With the declining social benefits, retirement planning has been gaining more attention. Investors are now looking for new ways to invest and save for their retirement future. One of these new ways is investing in real estate with a self-directed retirement account, such as a self-directed Solo 401k or IRA LLC.
Real Estate as a Safe and High-Return Investment
The issue with traditional retirement funds is that they are often associated with mutual funds and stock investments. The original idea is to create a safe and passive way for retirees to earn income and sustain their life saving after leaving their jobs. Recent economic events, however, show that the traditional investments are no longer doing what they are designed to. Many retirement portfolios that invested in the stock market took a big hit just a couple years ago. Others stay safe with target-date funds and bonds, only to earn minimal returns that are dwarfed by the rising inflation rate.
Considering this reality, many investors are now seeking better investment opportunities in real estate, one of the oldest types of investment in the history. Real estate is often considered more secure than stock investment as it is a form of tangible assets.
Investors can also count on a higher return from rental properties or mortgage notes. The property price and rent can also rise along with inflation, ensuring a sustainable portfolio for investors. The passive nature of the rental business and note investing also make real estate a good choice for retirement planning.
The Use of Self-Directed Retirement Accounts
Even with a strong interest in real estate, many investors are still unable to explore this option for their retirement funds. The main reason is that traditional retirement plans may not allow investment in alternative assets, including real estate. Even if the plan allows it, investing in real estate can get troublesome with the process of getting approval from the plan administrator or custodian.
Hence many investors are now looking at self-directed retirement options, such as the Solo 401k or Self-directed IRA LLC, for a solution. These self-directed retirement plans present investors the opportunity to take control of their retirement funds, so that they can invest in anything they want, while still enjoying the tax benefits of a retirement plan.
In an IRA LLC, the custodian will take a passive role and invest your retirement funds into a special purpose LLC, which is managed by you, the plan owner. With a Solo 401k plan, there is no custodian required and the plan owner can directly take control. With either structure, investors can make quick decisions when opportunities present themselves.
Aside from the ability to invest in real estate, a Solo 401k also gives real estate investor an important tool: the ability to leverage Solo 401k real estate purchases. Unlike an IRA, a Solo 401k is not subject to Unrelated Business Income Tax. This means that investors can use nonrecourse financing to fund large purchases.