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Did you know, you can purchase real estate in your retirement account?

purchase real estate in your retirement accountDid you know?

Did you know that you can use your Individual Retirement Account (IRA) can invest in more than stocks and bonds?  IRA’s also can buy real estate (single family, multi-family, commercial, raw land) for investment.

How it Works:

First, you need an IRA custodian that allows investing in “Alternative Assets”.  Once you have found a custodian, such as Mountain West IRA, that allows Self-Directed IRA investing, you can invest in what you know.   When “Self-Directing” all investment decisions are made by you, the IRA owner. The custodian then makes investments on behalf of your IRA. The custodian manages the transaction, the paperwork and the reporting.

Everything needed to fund an IRA investment property must come out of your IRA. Similarly, money that is made from the investment property such as rent, or proceeds from a sale, must be given back to your IRA. So if you purchase a single family home, and rent it out, those proceeds return to your IRA to grow your retirement wealth.

Over time, real estate investments have afforded many people the powerful combination of appreciation and income. The purchase of real estate through a self-directed IRA is a popular choice for that, and other reasons. A self-directed IRA gives you the freedom to invest in single-family and multi-unit homes, apartment buildings, condominiums (leveraged or unleveraged), improved or unimproved land, commercial property, and more.

Want to Know More?

Remember, the more knowledge you have the more helpful you are to potential buyers and sellers – these transactions are something that can help you quickly sell a property!

Investment Types

You should never feel as if your retirement funds might be able to do more outside of your IRA vs inside. Funny concept, when all we have been taught over the years is to invest in the stock market and earn an average return to grow your retirement. Thankfully, Mountain West IRA allows you to invest in what you know best!

Let’s talk about the different options of investments.

Common Investments vs. Alternative Investments

  • Common Investments: Public stocks, bonds, mutual funds. You can open an IRA with almost any financial custodian that you see on TV or at your local bank, and you can have the option to invest in a public stock trading platform.
  • Alternative Assets: Real estate, promissory notes, private companies, or precious metals. YES, you can use your IRA to invest in all of the above. You will not find this type of account at your local bank or big-name financial organization. You will want a company that specializes in self-directed IRA’s with alternative assets. You choose the investment and have the opportunity to invest in what you know. You do Not have to go with a company that offers the same cookie cutter investments as every other company. You can have the freedom of self-direction, where you can build your retirement employing the same tax-deferred or tax-free methods of retirement accounts.

Our favorite thing to hear after a client does their first transaction is, “Why have I not heard about this sooner!” The education is out there. However, you must wade through a swamp of commission-seeking financial advisors to get it. Keep in mind, someone who is only trained in common investments may not be educated in alternative assets.

Diversification is very important when it comes to retirement. This is your future – putting time aside to learn the methods that fits you and your family best are important.

Invest in what you know best! Click the link below that interests you.

Promissory Notes

Real Estate

The Differences Between a Traditional IRA and a Roth IRA

Choosing the correct account for yourself and your family may seem complicated and confusing, but you only have a few options when it comes to how you wish to be taxed. Below we share a comparison between a Traditional IRA vs a Roth IRA.

Traditional vs. Roth

  • Traditional: You may potentially receive a write-off on your taxes for contributions, determined by your household income. The funds then grow tax-deferred by revenue and dividends generated from your investments. Upon retirement age (59.5) you can begin distributing funds from your Traditional IRA without penalty, but this income will be added to your gross household income, so you will have to pay taxes on these funds. You can, if you wish, wait to distribute any funds from your account until 70.5 years old. At that point, the IRS rules say you must begin taking Required Minimum Distributions or RMD’s. This is basically the government’s way of saying, you received a write-off when you put these funds into this account we need to make sure to get our taxes before you pass away. I know, somewhat morbid!
  • Roth: You do NOT receive a write-off on your taxes for contributions. The contributions you make to this account are “after-tax dollars.” However, you will get to grow your retirement money tax-free, forever! Like the Traditional IRA, the funds then grow by revenue and dividends generated from your investments. After age (59.5 and 5 years of the account being opened) you can take a distribution that is both penalty and tax-free. This tax-free distribution increases your NET household income. This is also an excellent choice for an estate planning tool, as you do not have to take any RMD’s, at any age. You have already paid your taxes. You are free to do what you wish with your distributions.

