If You Haven’t Saved Enough Money to Retire You Better Read This by Bill Roberts
Building up an estate that can supply enough income to maintain your lifestyle after retirement is the desired goal.
A lot of us have puny IRAs that don’t seem to grow fast enough to ever throw off enough income to keep us, if they grow at all.
Why Is That?
Well, it is probably because we have the money in our Individual Retirement Arrangement account invested in the stock market or money market or a combination of the two.
We “contribute” $3,000 to $5,000 a year to the account and it “grows” another 8% as a return on the investment. It’ll be hard to accumulate a million dollars this way. The growth is so pitiful that a lot of us have given up on IRAs and the idea of retirement in general.
But what if you could “invest” your IRA account in real estate, and let that real estate “grow” tax free or tax deferred?
You say they won’t let you? Of course your current custodian is associated with the bank or brokerage company that has your IRA. They don’t sell real estate so they don’t want you to invest your IRA funds in real estate. It is that simple.
The Self-Directed IRA
What you need is a custodian that doesn’t care how you invest these funds as long as you don’t put them into a prohibited investment. This is easier then it sounds. You are basically prohibited from investing or lending IRA funds for your personal benefit outside the IRA. As an example you can’t purchase a house with IRA funds for your personal residence. You can purchase a house with your IRA funds and then rent it out.
The First Step
It is a good idea to have a “special” LLC that actually “owns” the real estate you invest in. After you set up your new self-directed IRA with a custodian that allows for it, you will need an operating agreement for the IRA that conforms with and complies with IRS regulations.
You then “instruct” the custodian to transfer your funds to your LLC.
You, as the manager of the LLC then “invest” your funds in any lawful investment.
Each annual “contribution” will be made to the custodian along with an “instruction” for the custodian the transfer the money to your LLC.
There are many strategies for investing in real estate with IRA funds. You may want to simply “park” the money in free and clear land, or you may want to leverage your funds by financing a purchase of land or improved real estate. IRA investments need to be without recourse, so they require special mortgages. Also, the growth of that portion of the asset that is based on borrowed money is subject to taxation.
If you are running a business, then the business profits are taxable also. A CPA can help you with the allocations and filing the proper schedules.
Do It Yourself OR Get Help?
Since this is a self-directed IRA, it means you can do it yourself. But it is also OK to have help with the management of the LLC that manages the IRA funds.
Set It Up Right
My personal preference is to have one LLC that “manages” the funds and additional LLCs that own the real estate or other investments. This is especially desirable if there are other owners of the real estate investment or if the real estate investment also includes a business, such as tenants. I would avoid “tenancies-in-common” as problems could arise. In California tenants-in-common are considered “partners” and this could have devastating effects. Be careful.
A much safer way to invest in partial interests in real estate is by utilizing LLCs. Your special LLC that manages your IRA can own any number of interests in other LLCs.
What Will You Invest In?
You could start by checking out this article on LAND BANKING and your IRA.
If that doesn’t suit you, there are many more options.
You can get started for less than two thousand dollars, which includes:
• Establish Self-Directed IRA (including first year’s fees)
• Form LLC
• Special Self-Directed IRA LLC Operating Agreement
• File for EIN
• Instruction to Custodian to Fund LLC
If you would like to see if this strategy is for you or you are ready to get started give me a call: Bill Roberts (619) 244-4610. $1995 is all it takes to give you “checkbook” control of your retirement plan.