Are IRAs Good Investments? Okay, yes! Basically, anything that builds retirement wealth is, but lately…depending on the stock market for the growth of IRA investments is riskier than ever.
While stocks and mutual funds are good IRA investments, in the opinion of most people, they just aren’t performing as well right now. If you read the financial news, you’ll see that stocks are falling across the board. Of course, there’s no way to guarantee growth in IRA investments, but through proper planning and diversification, you can improve your chances.
So stick with some good stock options or invest in a safe, low-risk mutual fund, but also look into other investment vehicles, like real estate. Many of us are beginning to think that houses and other property are good IRA investments. Because the earning potential is great and our earnings are protected from capital gains taxes.
With the traditional account, taxes are deferred until you make the withdrawals. With a Roth, withdrawals aren’t taxed at all, because the contributions were taxed as regular income. Therefore, one way to ensure the growth of IRA investments is to continue to reinvest the interest earned and profits made, if only for tax savings.
Most types of properties make good IRA investments, but the best ones are all-cash deals, which means you have the funds in the account to buy the property outright. Your account can have a mortgage, as long as it’s a non-recourse loan (only the property is used as collateral, not the account itself), but there are downsides.
First, you need to look at the amount of general interest that would be paid and compare it to the earning or earning potential. Second, Unrelated Business Income Tax (UBIT) may be due on profits. So, in a way, you lose out on the tax benefits of using the IRA funds.
People used to rely on certificates of deposit and bonds to ensure the growth of their IRA investments. While these are very safe investments, the returns are very low, currently not even enough to keep up with inflation.
If you want a secure and prosperous retirement, you may need to take a bit of risk. Real estate values are down right now. Properties are being repossessed across the country. Many properties are coming up on the auction block.
While this is sad for those who have lost their homes, it can be good for investors. If you can get a house with an appraised value of half a million and pay just $300,000 in cash, then you’ve technically made an instant profit.
Since your long-term goal is growth in IRA investments and funds in the account, there’s no need to sell the property quickly. You can keep it in the account and earn rental income until the market picks up or you find a buyer.
These are just a few examples of what we think are good IRA investments. There are many possibilities. Just use your imagination!
Joe Fazchas is a Real Estate Investor, as well as the Owner and Founder of www.iLOCAdvantage.com, a company that partners with private individuals and lending corporations across the country for the sole purpose of financing and/or rehabbing investment properties. . All of which is done using a proven “turnkey” Real Estate system… The ILOC IRA.