It is a little known fact that the IRS allows retirement funds, such as an IRA or 401(k) Plan, to make real estate investments tax-free and penalty free. The way to accomplish this is to establish a self directed IRA. The main difference between an IRA and a self-directed IRA, is that with a self-directed IRA, the IRA holder the opportunity to make traditional (stocks, mutual funds, etc) and non-traditional investments (real estate, precious metals, etc) tax-free. In addition, by using a special purpose LLC owned by the IRA, the IRA holder is able to get “checkbook control” over his or her retirement funds so that making an investment is as simple as writing a check.
Using a Self Directed IRA LLC to purchase real estate allows the IRA to earn tax-free income/gains and pay taxes at a future date (in the case of a Roth IRA the income/gains are always tax-free), rather than in the year the investment produces income.
With a self-directed IRA, you can invest tax-free and not have to pay taxes right away – or in the case of a Roth IRA – ever! All the income or gains from your real estate deals flow though to your IRA tax-free!