seatlle investors club presentation on self-directed iras
TRANSCRIPT
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Self-Directed IRA and 401(K) Tax Advantaged Funds for Real
Estate Investing
March 15, 2016
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Presentation Agenda
About IRAs
Why people are using IRAs and 401(k) for real estate
Understanding self-directed IRAs
• Basics & benefits
• IRA plan types
• Investment options
• Rules, regulations and prohibited transactions
Borrowing and different ways you can partner an IRA
Case Study: Partnering Self-Directed IRAs
Logistics
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What is a self-directed IRA?
Self-directed is an industry term for an IRA that invests in non-traditional assets such as Real Estate, Private Stock, Precious Metals, Promissory Notes, etc.
A self-directed IRA allows you to expand your investment options beyond stocks and CDs, providing a better opportunity to diversify your IRA portfolio.
You are not locked into the limited types of investments offered by banks and brokerages.
All IRAs, including self-directed, are regulated and governed by the same rules found within various sections of the Internal Revenue Code.
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2000
2007
2008
2010
2012
2013
/Q1
2013
/Q2
2013
/Q3
2013
/Q4
2014
/Q1 $-
$5
$10
$15
$20
$25
Annu-ity Govt PlansDB PlansDC PlansIRAs
Trill
ions
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Alternative Investments
Traditional Investments
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Growing Your Business
Enhance peoples’ ability to invest in what you sell
Introduce new ways to invest
Show how to use alternative funding resources
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Current State of Retirement in the U.S. 1991:
50% of workers expected to retire before age 65 11% of workers expected to retire after age 65
2013: 23% of workers expected to retire before age 65 36% of workers expected to retire after age 65
Over 30% of households have less than $50,000 saved for retirement
Nearly 50% of U.S. workers are not confident that they will retire comfortably
Sources: The 2013 Retirement Confidence Survey, Employee Benefit Research Institute and the Center for Disease Control’s National Center for Health Statistics.
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Residential Real Estate Commercial Real Estate Precious Metals Limited Liability
Corporations Oil & Gas Secured and Unsecured
Loans Offshore Real Estate Trust Deeds Almost anything…
What Can I Invest In?
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• Many Congressman during the enactment of ERISA owned businesses that were not owned in tax advantaged accounts.
Unfair Competition
• ERISA was intended to encourage saving for retirement.
Benefiting Today’s Lifestyle
• It would be too tempting for some people to pass wealth between generations.
Skipping Estate Taxes
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Investment Restrictions
Collectibles • any work of art• any rug or antique• any metal* or gem• any stamp or coin*• any alcoholic beverage
Life Insurance
S Corporations
* Exceptions: Gold, Silver, Platinum & Palladium bullion of certain purity
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Your Spouse Your Parents Your Grandparents Your Children Your Grandchildren Spouses of Lineal Descendants IRA Fiduciary
Disqualified Persons
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Self-Directed IRAs: Learn to Leverage IRA Funds
Your IRA can partner with a third party or with yourself at the time the asset is purchased
Extend credit with non-secured & secured notes
Invest in private equities, investment funds, and joint ventures
Form an entity with multiple members
Self-directed IRAs can borrow e.g. non-recourse mortgage
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Trusts and LLCs (entities)
Advantages: Affords “checkbook” control Immediate access to funds Ease of investing Savings on custodian transaction and other fees Limited liability protection from claims
Disadvantages: Cost to create You maintain records Decisions on ownership interests made at
inception
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IRA Purchase of Vacation Property
IRA purchases vacation (rental) property in Hawaii
• Purchase contract must be signed by your administrator unless you have a trust
• Vesting must read “Your Admistrator. FBO J. Smith IRA account 12345 or Your Entity Name”
• All rents/expenses flow into/out of the IRA or IRA Trust
• Cannot stay there on holiday; cannot provide sweat equity
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How About a Youth Baseball Park
IRA Purchased a Minority Interest in Park Corporation
The Business Owned a Lease
I Worked There For 2 Years I Earned a Salary Dividends Were Paid Into
My IRA
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Example:
• Nephew graduating from college with $60,000 in student loan debt at 7.5% interest rate
• Uncle’s IRA Trust issues $60,000 promissory note to nephew at 4.5% interest rate.
• An attractive return for the lender and a substantial diminishment in rate for borrower
IRA invests in Promissory Note
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Funds from a Qualified Plan, including 401(k), 403(b), 457 plans can be rolled into an IRA.
Plan Types
Traditional IRA
Roth IRA
Individual (k)
SEP & SIMPLE
Other Special Plans:
Coverdell (ESA)
Health Savings Accounts (HSA)
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Administrator A
Annual Account Fee $ 300
Per Asset Holding Fees for 1 Assets $ 200
Transaction Fees to Fund the LLC $ 150
Total with a $2,000 LLC Facilitator Fee
$2,650
WealthFlex
Annual Account Fee $ 299
Total with a $499 set Up Fee $ 798