed options, let’s compare the two and examine the pros and cons:
Comparison: Roth IRA vs. Traditional IRA
Subjection to tax deductions
Period of withdrawal
Not at anytime
May attract 10% penalty tax on income
Attracts 10% penalty tax on income
Pros & Cons: Roth IRA vs. Traditional IRA
Potentially tax-free withdrawals
Contributions can be withdrawn at any time
Contributions phased out at higher income
No immediate tax benefits for contributions
Contributions lower tax in the year of contribution
Distributions are taxed like ordinary income.
Tax deductions may be phased out
When deciding which IRA option to use, you should consider the option that gives you the greatest tax savings. Of course, this requires that you first determine whether your tax rate will be lower or higher in the future. If your tax rate is expected to be lower, it is advisable to use a Traditional IRA; because it has an upfront tax advantage. Otherwise, you should opt for the Roth IRA, which has a delayed tax benefit.
Both IRA options are viable for investment purposes. But the Roth IRA is a better real estate investment option. Here’s why:
• Early withdrawal rules for the Roth IRA are more flexible than those of the Traditional IRA.
• Contributions may be made to the Roth IRA, even after the age of seventy and a half years.
• Roth IRA leaves you with more money after tax, which is especially helpful when early withdrawals are necessary.
If you are thinking about opening an IRA, then be sure to speak with a qualified account custodian; because the custodian will act as a personal account administrator working on your behalf. In addition to speaking with an IRA specialist about setting up your retirement account, you should also consult with an investment specialist to explore the various options available through your account. After all, with proper planning and guidance, your self-directed retirement account can invest in high-yielding alternative assets such as real estate. For more information on how to leverage your self-directed IRA for real estate investing, call (877) 753-5956 or send an email to [email protected] and an Aecom Investments specialist will answer any questions you may have.
Aecom Investments is a progressive real estate provider focused on the redevelopment of single and multi family assets. As a premier leader in turn-key investments, Aecom Investments is strategically positioned to create passive residual income for its partners.