* High-income households: your financial advisor may tell you that you do not qualify for a Roth. There is something called a backdoor conversion that you can contribute to a Traditional and not receive a write-off, then convert the next day to a Roth. There is never a no iif this is the account type you want!

These are the primary differences between Traditional and Roth retirement accounts. There are some other rules that may or may not apply to you depending on your household income. Please speak to a Mountain West IRA representative if you wish to learn more.

Are you interested in learning more? Here is a no cost, no obligation webinar for you to check out: Alternative Asset Allocation Model

What Type of Retirement Plan Do You Have?

Do not overlook your retirement and assume your financial planner has your best interests at heart. You need to be educated and take control of your retirement. Over the next month, we will be going in depth about the differences inherent among common retirement terms.

What types of retirement accounts are there?

Employer Plans

  • If your retirement plan is offered through your company, they may call it a 401(k), 403b, 457, Thrift Savings Plan; there are many other names depending on the type of company you are working for. The employer determines if there is the option to contribute to a Traditional account or Roth (I will cover these differences next week). Employer plans often have a pre-determined set of investments that the employees can invest in. Some employers allow for employees to choose high-risk or low-risk and the company’s financial planner will do what best suits that person’s risk assessment. Most companies do not allow for employees to rollover/direct rollover their retirement plan to invest in alternative options. This leaves the employee trapped with the decisions the employer has available.
  • I’m retired, or I have left the company now what?
    Once you are no longer employed by the company, they will prompt you to rollover your IRA to another Custodian, distribute, or some plans may allow you to set up a distribution plan upon retirement. If you are interested in using your retirement account for investing, you will choose a rollover or direct rollover option. At this point, you can establish an IRA with Mountain West IRA and begin looking for an investment! The IRS will see a rollover or direct rollover and, if done in a timely manner, this will not be a taxable event. Most employer retirement plans will not withhold taxes if the funds are going directly into another qualified retirement plan. You should speak to your plan administrator for specific details.
  • You can review the complete IRA Starter Kit process here

Individual Retirement Accounts (IRAs)

  • Individuals who do not have the opportunity to participate in an employer plan should definitely look into IRAs. Even if you can contribute to your employer plan, an IRA may be a better fit for you. You can contribute to a Traditional IRA or in a Roth IRA because you are making the decision. You can also decide if common stocks/mutual funds are the route for you or if alternative assets are a better fit. IRAs are qualified retirement accounts that have contribution limits. However, if you need additional funds for an investment, you can transfer IRAs you currently hold, or rollover funds from your employer plan, to add to the amount you have available to invest.
  • You can look into each type of plan here, or you can watch our webinar on Which IRA is Right for You here.

Are you unsure what type of account you currently have? This information is typically found near your name on the first page of your statement. If you need help, you can submit your statement to accounts@mwira.com, and we can assist you!

How to Double Your Retirement Overnight

The following is a hypothetical model based off of an investors figures he figured on this actual property.

Back in 2007, the average IRA that was transferred to a self-directed IRA was about $200,000. After the crash in 2007-2008. The average value of IRAs decreases to about half, thus putting the current value at $100,000.

We will be walking through this example of a $200,000 IRA in a real-life scenario to show you how you can double your retirement overnight.

The investor purchased a rental property at the height of the market in the name of his IRA. The investor is utilizing a self-directed IRA where he can purchase alternative assets, NOT taking a distribution from your retirement account.

The property was purchased for $180,000 in a self-directed IRA coupled with a non-recourse loan. The investor was able to leverage the funds in his IRA to purchase an investment property.

