In terms of saving for retirement, investment advisors generally recommend that you regularly contribute to an individual pension account IRA or a company 401 k plan. Constant growth can be achieved, they propose by diversifying their portfolio with a mix of shares and bonds. However, they rarely recommend to attach properties to the investment portfolio. By neglecting to invest in real estate you can miss the many benefits of this asset class.
Advisers and investors can remove from the investment for many reasons. Advisers can avoid the possibility that they are not licensed to sell it. Thus, they have no incentive to reduce the amount of money they have under management. In addition, investors often avoid property because they often do not understand it. Even if they do, they do not know they have enough capital to make an initial investment. But if they were better educated in the benefits of real estate, they would think that it provides some benefits that are not seen in other investments.
Counselors often recommend using investments as funds to achieve risk adjusted, long term estimation when saving for retirement. By using qualified retirement funds like an IRA or 401 k account, investors can often receive a tax deduction to offset income, reducing their current tax base. They can also use Roth accounts to eliminate the advance deductions that allow them to receive retirement account divisions tax free. Real estate can also provide long term appreciation, as seen in equity and bond funds. In addition to receiving tax tax benefits, like qualified plans, real estate investments can add other tax benefits when the property is liquidated.
Many may be surprised that property prices have exceeded Standard and Poors 500 stock index with a large margin over the past ten years despite property smelter. As per May 2011, data in Standard and Poors Case Shiller Index CS showed that real estate prices, based on a 10 region composite, increased 30.1 percent over the past ten year period. At the same time, Standard and Poors 500 S and P500 stock index only advanced 7.1 percent. This despite the fact that stock prices over the past two years have almost doubled by their lowest prices for March 2009. During the same period, bond and commodity prices have also risen dramatically higher, which causes many to worry about future market corrections. Only real estate prices have not been implemented and remain 32 percent lower than their peak. The S and P 500 was only 13 percent from its all time high based on May data. This is a value an investor can consider as a good opportunity based on current prices.
Both qualified pension plans and real estate investments offer tax incentives. When contributing to a qualifying retirement plan, the investor can usually deduct the contribution from gross income, which reduces income tax debt. Real estate, even when purchased outside a qualifying plan, offers tax deduction, sometimes as good as a qualifying plan contribution. Individuals who own their own homes may deduct interest and property taxes paid if they specify their tax deductions. If they do not specify, they can still deduct their property taxes to receive any tax deductions. Investors who buy real estate investment properties do even better. In addition to mortgage lending and household allowances received by household owners, property investors also receive deductions for property maintenance and depreciation. If this investor does not generate positive cash flow on the property and the investor has an income of less than 100,000, he or she may write up to USD 25,000 for losses against gross income.
A residential property also receives a special capital income tax which is not offered for other investments. If you had lived in the home as a primary residence for two of the previous five years, the individual is allowed a capital gain of 250,000. This amounts to 37,500 tax savings based on the current 15 percent long term capital tax rate. Not so with distributions taken from a qualified plan. These are taxed as regular income, at your highest tax rate. If the investor had a primary residence together with a rental property, the investor could sell the primary residence at retirement, take the capital gain and move into the rent. The tax free dividends from the liquidation of the primary residence can be used to pay off any remaining mortgage on the rental property and provide additional funds for pension costs.