Author Topic: Inherited IRA for Real Estate  (Read 454 times)

Kairos

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Inherited IRA for Real Estate
« on: February 08, 2018, 07:33:43 PM »
Hey Mustaches, I would like to purchase a rental property with money from an inherited IRA. Does anyone have personal experience with this? I understand there are strict rules about this, but wondering if someone could share their experience in doing this and if they would recommend it. Thanks!

SeattleCPA

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Re: Inherited IRA for Real Estate
« Reply #1 on: February 09, 2018, 07:51:47 AM »
I have many clients who've done this. And I would say it's a usually bad idea.

You basically avoid the best of both worlds. More info here: self-directed real estate IRAs problems

Can I share an alternative idea? I would look at option of matching draws from IRA to depreciation deductions of real estate. Maybe this won't work in your situation, but possibly you can draw the down payment out of IRA the first year... and then "shelter" that income with depreciation on the property. This would surely require some fiddling...but it might let you "move" the IRA funds into real estate with minimal initial tax consequences.

E.g., draw $50K from IRA in first month of year for down payment... then do tax return in a manner that means create a $50K-ish deduction on that first year's tax return. (Maybe you use cost segregation to load up the first year's tax return with depreciation, for example.)

These concepts explored in a bit more detail here: Real estate vs IRA and 401(k) Accounts, Part I
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Kairos

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Re: Inherited IRA for Real Estate
« Reply #2 on: February 09, 2018, 11:46:25 AM »
Thanks, that's a compelling tactic. I'll do some more exploring.

Woody Viet

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Re: Inherited IRA for Real Estate
« Reply #3 on: February 10, 2018, 02:14:50 AM »
This guy's done it and talks about it a bit in this interview.

https://www.biggerpockets.com/renewsblog/bp-podcast-211-investing-out-of-state-rentals-notes-with-bob-malecki/

I think he said he doesn't mind people messaging over on the BP forum so that could be a place to start.

Rich on Money

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Re: Inherited IRA for Real Estate
« Reply #4 on: February 16, 2018, 03:40:41 AM »
I own 4 houses in my roth IRAs.  I paid cash for them.  It's been going well.  not really that tricky, you just have to be sure to pay all expenses out of the ira.  You have to have enough for unforseen issues.  You have to pay for tax bill and insurance bill from the ira, not personally.  you have to believe that the rent from the houses combined with appreciation will grow faster than the market will, or it's not worth doing.   

Another Reader

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Re: Inherited IRA for Real Estate
« Reply #5 on: February 16, 2018, 04:54:54 AM »
This guy's done it and talks about it a bit in this interview.

https://www.biggerpockets.com/renewsblog/bp-podcast-211-investing-out-of-state-rentals-notes-with-bob-malecki/

I think he said he doesn't mind people messaging over on the BP forum so that could be a place to start.


"I own 4 houses in my roth IRAs.  I paid cash for them.  It's been going well.  not really that tricky, you just have to be sure to pay all expenses out of the ira.  You have to have enough for unforseen issues.  You have to pay for tax bill and insurance bill from the ira, not personally.  you have to believe that the rent from the houses combined with appreciation will grow faster than the market will, or it's not worth doing."
 
In an asset market where everyone is chasing income,  it only makes sense to buy when the assets are on sale.  Buy your rentals as taxable investments when they are priced to produce ample cash flow.  Don't buy when they are not.  With all the tax benefits, you will pay very little in taxes if you structure your purchases correctly.  IIRC, Arebelspy is collecting a nice income, paying close to zero income taxes because the expenses, including depreciation, are about equal to the income.

When I start seeing articles and podcasts like this, I know the stupid money is jumping in and it's probably time to sell....

SeattleCPA

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Re: Inherited IRA for Real Estate
« Reply #6 on: February 16, 2018, 10:17:44 PM »
This guy's done it and talks about it a bit in this interview.

https://www.biggerpockets.com/renewsblog/bp-podcast-211-investing-out-of-state-rentals-notes-with-bob-malecki/

I think he said he doesn't mind people messaging over on the BP forum so that could be a place to start.


"I own 4 houses in my roth IRAs.  I paid cash for them.  It's been going well.  not really that tricky, you just have to be sure to pay all expenses out of the ira.  You have to have enough for unforseen issues.  You have to pay for tax bill and insurance bill from the ira, not personally.  you have to believe that the rent from the houses combined with appreciation will grow faster than the market will, or it's not worth doing."
 
In an asset market where everyone is chasing income,  it only makes sense to buy when the assets are on sale.  Buy your rentals as taxable investments when they are priced to produce ample cash flow.  Don't buy when they are not.  With all the tax benefits, you will pay very little in taxes if you structure your purchases correctly.  IIRC, Arebelspy is collecting a nice income, paying close to zero income taxes because the expenses, including depreciation, are about equal to the income.

When I start seeing articles and podcasts like this, I know the stupid money is jumping in and it's probably time to sell....

+1
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Bobberth

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Re: Inherited IRA for Real Estate
« Reply #7 on: February 19, 2018, 02:37:12 PM »
Inherited IRAs require RMDs that increase every year. This is a completely different situation than buying real estate with a traditional or Roth IRA. While rental income might cover the RMD in the early years, at some point you will be required to take out more than the yearly income. At that point, how do you make the RMD? Liquidate? Re/Finance? I don't see it being feasible to own real estate inside an Inherited IRA.

SeattleCPA

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Re: Inherited IRA for Real Estate
« Reply #8 on: February 20, 2018, 06:56:59 AM »
Inherited IRAs require RMDs that increase every year. This is a completely different situation than buying real estate with a traditional or Roth IRA. While rental income might cover the RMD in the early years, at some point you will be required to take out more than the yearly income. At that point, how do you make the RMD? Liquidate? Re/Finance? I don't see it being feasible to own real estate inside an Inherited IRA.

The same issue will also eventually appear with a traditional IRA of course... it'll just occur later on.

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