Disclaimer: I am not a licensed attorney, accountant or financial planner. The information provided in this article is exactly that, information. You should seek a licensed professional when getting ready to establish your business entity, tax strategies, asset protection and retirement planning.
Retirement Plans are a great source of money to use for investing in real estate. A retirement plan is not an investment but a vehicle in which you place your investments. Whether you have a mutual fund, LLC, money markets or real estate, these are investments you place into a retirement plan. The two types of plans are a Defined Benefit Plan and a Defined Contribution Plan. Both have there own set of rules of how they are set up, the amount you can contribute per year and how and when you can receive your money. You can only contribute earned money into these retirement plans.
A lot of people do not know that they can establish self-directed retirement plans to control their own money and grow it tax deferred and tax free in real estate. The reason for this is the retirement plan owns the account and not the individual. You can take money out, invest it in a piece of real estate tax free, and after the money comes out of the property, put back into the retirement account tax free. As long as you do not borrow on the account, it is tax deferred money until you are ready to do so.
Example: Tom has $5,000 in a self directed IRA. He finds an apartment building that fits the criteria of his buyers and places the $5,000 into escrow. The property is being sold well under market value with a $3 million equity position. Tom knows his buyers can move quickly with cash to buy the building. Tom contracts the property and assigns his rights over for an assignment fee of $200,000. Tom then puts the $200,000 back into his retirement account tax free and it will be tax deferred until he draws on the account.
If you approach a financial planner and tell them you want to do this type of investment, they will tell you it can’t be done. Well, it can’t be done by them, but it sure can be done by you. They may tell you it is illegal. But the truth is they can’t do it because they will not earn a commission on the transaction. It is legal to do all day long in a self-direct retirement plan (SDRP).
***The wealthy write the rules. When you know the rules, you can play the game!***
Is it really legal? Check Section 408 of the IRS code, this governs retirement plans and IRS publication 590, pages 40 and 41 tells you what are prohibited investments from your retirement plan. Real Estate is not listed as a prohibited transaction. Make sure you consult with the right professional to set up the transaction properly. There are written instruments needed to make the transactions possible. Once the plan is in place you can take checkbook control of your IRA.
This topic is extremely detailed. I wanted to give you a little taste of using your retirement plan as another vehicle for investing in real estate. There is currently $3.7 trillion dollars in retirement accounts and this number is going to swell over $10 trillion dollars over the next 10 years as the Baby Boomers start to retire. Investing in real estate is the safest, most profitable investment in the history of business and finance. When educated by the right people you have the ability to grow your wealth at your pace. Curtis DeYoung teaches IRA and Retirement Planning at Nouveau Riche’s real estate investment college. He has many years of experience in this area. I highly recommend his services. Click on American Pension Services in the Recommended Links section of my blog.
Happy Investing!
Tony
