A broker or agent handling income property sales who considers forming and possibly managing real estate syndicates during the next four years will need to get creative about the source of investment funds his investors should explore. Opposed to an after-tax cash investment in an LLC, an investor can contribute funds from his retirement accounts, such as an IRA or 401k account.

An IRA itself cannot directly own real estate or be actively involved in the ownership of income property. However, by using an LLC, the investors with an IRA account can acquire an ownership interest in an LLC which in turn owns the real estate acquired by its use of the IRA funds.

By investing in an LLC using retirement funds, the investor retains the tax advantages of a standard IRA. Like any form of IRA, the IRA investment in an LLC is only taxed when the account owner withdrawals money. Thus, an individual who invests his retirement funds in the LLC can profit from the LLC’s earnings entirely tax free, until he withdraws funds.

first tuesday take: While this is a press release to sell IRA/401k custodial services, it happens to inform the broker or agent who reads it on the concept of an IRA/401K pension investment of funds in a syndicated real estate acquisition vested as an LLC.

Re: “Should You Use an IRA LLC or Solo 401(K) to Invest in Real Estate?” from Homes101.com