An individual retirement account is essentially a savings account that is set up with the objective of putting aside finances for the period after retirement. Individual retirement accounts are set up by working individuals who make payments towards this cause throughout their professional careers. It should be noted that such retirement accounts come with various added benefits such as tax advantages.
An individual retirement account (IRA) may be set up at suitable financial institutions. These institutions allow individuals to set up such savings accounts that permit tax-free development of these accounts. Such developments take place on a tax-deferred basis.
The importance of having a savings account set up with the objective of funding one retirement period is unparalleled. Keeping this in mind, individual retirement accounts have been designed to encourage individuals to put aside monetary resources for retirement.
In simple terms, an individual retirement account is a savings account set up at a financial institution such as a bank in the form of a nest egg whereas such an investment grows over time on a tax-deferred basis. Such retirement accounts can be set up with any financial institution such as investment corporations, banks, etc.
It has been estimated by many professionals and financial experts that an individual would require a minimum of 85% of their total pre-retirement earnings during their retirement period. It has been acknowledged that a savings account sponsored by employers that are popularly known as a 401(K) may not be sufficient to accumulate the necessary amount of savings. Consequently, the significance of setting up an individual retirement account (IRA) has been realized.
In addition to understanding the substantial importance of individual retirement accounts, let us also talk about the possibility of utilizing an IRA to purchase real estate. Real estate properties can be purchased exclusively through self-directed IRAs. Now, a self-directed IRA (SIDRA) is an individual retirement account that is managed entirely by the individual himself. Such retirement accounts are allowed to hold numerous types of investment products, unlike most other retirement accounts. Therefore, using a self-directed IRA (SIDRA) it is possible to purchase real estate as an investment product. It is important to note that such properties cannot be used for personal purposes.
There may arise countless complications when using your IRA to purchase real estate, especially in terms of tax payments. However, investing in real estate can help you earn excellent returns while diversifying your investment portfolio at the same time.
