How to Manage a Real Estate IRA

Question: How do I manage expenses and cash flow in an IRA, particularly when I reach retirement age and have to take required minimum distributions (RMDs)?

Planning for investment cash flow needs is critical for any investment strategy, particularly when investing in illiquid assets like real estate. Annual contribution limits can vary greatly between retirement accounts, so the investor needs to determine how much cash will be needed and how much will be available.

When you reach retirement age, you need to take RMDs. This is sometimes tricky for people who only have real estate in their IRA—they’re faced with the prospect of distributing a massive asset, which may incur a lot of tax, to meet the RMD requirements.

 

Questions about RMDs? Contact our staff through your client portal at portal.ndtco.com.

 

Many of our clients choose to own more liquid assets in addition to real estate, such as cash, securities, or other alternative assets. Clients also sometimes set up a reserve for unexpected expenses. This allows them to be more flexible, particularly when it comes time to distribute their assets. It is also possible to take incremental “in-kind” distributions of the property itself to satisfy the RMD requirement. This is done by re-titling the real estate each year showing an increasing personal ownership. In addition, real estate is unique in that it can generate cash flow for your IRA. By renting the property to tenants, some clients can generate enough income to offset their RMD requirements.

Like all investments, due diligence is required to decide what will work best for your IRA and its investments. New Direction Trust Company can help with the administration and bookkeeping of your IRA.

To learn more about a real estate IRA or self-directed investing in general, feel free to send us a message through your client portal at portal.ndtco.com or give us a call at 877-742-1270.