1. Tax-Advantaged Real Estate Investing When
You've Maxed Out Your Self-Directed IRA
Tom Rutkowski
President
Innovative Retirement Strategies, Inc.
The IRS you want on your side
www.linkedin.com/in/tomrutkowski/
tom@innovativeretirementstrategies.com
561-676-8982

2. My Story
● Married, 2 daughters
● 8 years USMC
● BA Economics, UC Irvine
● MBA Finance/Investments
● “Retired Early”
● Real Estate Investor
● President, IRS, Inc.
● Financial Blogger

3. Self Directed IRA Limitations
● Contribution limited to $5,500/year
● May be limited by income.
● Can’t access funds without penalty.
● Limited leverage.
● Many large SD-IRA’s started with a 401(k)
rollover.

4. Target Audience
Any investor using their own cash to do deals
that wants to make more money.
Best suited for passive investors looking for a
tax-advantaged alternative to self-directed IRA.
Active investors using leverage in their
businesses.

5. Very Simple Concept
1. What if you could safely invest your money
and make 6-8% average returns with NO risk
of loss, AND
2. What if you could then use that money as
collateral for a loan at a 4-5% rate?
Any investment you make with the borrowed money that
earns in excess of loan interest rate is adding value on
top of the original investment. Your money would be
working in two places at one time!

6. What does this investment need to look
like?
• Needs to earn stable, high returns.
• Must be able safe enough to borrow against.
• No risk of loss.
• Liquid
• Tax-advantaged
● “A Magic Checking Account”
○ Account balance earns interest
○ Credit line against balance

7. Permanent Life Insurance:
Indexed Universal Life (IUL) &
Whole Life
IUL Annualized Returns
5-Year Rate of Return 10.30%
10-Year Rate of Return 8.00%
20-Year Rate of Return 8.30%
Historical Rate of Return 8.20%
Best Whole Life Dividend Rate 7.1%

8. Life Insurance Basics
• Term vs Permanent
• Term – Use it or lose it. Not recommended.
• Permanent – WILL pay death benefit.
• 1 yr Term purchased each year
• Savings component – cash value – equity
• Two types of Permanent
• Whole Life
• Universal

9. I don’t know Tom, I heard permanent
insurance is a bad investment
• Most people that say that don’t truly
understand how insurance works.
• Think about what you know:
• Permanent Insurance has cash value.
• Permanent Insurance earns dividends/interest.
• You can cash out/borrow cash value

10. Cash Value
• “My Uncle had a policy and it took years
before he had any significant cash value”
• A policy designed for “Micro-Banking” will
have 85% - 90% of every premium dollar go
straight to the policy’s cash value.
• Cash value is immediately available via use of
special riders.

11. This is NOT your Uncle’s Policy!
Sample Client:
Age 45, Healthy Non-smoker
Policy Year Age Premium Cash Value
1 45 $100,000 $89,345
2 46 $100,000 $184,617
3 47 $100,000 $286,202
4 48 $100,000 $394,650
5 49 $100,000 $510,412
Oh! And by the way, this Policy has a Death Benefit of $2.2M and will provide
$92,943 of tax-free, annual income when the client retires at age 65 at the
illustrated growth rate of only 7.0% per year. In 5 years of retirement, the
client will have received almost as much income as they paid into the policy

12. Dividends/Interest
• “But I can make so much more investing on
my own. I heard I should buy Term and invest
the difference”
• Best Whole Life Pays 7.1% Dividend. Tax-Free.
• If you’re in 28% tax bracket, that is equivalent to 9.8%.
• No Risk to Principal
• IUL Annualized Return is 8.2%. Tax-Free.
• If you’re in 28% tax bracket, that is equivalent to 11.4%.
• No Risk to Principal due to market
• This is not the investment. Your Real Estate Is
The Investment.

13. Policy Loans
• This is the biggest misconception people -
including MANY life insurance agents - have
about Policy Loans.
• You do not BORROW FROM your cash value.
• You BORROW AGAINST your cash value.
• That seems crazy Tom. I give them a premium
and then they give me back 85% of it? Why
would they do that?...

14. Source: Mass Mutual Annual Report 2014
• Even Mass Mutual thought it was necessary to include a
footnote reminding investors that Policy Loans were
THEIR investment, not Policy Holders’ cash value.
Policy Loans

15. Putting Your Money to Work in ONE Place
at ONE time
Investment $100,000
Rate 10.00%
Gross Profit $10,000
Tax (28%) $2,800
Net Profit $7,200
Business As Usual - Without Micro-Banking

16. Putting Your Money to Work in TWO
Places at ONE time
Premium $100,000
Investment 1 (Insurance Cash Value) $85,000
Rate 7.00%
Profit (Tax-Free) $5,950
Investment 2 (Same as previous) $85,000
Rate 10.00%
Gross Profit $8,500
less Interest Expense $3,613
Taxable Income $4,888
Tax $1,369
Net Profit $3,519
Total Profit $9,469

17. 9.469% Combined Return Versus 7.2%!
• Not impressed with only 2.269% improvement?
• 9.469% is 32% better!
• Rule of 72!

