seatlle investors club presentation on self-directed iras
TRANSCRIPT
Self-Directed IRA and 401(K) Tax Advantaged Funds for Real
Estate Investing
March 15, 2016
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
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.
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
Alternative Investments
Traditional Investments
Growing Your Business
Enhance peoples’ ability to invest in what you sell
Introduce new ways to invest
Show how to use alternative funding resources
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.
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?
• 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
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
Your Spouse Your Parents Your Grandparents Your Children Your Grandchildren Spouses of Lineal Descendants IRA Fiduciary
Disqualified Persons
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
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
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
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
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
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)
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