We are buying a retirement home overseas. AFAIK, we can use IRA money as long as we don't use the property. Then we take it as a distribution when we move in. How difficult is this and can the property be overseas? Can this be done with 401K money as well?
Why? We can use only so much IRA or 401K money now without jumping into a higher tax bracket. It would help to defer some IRA/401K distributions until next year when my wife retires and our income drops. We found a property my wife loves and we won't be occupying until next year when she retires.
You didn't like the dialog at MIFP? I suggest you find a custodian who will support this whole process. We discussed this elsewhere, and the consensus was it was an accident waiting to happen. Be prepared to pay income tax and penalty if the IRA/401(k) are declared as distributed.
I did ask a more general and poorly worded question in MIFP. Given there is plenty of documentation to support this I don't understand the "accident waiting to happen." Suggestions on how to avoid the "accident" would be more helpful.
In any case it was better to ask the question here than maybe pay the feds a few thousand dollars. If I had put that money into a non-IRA account it would be subject to capital gains, a huge savings. Right now we are just trying to avoid the 35% bracket. This is one option. We never anticipated needing this much cash in one year.
Yes, the concept (of investing in real estate within an IRA) is out there, but not quite commonplace.
The process starts with the fact the you need a custodian.
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repeats some of the warning I've offered.http://www.theentrustgroup.com/elc/knowledge/category/14/ goes into some detail about the process. In MIFP, no one came forward with first hand experience, and I have none myself. I have first hand experience with broken IRAs. An IRA owner who was the beneficiary when his sister passed. He was (incorrectly) told there's no tax on inheritances of such small amounts. Well, not cash, but the IRA was pretax. An IRA owner who was counseled to put the IRA into a trust to protect her spendthrift daughter. This was the wrong way to do this, the IRA was deemed distributed. The list goes on.
So I am advising that for the kind of money you are looking to invest, that you find the right IRA administrator for what you want to do. Just as Schwab (for example) would answer my questions regarding an account I'd set up with them, the IRA administrator you potentially will transfer your wealth to will have to pass your interview. If they can't answer every question to your satisfaction, and educate you in the process, move on.
I did not mean for my initial answer above to be off-putting, if that was the case, I apologize. In the end, if you get what you need, I hope my advice helped. Especially to help avoid a mistake.
That's a problem with putting real property into an IRA. Assuming that you hold the property long enough outside an IRA, it will be taxed as long term capital gain when you sell it. But if you hold it in an IRA, when it eventually comes out it will be taxed as ordinary income. The tax that way could be substantially higher when it comes out of the IRA.
To some degree, the same is true for stock held within the IRA or
401(k). Gain all taxed at ordinary rates. But for the real estate the OP wishes to buy, the gain was potentially part of their $250K/person exclusion. So that becomes a complete loss (i.e. 100% of the gains taxed) The other thing that occurs to me is that when one would do this with a pure rental, upon the sale of the property there's cash in the IRA ready to be reinvested. In this case, the OP wishes to live in the property so it needs to be distributed all at once. I'd be hard pressed to contrive a worse way to distribute the balance of one's IRA.
The gain will not be subject to the cap gain rate, it will eventually be taxed upon withdrawal at ordinary rates. I take offense to your tone.
You read the whole thread? OP want to buy a house to occupy eventually. If done through his (questionable) plan, the gain while in the IRA becomes taxed upon the distribution. If he held as an occupied home, the gain would be excluded. Because IRAs don't get such treatment.
I can't tell if you are supporting my position or still finding fault with my answer.
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