18. Long Term Results

19. Meet “Joe” Rehabber
Source: Twitter
● “Joe” is 30 years old
● Does about four deals every year.
● Uses hard money loans as much as possible in
order to preserve his own limited funds.
● He often has to come out of pocket to meet
down payment requirements on the loans as
well as rehab costs.
● Joe is now making about $80,000 a year.
● Has about $25,000 of working capital to
support his business.
● Can save about $12,000 per year that he
intends to reinvest in his business.
The Market
● Joe is investing in an area where most of the
houses are selling around $100,000. He just
found a deal for $55,000 that will require about
$20,000 of rehab.

20. Joe’s Deal Without “Micro-Banking”
Acquisition Cost $55,000
Rehab Estimate $20,000
Capital Required to do deal $75,000
Hard Money Rate 12%
Lender’s Maximum Loan to ARV 65%
Loan Total $65,000
Joe’s Own Money $10,000
Sale Price of House $100,000
Less: Loan Principal $65,000
Less: Expenses $10,000
Less: Hard Money Loan Interest (6
Months) $4,500
Taxable Income $20,500
Tax (25% Bracket) $5,125
Net Profit $15,375
After tax
ROI: 53%
Investment $10,000
Net Profit $15,375

21. Joe’s Deal With “Micro-Banking”
Acquisition Cost $55,000
Rehab Estimate $20,000
Capital Required to do deal $75,000
Hard Money Rate 12%
Lender’s Maximum Loan to ARV 65%
Loan Total $65,000
Policy Loan @ 5% interest rate $10,000
Joe’s Own Money $0
Sale Price of House $100,000
Less: Loan Principal (both loans) $75,000
Less: Hard Money Loan Interest (6 Months) $4,500
Less: Policy Loan Interest (6 Months) $250
Taxable Income $20,250
Tax (25% Bracket) $5,063
Net Profit $15,188
After tax
ROI: ∞
Investment $0
Net Profit $15,188
Keep in mind that the cash
value in Joe’s Policy is
~$10,500 and is earning a
7% tax-free annual dividend
at the same time. He would
have to earn nearly $1000
outside the policy to match
this on a tax-equivalent
basis.

22. ● Annual Net Income w/o Leverage: $61,500
○ $15,375 times 4 deals
● Combined Income w/ Leverage: $62,106
○ $15,188 times 2 deals
○ $15,375 times 2 deals
○ $980 Cash Value Growth
○ plus $500,000 death benefit
○ plus Asset/Creditor Protection
● In the Rehab world, this difference is a rounding
error. But it is only the 1st year!
● By Year 5, Joe will have a Micro-Bank with over
$60,000 in it. Plus he will have profits/savings
outside of the Micro-Bank
Deal Comparison - 1st Year Only

23. One of Joe’s contractors filed a malicious
lawsuit the following year and won a $25,000
judgement.
● Life Insurance Cash Value is protected from creditors.
● If you have a policy loan outstanding, an amount equal to the loan
and interest is protected.
● Remember OJ?
● Luckily for Joe, he moved his Working Capital
into his own Life Insurance Micro-Bank and his
contractor had no assets to go after.
Asset Protection

24. Joe couldn’t catch a break.
While inspecting a potential
deal, he fell off a rooftop and
was killed.
● Joe’s Policy had a $500,000 Death Benefit
● Joe’s wife “Sue” was able to hire
contractors to complete Joe’s unfinished
projects and set some money aside for
their children to go to college.
● Sue was inspired by Joe’s fancy ROI
spreadsheets. She used one to figure out
that she had earned a 497% annualized rate
of return on her two $12,000 Premium
“Investments”.
Death Benefit

25. Regardless of your thoughts, opinions, or
anything you have ever heard about
permanent life insurance, this strategy works.
● Life Insurance is not “The Investment”. It is a tool to improve your
“Investment’s” returns.
● It allows you access to your retirement savings at any time
between now and the time you retire.
● The special treatment of cash value allows you to put your money
to work in TWO places at ONE time.
● The cash value can provide up to 3X the income of traditional
retirement plans.
● It provides for the welfare of your family in the case of death.
● It can provide for you and your family in the case of critical or
chronic illness that leaves you unable to work.

26. Whole Life and Indexed UL
● Whole Life Pros:
○ Higher Guaranteed Growth (~4%), though dividend rate is not
guaranteed.
○ Consistent, stable dividend rates remove worry about market
fluctuations. Currently 6-7%.
● Whole Life Cons:
○ Loan rates are higher. Usually earning rate and dividend rate
are equal. Some variable loan options.

27. Whole Life and Indexed UL
● Indexed UL Pros:
○ Returns tied to market performance. Long term growth rate is
higher than Whole Life products. Allows for market
performance without market risk. 25-Year annualized return is
8.2%
○ Loan rates are lower. Makes your real estate investments more
profitable.
● Indexed UL Cons:
○ Return variability.

28. Assumes 12% Net Profit on Real Estate investments in the “Side Fund”. Compared to
hypothetical Mutual Fund (Green).

29. Life
Insurance
Roth IRA Traditional
IRA
Tax free growth and income? X X -
Unlimited contributions? X - -
No Income limitations? X
Early withdrawals without penalty? X - -
Tax deduction on contributions - - X
Immediate estate creation upon premature death? X - -
Provides Money in case of critical/chronic illness X - -
Comparison of Retirement Strategies

30. www.linkedin.com/in/tomrutkowski/
Connect With Me On LinkedIn for More Info:
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http://innovativeretirementstrategies.com/

31. Questions?