What the investor had to put down on this property to qualify for a non-recourse loan was $63,000. The remainder was a loan from the bank in the investor’s IRA. The IRA will have a mortgage and a deed of trust that goes inside of the IRA. The investor does not own the property, the IRA does.

The market value on the day that IRA closed on the property increased the value to $217,000. Let’s break down how this happened; $180,000 on the property and $37,000 cash. The day before the value was $100,000.

If you recall the original value before the crash was $200,000, then the market crashed which brought the value of the IRA to $100,000. The current value was able to double overnight by using other people’s money through a non-recourse loan.

When the investor calculated this investment he chooses to calculate the value of the investment now and projected value in the future to determine when and if he would like to sell the property.

The investor projected about a 3% capital appreciation on this property per year. This percentage is based on the market value of the property at the time of purchase ($180,000). The property should make about $5,400 per year and the investor plans on holding this property for 10 years. After 10 years, the capital gain is estimated to be $54,000.

At this point, we are 10 years after the purchase. The investor’s calculations are almost spot on, the calculations fell a little below 3% but has caught up recently. The original idea was to sell this property after 10 years.

The value of the property and cash in the self-directed IRA is now $271,000. Remember, the investor started with only $100,000 in this IRA. You may be saying, “yes, but there is a loan on the property.” You are correct. However, the investor paid more than the minimum of $700 per month on the loan. This property is currently producing $1,350 per month in income. The net income has been about $900 after setting aside money for property taxes, management fees, and repairs that must be paid by the IRA. After 10 years of paying more than the minimum, the balance is now at $40,000. If the property would have been sold at 10 years for the IRA would receive $231,000 – the investors IRA only put $63,000. That is about 30% per year average annual return on this investment in a tax-sheltered self-directed IRA.

Here is a table to show how the IRA doubled overnight:
2007 IRA account value $200,000

 
After crash IRA account value $100,000

 
Investment Property Purchased:
Funds from IRA $63,000

 
Funds from non-recourse mortgage $117,000

 
New value of IRA + Cash Funds $180,000 + $37,000

 
Long-term Investment Calculation*:
Capital Appreciation at 3% times 10 years $54,000

 
10-year appreciation $271,000

 
Loan Payment at $900 per month (-$40,000)

 
IRA Tax Advantages Appreciation $231,000

 

*Estimated by investor, not advice

If you would like to learn more please visit our webinar, Alternative Asset Allocation Model 

Now that I have an Individual(K) Plan, what do I do with it?

Now that I have an Individual(K) Plan, what do I do with it?

In the first part of our series on Individual (k) accounts we discussed who can have one, and all of the great benefits to starting up an Individual K account. But now that you have one, do you understand what your options really are? Do you know what steps to take to get the most benefit out of this incredible tool?

You have the freedom

A Self-directed Retirement account gives you freedom to invest in more than stocks, bonds, or mutual funds. Under your direction, you can buy everything from real estate to deeds of trust and mortgages. Your IRA can do secured or unsecured notes, partnerships and joint ventures and even private stock. You can invest in many other types of assets as well.
While this is all true about any self-directed IRA (Trad, Roth, SEP, Simple, etc.) the Individual (K) gives you additional tools and protections not found in the other SDIRA options.

The “Superhero of the Self Direct IRA’s”

You can do many things with your self-directed retirement accounts no matter what type you have, but when you have an Individual K account you can do even more. You can;

  1. Take a loan from the account that is tax free.
    1. Use for any purpose
    2. Borrow 50% of the account up to $50,000
  2. More Investment freedom
    1. Invest in any non-prohibited opportunity that you choose
    2. Gains and income flow back into your IK
  3. Checkbook Control
    1. No LLC required
    2. Easy access to your funds so you can react quickly in a volatile market
    3. Avoid transaction fees
  4. Protection from Creditors
    1. Self-Directed IK plans have full bankruptcy immunity (Bankruptcy Code, 11 U.S.C. §522)
    2. Most states offer protection of IK funds and assets even outside of bankruptcy
  5. Leverage without UDFI
    1. Purchase real estate using Non-recourse lending
      -Frees up your IK funds for additional investments
      -The lenders recovery is limited to the collateral
    2. Individual K is generally exempt from UDFI

The Individual K is one of the most attractive retirement solutions for sole proprietor business owners and the self employed for all those reasons and more.

