Taxes can be one of the greatest destroyers of wealth˳ The government has provided a way to accumulate wealth tax-free using an Individual Retirement Account (IRA)˳ Most people are familiar with the typical IRA that usually holds money market funds, bonds, and stocks˳ IRAs are often set up through an employer known as a 401(k)˳ Additionally individuals can set up an IRA through a bank or brokerage˳ What most people don’t know is there is a way to set up an IRA to buy real estate, invest in oil drilling, or just about any other business˳ The IRS requires that these transactions be held in a self-directed IRA˳
Before we explore the self-directed IRA, you need to know that there are two different flavors of the typical IRA – the traditional IRA and the Roth IRA˳ The traditional IRA is the most common and allows individuals to put money away for retirement with pre-tax dollars˳ That means your taxes are reduced for the tax year in which the money is set aside˳ For example, a person in the 28% tax bracket saves $28 in taxes for every $100 put into an IRA˳ There are income limits and maximum amounts that can be set aside˳ The IRS allows this money to compound tax-free until withdrawal˳
The Roth IRA uses after-tax dollars˳ Unlike the traditional IRA, there are no tax breaks for the tax year in which the money is set aside˳ Money in the Roth IRA is taxed before it goes in, however is not taxed when a withdrawal is made (there are age requirements)˳ The income limits on Roth IRAs are more stringent than the traditional IRA and you are also limited in the amount that can be set aside annually˳
If you’ve been watching the stock markets over the past few years, you know that your retirement money may not be growing as fast as you’d like˳ Here comes the self-directed IRA˳ There are several companies that provide self-directed IRAs and I encourage you to do your research of the different companies˳ Personally, I use Equity Trust˳
Self-directed IRAs allow you to use numerous investment vehicles that typical brokerage accounts do not offer˳ Your self-directed IRA can be either a traditional or Roth IRA˳ There are benefits to both; however that is a subject for another time˳ Rather than share all the various investment vehicles available with a firm like Equity Trust, I will just share the things I’ve done over the last few years˳
Equity Trust allowed me to create a promissory note and loan money to a hard money lender˳ My money earned 12% per annum˳ I used my account to partner on a 344 unit apartment complex˳ The deal came my way through my network and I was able to participate through a tax-deferred account˳ Currently I am receiving a little over 9% annually from cash flows˳ Our anticipated sale or cash out refinance will be in a few years˳ Based on the current market prices, we anticipate an additional 11% per annum in appreciation˳ That’s 20% growth per year! Currently I’m preparing to do a hard money loan for three points and 12% interest˳ Additionally, I am currently doing due diligence on a project involving land and natural gas˳
As you can see, this is not your broker’s IRA˳ Some additional things you can use the self-directed IRA for include: wholesaling, options, lease-options, fix and flip, warehouses, storage units and the list goes on˳ This is a fantastic way to build a nest egg for retirement˳
Please note that none of this is intended to be legal or tax advice˳ Before you make any investments, you should seek the council of a qualified accountant or tax advisor˳
Source by https://ezinearticles˳com/?Self-Directed-IRA-For-Real-Estate-Investing&id=6378032
