I hadn't heard of the term "land banking" before just recently, though I have some familiarity with the concept. Several years ago I got into the personal investment business serving as a financial planner, because that is what my father did and he tutored me into the vocation.
Generally I helped folks move their capital out of higher risk investments like mutual funds and into lower risk vehicles that could have some guarantees, like variable or index immunity What we did to assist our clients do with their savings was to raise their return, lower their risk, decrease taxes, or do all three if possible. I did have one near-client who asked about how to "invest your IRA into real estate", and while he did not use the term, he was actually referring to 'land banking'.
It was the time I did some searching into the financial concept and learned that while not well known, the IRS has allowed for what are termed as Self-directed IRAs. Most of people who have Individual Retirement Accounts (IRAs) make use of their IRA "wrapper" (or IRA bucket as we called it) to hold certificate of deposits or simple saving accounts or mutual funds. However, with a self-directed IRA, you can put your real estate investments into your IRA.
So, why would anyone want to do this? What possible advantage could come from placing land in an IRA? Well, think for what an IRA does tax-wise. It helps to defer taxes till you retire. It means, anytime you generally have taxable earnings during a year, with an IRA you do not pay tax on that earnings for that year, or any year till you retire.
So think of when you sell your property (that is not your personal residence). If you make money on the sell of that property, normally you would have to pay a capital gain tax for that year. Think of the investor who is acquiring and selling out multiple properties in a year. That ids a huge amount of capital gains tax.
What if you could defer the tax on all that real estate benefit? That's precisely what happens when you use an IRA. You get to place the total benefit back into acquiring another property, selling it out, and keep repeating the procedure year after year. It is a means to grow your money, income a potentially fair return. This is how you perform "land banking".
When you perform land banking, you effectively become your own bank. But in this case, you have the capacity to make a much higher return than what you would get at a regular bank. For those who wish to create their retirement nest egg by land or other real property (which is not a bad idea given the outlook for stocks and mutual funds), the policy of "invest your 401k into real estate" known as land banking can prove to be a smart way to go, especially given the tax benefits.
Generally I helped folks move their capital out of higher risk investments like mutual funds and into lower risk vehicles that could have some guarantees, like variable or index immunity What we did to assist our clients do with their savings was to raise their return, lower their risk, decrease taxes, or do all three if possible. I did have one near-client who asked about how to "invest your IRA into real estate", and while he did not use the term, he was actually referring to 'land banking'.
It was the time I did some searching into the financial concept and learned that while not well known, the IRS has allowed for what are termed as Self-directed IRAs. Most of people who have Individual Retirement Accounts (IRAs) make use of their IRA "wrapper" (or IRA bucket as we called it) to hold certificate of deposits or simple saving accounts or mutual funds. However, with a self-directed IRA, you can put your real estate investments into your IRA.
So, why would anyone want to do this? What possible advantage could come from placing land in an IRA? Well, think for what an IRA does tax-wise. It helps to defer taxes till you retire. It means, anytime you generally have taxable earnings during a year, with an IRA you do not pay tax on that earnings for that year, or any year till you retire.
So think of when you sell your property (that is not your personal residence). If you make money on the sell of that property, normally you would have to pay a capital gain tax for that year. Think of the investor who is acquiring and selling out multiple properties in a year. That ids a huge amount of capital gains tax.
What if you could defer the tax on all that real estate benefit? That's precisely what happens when you use an IRA. You get to place the total benefit back into acquiring another property, selling it out, and keep repeating the procedure year after year. It is a means to grow your money, income a potentially fair return. This is how you perform "land banking".
When you perform land banking, you effectively become your own bank. But in this case, you have the capacity to make a much higher return than what you would get at a regular bank. For those who wish to create their retirement nest egg by land or other real property (which is not a bad idea given the outlook for stocks and mutual funds), the policy of "invest your 401k into real estate" known as land banking can prove to be a smart way to go, especially given the tax benefits.
About the Author:
Ace4wealth is land banking specialist which deal in buying and selling pre-developed real estate. Click ace4wealth.com for further info to roll your 401k into real estate
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