Mountain West IRA Launches 2018 Self-Directed IRA Webinar Series

Boise, Idaho, February 22, 2018: Mountain West IRA is proud to announce the launch of their 2018 Self-Directed IRA webinar series. Each month, the company will be hosting several educational webinars, focused on building wealth, real estate and more.

The specific topics planned for the coming months include introduction to self-directed IRAs, real estate, alternative asset allocation, promissory notes, cryptocurrency, precious metals/foreign currency, prohibited transactions, IRS deadlines for IRAs, IRA upkeep, private stock/private companies and more.

Each series in the webinar will provide viewers with an in-depth look at each of these topics. This year, Mountain West IRA has also partnered with other companies to discuss investments and how they utilize self-directed IRAs. During the webinar, the presenters will share insights from several professional investment companies, full-time investors and “hobby” investors who invest on the side. Attendees will have the opportunity to hear success stories and learn from presenters.

Mountain West IRA offers an online calendar to keep interested individuals updated on the newest topics on a month-to-month basis. Webinars will be updated on the schedule one month in advance.

To learn more about these IRA webinars, visit the Mountain West IRA website or call the staff at 866-377-3311.

About Mountain West IRA: Mountain West IRA is the ultimate retirement machine that specializes in helping individuals and small businesses create and maintain the right plans for their futures. The company offers traditional IRAs, SEP IRAs, health savings accounts (HSAs), Roth IRAs, simple IRAs and self-directed IRAs. Their team of experts works closely with their clients to help them build wealth to suit their needs for the best possible results. Mountain West IRA prides itself on delivering unparalleled customer service.

The Tax Cuts and Jobs Act and your Self-Directed IRA

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The Tax Cuts and Jobs Act and your Self-Directed IRA

The Tax Cuts and Jobs Act and your Self-Directed IRA

There was quite a bit of both commotion and breath holding leading up to the actual passage of the tax reform bill. While you may personally be upset, be cheering, or even be a bit bewildered, retirement plans were for the most part left untouched.

Only a handful of changes were made to retirement planning laws which could apply to your self-directed IRA. The main change, which could affect your yearly tax planning, was to Roth recharacterizations. In 2017 you had the ability to convert funds from a tax deferred Traditional IRA and later, if you changed your mind, you could do a recharacterization and basically “take back” that decision.

You may choose to recharacterize a Roth conversion for a several reasons: the conversion is a failed or ineligible conversion, the amount of taxes which will be owed on the converted amount will prove to be too much of a hardship, the value of the assets actually declined in value since conversion, or you simply changed your mind and no longer choose to keep the assets in a Roth IRA.

However, beginning Jan 1, 2018, The Tax Cuts and Jobs Act has eliminated the option to recharacterize. According to the IRS website:
A Roth IRA conversion made in 2017 may be recharacterized as a contribution to a traditional IRA if the recharacterization is made by October 15, 2018. A Roth IRA conversion made on or after January 1, 2018, cannot be recharacterized. For details, see “Recharacterizations” in Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs).

You should always remember to consult a tax professional about your specific situation.

Going Solo: The Individual(k) Plan

Going Solo: The Individual(k) Plan | Blog | Mountain West IRA
Going Solo: The Individual(k) Plan

What is an IK account?

Unlike employer sponsored 401(K) plans, most people have never heard of an Individual (k) plan. An Individual 401(k) (or IK) works much the same as traditional 401(k) plans offered by large companies, and resemble the SEP IRA which is designed for the self-employed. However, an IK is designed strictly for sole proprietor business owners with no employees. The IK can be either a traditional and/or Roth version giving you the freedom to choose to either save money on a pretax basis where it can grow tax-deferred or, if you opt for the Roth version, save money post tax and have it grow potentially tax free.

