Use Your IRA for Real Estate Investments and Control Your Wealth
That’s right! If your IRA or 401(k) is currently invested in mutual funds, stocks or bonds, you are probably wondering if there is a better way to build your retirement plan. If you have a plan with a previous employer, chances are you wondered if there was any way you could make additional contributions to it, or put it to work earning a better return on your investment for retirement. If so, you’re not alone.
In early 2008, an article in the Wall Street Journal noted that there were approximately $4.7 Trillion dollars (that’s Trillion, with a “T”), invested in pension plans. Yet only about two percent (2%) of these funds are invested through self-directed IRAs or self-directed 401Ks. That means that approximately 97% of these funds are invested in stocks, bonds and other equities. Recent statistics indicate that total value of all pension plan funds had dropped 40% to around $2.76 Trillion, mostly due to the sharp decline in the stock market.
This sounds too good to be true – what’s the catch?
The real reason that you might not have heard much about using self-directed IRAs to invest in real estate is because most traditional 401(k) plan managers make lots of money investing your pension plans into stocks and bonds. A recent article in the Wall Street Journal pointed out that most people have no idea how much of their 401(k) plans are costing them in terms of fees and charges. A responsible pension plan custodian will provide the account holder with a clear disclosure of all fees and charges.
There are, however, a number of rules and regulations that impose restrictions on pension plan investments. The intent of these regulations is to protect the plan, and apply to all pension plans, regardless whether they are invested in stocks through a 401(k) or a self-directed IRA. If you are in charge of your IRA, you need to be aware of these rules.
Briefly summarized, you may not invest or loan money from your pension plan to anyone who is a lineal ascendent or descendent, meaning you may not invest in property owned or used by you, your father or mother, or your children, or to your spouse or your spouse’s children. You may not receive personal benefit directly or indirectly from the investment. In other words, if you use your self-directed IRA to purchase a real estate investment property, you may not collect a commission or use it as a vacation home. A general rule to remember is that with certain exceptions, you — as the account holder — may not personally use, occupy, or otherwise benefit from the investment. The rules are designed to ensure that the Plan and the Plan Assets operate independent of any involvement by the Account Holder, other than by giving instructions and direction. The use of the Plan is for investment purposes only — no personal use or benefit.
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Contact me for an appointment to construct an IRA LLC that fits your investment goals.