Do I need an attorney to make the withdrawal from a Roth account through Fidelity?
You definitely need to look into this carefully. You can move your money into a self directed IRA. It must transfer directly from one company to another and not touch your hands. If you take a straight withdrawal (and you don't look to be at retirement age), you pay taxes and penalties.
Once in the self directed IRA then you can use it to invest in Real estate. But hold on there are a ton of issues and regulations and other quirks. You can buy and hold but the IRA cant take advantage of depreciation. And you can't touch any of the money yourself. You can't even take a fee to be the property manager. You can fix and flip, but you can;t touch any of the money your self. If you touch any of the money, taxes and penalties.
There are some ways to set things up as a business, but that is in the world of CPA's and Lawyers.
You will definitely not go directly from the Fidelity IRA to ownership of property by the IRA. Fidelity cannot document this type of transaction. (Well the could, but they choose not to).
You would need to setup a self directed IRA to be able to invest in real estate with the IRA.
As @Tom Spaeth indicates, there is a lot to know before doing this. There is some good information on BP and the web as a whole, but really the best way to learn about the specifics of your situation is to speak with a self directed IRA professional.
Short story... the IRA really remains just the same with regards to tax rules, distributions, etc. The business model of the IRA is changed to be able to transact in real estate. You can, with an IRA LLC self administer the real estate projects of your IRA, but do need to keep everything very much at arm's length. We have thousands of clients who are investing their IRA's in real estate and feeling good about the real asset backing of their retirement savings and solid returns this type of investing can provide.
A self directed IRA is not a way to put investment capital in your hands, but rather just a different way to invest your retirement savings.
important fact: you can take out your principal (contributions) from a Roth ira completely tax free at any time. They are different than traditional ira's. Taking out the earnings portion for either Ira is a different story.
Lot less complicated way to invest your Roth ira principal.
If anyone tells you different, look it up yourself. Good luck
and you don't need an attorney to take out the principal. Just request it from your Ira investment company and they will issue you a 1099R at the end of the year and it should be coded as a non taxable distribution.
I'm also interested in this down the road. Are there certain companies that have "self-directed" IRAs or is it held more in a bank account in a business name? I currently have a roth and traditional at Vanguard.
While technically correct, your comment is potentially misleading to the general investor. What you are referring to is taking a non-taxable distribution of the Roth IRA principal - not investing with the Roth IRA. Once taken out of the IRA, the money is now your's personally and any income created will be taxable to you. Neither the principal or the earnings can be put back into the Roth IRA. This is not at all the same as using Roth IRA capital to invest in real estate and have the earnings accrue tax-free under the umbrella of the Roth IRA.
"you can take out your principal (contributions) from a Roth ira completely tax free at any time." In laymans terms means non taxable distribution.
And non taxable distribution in my next post means non taxable distribution.
Yes this money invested does not accrue tax free. But real estate inherently has tax benefits built in due to depreciation expense. The depreciation expense shelters the rental income so that you don't pay as much or any at all in taxes. There are plenty of times when real estate produces a tax loss and you can offset that loss against other income in current or future year. So why put into an Ira and tax shelter an investment that already has significant tax sheltering built in? Especially at the cost of annual fees, and many sensitive IRS rules? I know this is your business so it's tough for you to agree with me, but please let me know if there's something I'm missing.
The question is not about whether real estate has tax advantages or not. At issue is that a Roth IRA is a fantastic wealth building tool. If you pull the funds from the Roth IRA early, you forsake years of tax free growth that IRA principal could be producing.
As I have said many times on BP, comparing after-tax real estate investing to investing in an IRA (Roth or Tax Deferred) is apples and oranges. The tax treatment of the IRA is what it is. The goal with an IRA is to invest it to achieve the maximum returns (while maintaining principal security). If the income from real estate investing grows your IRA better than the income from the stock market, and/ or is more secure, then real estate is a better investment for your IRA.
For someone who has piles of both tax sheltered retirement funds and after-tax capital, the question of whether to invest in real estate within an IRA takes on some merit as they look at diversification across their entire capital base, but that is not most investors.
One thing to note. I've withdrawn money a few times from a Roth, but didn't exceed my contribution amount. But when Vanguard sent the 1099-R, it didn't specify my cost basis but rather checked the box that said unable to determine if taxable. If you run into this you must complete a form 8606 when doing taxes or else the IRS will not recognize that it isn't taxable.
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