Thursday, June 19, 2008

Use Your IRA to Their Purchase Your Dream Home Today!

Baby Boomers Here's How to Use Your IRA to Their Purchase Your Dream Home Today!

Real Estate is not necessarily rocket scientist work.
The key is to buy when everyone is selling and sell when everyone
is buying. Obviously, it is a great time to buy.

One tool I have promoted in the past was to utilize your IRA to purchase investment property through establishing a Self- Directed IRA. Unfortunately, if your IRA held the property you were precluded from utilizing the property for personal use. The property must strictly have been purchased solely for investment purposes. In addition, no bank I have ever worked with has ever agreed to lend money to property titled in a Self-Directed IRA.

Fortunately, thanks to a little utilized provision in the Internal Revenue Code there is a way for Buyers to get at their retirement account for personal use without paying a penalty and still obtain mortgage financing as title will be placed in their individual name. A friend of mine Harry J. Abrahamsen, a Financial Planner in Holmdel, New Jersey recently introduced this concept to me over dinner. Harry is quoted in the recent special issue of Forbes Investment Guide which is on newsstands through August 17, 2008.

I discovered the IRS allows individuals to dodge the standard early withdrawal tax at any age via a 72(t) distribution. However, there is a catch. Distributions are subject to ordinary income. Additionally, once distributions start they must continue for five years or until the beneficiary reaches 59 1/2 years old, whichever is longer.

Harry claims the best people suited for 72(t) distributions are individuals with fairly large IRA's who want to enjoy their money before retiring. "Maybe you're 50 and ten years away from a retirement that you dream will include a beach cottage. Why not use your IRA to start enjoying the beach house now, when real estate is cheap and you can lock in low interest rates?"
Forbes Magazine Illustrates that Alfonse DeMaria, a 41 year old New Jersey Chiropractor followed Harry's advice four years ago when he tapped into his $700,000.00 IRA to buy a farm house with acreage in rural New York. His $3,000.00 monthly distribution covers his monthly mortgage payments and real estate taxes. DeMaria enthusiastically claims "My kids and I can start enjoying the house now rather than 25 years from now, and it will still be here then, too!!!"
WOW! What an opportunity for baby boomers. What better reason to get off the fence. Monthly periodic payments can be used to qualify for mortgage financing opening doors most people don't even know exist.

If a 72(t) distribution makes sense the next step is deciding on one of three ways to calculate distribution. Depending on which method is chosen, if a 50 year old has an existing IRA account of $500,000.00, he or she can receive approximately $24,000.00 a year (or $2,000.00 a month) to pay their mortgage which will allow them to buy their dream home today.

Feel free to contact me should you have any questions.

Have a GREAT day!
Prudential Florida WCI Realty
Cellular Phone 239.404.7787
Michelle DeNomme, REALTOR

This e-mail was provided by Law Offices of Ronald S. Webster

1 comment:

Claire Fenton - Uranga & Associates said...

Thank you to Michelle for promoting this flexible way of using IRA monies to buy real estate. Beware, however of her oversimplification of a complex financial structure. The OUTSIDE™ proprietary process is a lot more than utilizing the 72T ruling. Created more than 16 years ago and Trade Marked to Uranga and Associates, this structure must conform to many stringent IRS tax shelter inspector’s guidelines to be in complete compliance and protect the client’s financial security. Inadequate preparation in the foundation of the program could lead to loss of principal in the IRA account resulting in funds running dry leaving the client with a debt they can’t afford. For this reason as well as many other compliance requirements be sure to seek advice from a professional who has the experience and knowledge to serve your best interests before risking your hard earned retirement funds to a structure you don’t understand.