401(k), Retirement and Real Estate

Someone I know just bought a three bedroom, two bathroom house with four orange trees in the backyard just north of Ft. Myers, Florida for $50,000. The only thing it needs is a new stove. An earlier contract on the house had fallen through because the buyer could not get financing. Cash is king and many soon-to-be retirees have cash either in their IRA or 401(k) plan.

Owning their residence outright is one of the ways retirees can buttress their retirement income security. However, a residence should be purchased with money resulting from a distribution if you do not have the cash. Be sure to check out the tax consequences.

Today’s housing market provides a unique opportunity for those who are retired or who are about to retire. To answer the unasked question, yes you can buy real estate as an investment in your IRA. However, there are some issues with owning property through an IRA. In a traditional IRA minimum distribution rules could be hard to comply with when applied to real estate. Therefore, if you intend to directly purchase real estate through an IRA a Roth IRA could be a the better option.

As they say “it’s an ill wind (and we’ve had a few ill winds lately) that does not blow someone somewhere something good.” Retiring—buy a house.