Who can contribute to one?

An individual 401(k) is strictly for sole proprietors who have no employees (although your spouse may open one to contribute if he or she earns income from your business). If you are an employee of a company by day, and work your own home business in your off hours you may also qualify. But that can get thorny very quickly, so be sure to check with your CPA to be certain that you qualify.

Why is an individual 401(k)s a good idea?

These plans are ideal if you intend to save large sums of money. An IK allows you to save for retirement both as an employer and an employee, often enabling you to contribute more than would be possible with other retirement plans.

Here’s how: As an employee, you can stash away as much as $18,000. As the boss, you can contribute an additional 25% of compensation, up to a maximum of $53,000, including your employee contribution.

These contributions are optional and completely discretionary, so you can contribute up to the maximum in good years and during tough time you can hold off and contribute nothing at all.

Does an individual 401(k) make sense for me?

These plans are a good idea if:

You intend to contribute large sums.
– As much as $60,000 overall contribution in 2017 if you are over 50.
– As much as $54,000 overall contribution in 2017 if you are under 50.

If you want the capability of borrowing from your plan.
– You can take out an IK loan, which uses the balance of the account as collateral. You can borrow up to half of the total balance on your IK, as long as the loan doesn’t exceed $50,000.
– The remainder of your balance is still invested in your IK, with tax-deferred investment earnings growth, and you loan payment including interest are paid back to your IK.

To learn more about the advantages of an Individual (k), feel free to contact one of our experts at 866-377-3311 or watch our webinar HERE.

Benefits of a Checkbook IRA

Cheque | Blog | Mountain West IRA

To maximize your IRA investment options, it is essential to have a retirement plan that allows you to select your own alternative IRA investments. Self-directed IRA’s allow you the freedom to invest in what you know. At Mountain West IRA we can help you with that. Your IRA can invest in real estate, private stock, notes or mortgages and even Partnerships & Joint Ventures. The list can be as diverse as your imagination and only limited by the IRS rules in place for IRA investing.

Self-Directed IRA LLC 101:

1. An LLC is a legal organization that provides the advantages of a partnership while limiting legal liability of the individual partners much the same way a corporation does.

2. An Investor can use a self-directed IRA to invest in LLCs.

3. It is not necessary to create an LLC to invest in your IRA.

4. An IRA invested in an LLC tends to be complex and requires careful management to avoid tax penalties and/or prohibited transactions.

5. When setting up an LLC for your IRA, you should always consult with a lawyer who is familiar with ERISA law.

So, what are the benefits of investing in an Self-Directed IRA LLC?

1. Speed

Normally, when making a transaction through your retirement account you would need to contact us here at Mountain West IRA as your third-party administrator. This requires some paper work, possibly some check processing or wiring of funds, and depending on the type of investment, there will be forms, You can skip all of this when you establish and LLC, and set up checkbook control with your IRA. An IRA LLC gives you easy access to your funds so you can react quickly in a volatile market, and easily take advantage of a time sensitive investment. Many investment transactions will be much quicker and can be as simple and expedient as writing a check.

2. Cost Benefits

Who doesn’t want a way to pay lower fees? Checkbook control can help you avoid the transaction fees and check-writing fees normally associated with any self-directed IRA. Also, if you own multiple investments in your LLC, rather than paying bookkeeping fees on each asset, Mountain West IRA only charges you for that single asset, the LLC.
So, an LLC with checkbook control may actually help you save money, which leaves more funds available for investing.

3. Control and Freedom

Once you identify an investment you want to purchase, you can just write a check. You don’t have to fill out paperwork or get approval from Mountain West IRA. If you have performed your due diligence and are ready to invest, you can take care of it yourself.
If you have an LLC, your Self-Directed IRA is truly in your hands. You are the one who is in total control of how your IRA operates, you have the freedom to choose how and when to invest.