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Seatlle investors club presentation on self-directed IRAs
1. Self-Directed IRA and 401(K)
Tax Advantaged Funds for Real
Estate Investing
March 15, 2016
2. 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
3. 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.
6. Growing Your Business
Enhance peoples’ ability to invest
in what you sell
Introduce new ways to invest
Show how to use alternative
funding resources
7. 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.
8. 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?
9.
10. 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
11. Your Spouse
Your Parents
Your Grandparents
Your Children
Your Grandchildren
Spouses of Lineal Descendants
IRA Fiduciary
Disqualified Persons
12. 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
13. 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
14. 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
15. 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
16. 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
17. 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)
21. 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
Notes de l'éditeur
How is this going to help my business?
Now that we have seen examples of acceptable transactions lets talk those the 3 items that are prohibited.
The 3 things the IRS prohibits your IRA from investing in are:
As with many things in the Internal Revenue Code there are exceptions to this and they are…
We will now move into those individuals your IRA can not to business with…
Next Slide…
Linear Ascendants and Descendants are prohibited from during business with your IRA.
For example:
-Can not purchase student debt for child and have them pay your IRA back. Same with car or apartment for the child away for college.
-You can not use your IRA to purchase properties that you own outside of your IRA to bring them into the IRA
-Can not purchase ‘vacation property” you plan to spend summers in. Transactions must be for investment purposes only.
-Similarly you can not put any ‘sweat equity’ into properties owned by our IRA. All expenses must be paid using the IRA.
Remember Self Benefit Rule.
Partnering With Your IRA to Invest in Real Estate or any other type of investment
Rule: You must be able to purchase the property outright without the use of your IRA funds. If you do not have enough personal funds and must partner with your IRA, this is considered “self dealing” because you personally benefit.
Example:
You would like to purchase property worth $100,000. You only have $50,000 total, including credit lines and cash, in the bank. You also have $50,000 in your IRA. You would not be able to make this purchase by partnering with your IRA because of the self benefit rule.
Arms-Length Transactions
Investments made with self-directed IRAs must be at arms length, which means that a willing buyer and willing seller are coming together with no undue influence from outside sources.
Example: You want to sell your IRA investment property to a friend discounted 50% of fair-market value. You would not be able to make this sale because of the undue influence.