The article Boomers Drive Second-home Market, which I mention in my post "Boomers could impact real estate market more than you may think,"Â also talks about the surge of baby boomers buying homes they can vacation-rent, derive income from, and then convert to a retirement property in the future.
I looked further into the National Association of Realtors boomer study used for the article,Â and it turns out that 39 percent of the nearly 2,000 boomers it interviewed said they plan to buy investment real estate by cashing out their Individual Retirement Arrangement. But why cash out your IRA when you can have it working for you instead?
It's apparent to me that at least 39 percent of us don't yet know that IRAs don't have to be cashed out to invest in real estate. In fact, real estate can be an important component of diversifying within your IRA account, where the IRA itself holds title to the property. So the IRA collects the rent, gets the tax-shelter of the IRA (where income is either tax-deferred or tax-free), and the vacation home can be taken as a valid IRA distribution, without cash out penalties, after age 59 1/2.
It frustrates me to see that we're still not hearing that our retirement accounts are an even-more-forgiving alternative to 1031 exchanges, and that people are still cashing out their plans -- losing not only their tax-sheltered account benefits but also the cash value of the account through fees -- when a much better option is available.