Money For Down Payment And Tax Problem
I buy and re-sell residential properties. Could I take some of my 401-k retirement and move it into a self-directed IRA and use that money as my down payment to buy properties? Also, when I sell a property, can't I pay ONLY Capital Gains taxes rather than regular income tax? How do I go about doing this?
Thanks for your help.
Only your 401k administrator can answer your first question. In my limited experience, an employee usually has no control over their 401k account until their employment is terminated.
If property is purchased with funds already in your IRA, the property is "owned" by the IRA, and the proceeds of the sale are returned to the IRA, taxes are deferred until withdrawn from the IRA. Usually, IRA withdrawals (if taxed at all) are taxed as ordinary income.
The problem with buying and selling real estate within your IRA is operating an active income business. Your IRA custodian deals with this issue all the time and is well versed in the tax impacts that may apply to your proposed strategy, to include Unrelated Business Income Taxes.