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Investors with self-directed IRAs have plenty of investment options. But all IRAs have a required minimum distribution (RMD) once you reach a certain age. David Moore with IRA Advantage looks at withdrawing money from your IRA, the age when you have to take a distribution, and how to do that with an in-kind distribution.

IRAs and Required Minimum Distributions

When we’re looking at IRAs, a lot of times people come to us and they want to go out and buy a piece of property. Their idea is to buy it because they need more income. Then I have to explain that any distribution of funds prior to 59 1/2 will result in a penalty.

At age 59 1/2, you can take money out of your IRA without a penalty. At 72, you have to start taking it out with required minimum distributions (RMDs). The RMD was bumped this year from age 70 1/2 to 72.

Self-Directed IRAs Real Estate RMDs

Real Estate and RMDs

One of the big objections that some people, including advisors, have with respect to taking IRA money and putting it in real estate is what happens when you get to age 72 and there’s no cash to take for a distribution. Real estate is not liquid, there’s no cash in that account to get your distribution.

This is often looked at as a real negative, but in-kind distributions are a great solution. Not only are they a great solution, I think they’re the ideal way to do it because if you’re taking a piece of something, one, you’ve got valuation that you’ve got to take care of, but two, whatever you’re taking, if you’re taking a minority interest of a piece of property or any other investment, for that matter, you can discount that valuation by up to 40 percent. Talk to your tax people about this. This is common in financial planning when gifting assets and so forth. The same thing applies to retirement accounts and distributions.

IRAs are a popular method of investment for retirement. But, as David notes, you need to focus on your investment goals and decide just what you want. His best advice is “pick up the phone and call us.” 503-619-0223