There are a number of IRA-permitted investments with better-than-average earning potential. Some real estate transactions, for example, can be good low-risk IRA investments, but most account trustees don’t have the experience to handle them. Here’s a look at what it can and can’t do.
Many people think that the government has a very short list of allowed IRA investments, but that is not really the case. There are some activities that are strictly prohibited; buy life insurance, collectibles or antiques and transfer funds abroad, for example. But the only restriction on real estate is that it must be purchased for investment purposes. In other words, you or your beneficiaries cannot live in a residence that is part of your IRA portfolio.
There are other restrictions that prevent your trustee (the broker or banker) from taking advantage of the position and making deals in their own interest and not yours. The basic theme of the regulations regarding retirement accounts is that lawmakers want you to make sensible, low-risk IRA investments, so your money is there when you need it.
The other consideration is that the assets should be easy to liquidate, should the account holder suddenly pass away. So real estate that’s fairly easy to resell (if you know what you’re doing) is one of the IRA-allowed investments, but antiques aren’t, because it could take a long time to find buyers and you can’t tell. easily an exact value. assigned to them.
So there are many things you can do to grow your retirement account, but your banker may only suggest certificates of deposit as low-risk IRA investments. Your broker can only suggest stocks or mutual funds. Real estate investments are often overlooked and that’s a shame, because with the right deal you can see huge returns in a relatively short period of time.
Recently, a man in the DC area was able to significantly increase the balance of his self-directed IRA account. He knew that buying property was one of the investments allowed by the IRA. He found a house that needed some renovations. He was able to negotiate a purchase price of $24,000. After the property was repaired and resold, his IRA tax-free profit was $93,500.
Just as a point of comparison, if you had followed typical banker advice for low-risk IRA investments and put the $24,000 in a certificate of deposit, the value of your IRA would only have increased by about $1,600 in two years, which is the amount of time it took to complete the real estate deal. Now, it’s important to note that he was a seasoned real estate investor. He knew how to find the right deal, fix the property, and turn it around.
You may not have the knowledge or time to do the same, but with the right help you can add some real estate to your IRA portfolio and improve your chances for a comfortable retirement. Some successful real estate investors have taken on the challenge of helping the average person invest their retirement funds wisely and it’s a good thing. There was a need for guidance on IRA-allowed investments that offered better rates of return than stocks and CDs. Hopefully this brief overview helped you understand your options.