Setting up an IRA is a Great Idea, But There is Still a Tax for That

So, you're thinking that you want to be able to leave your family with a considerable sum when you die because you don't want them to be in debt due to your debt. That's an honorable thing and much respected. However, before you go out and sign up for any old Real Estate IRA, there are some tax implications to keep in mind. Real Estate Investing is a great way to build equity and to pass that on to your family so that they are not hurting; it's very wise.

One of the things to remember when you are setting up this account is that, first and foremost, their names should be on it when you set it up. You don't want to risk forgetting to put someone's name on it and then lose out on the money. If it's going from generation to generation, ensure it is kept up to date. That really is important.

Another thing to keep in mind is that any value over $2 million could be taxed as high as 50%. To calculate that $2 million, take the value of all the money in the IRA as well as any of the real estate in the IRA, add it up and if it is over $2 million, voila. If that is the case, it's not the end of the world. I am sure that your family would appreciate the money regardless of the high tax.

Finally, pick the right IRA. A traditional IRA is taxed when the money is removed from the fund. A Roth-IRA is taxed when the money goes in so the money is tax-free when it comes out. Which you decide to leave to your family is entirely up to you; however, remember that the taxes could become a great burden.