OWN REAL ESTATE IN YOUR IRA!
Contrary to what many investors have been told by their brokers and
bankers, you can own real estate in your
IRA. And possibly the most exciting news of all is the fact you can own
non-US real estate as well.
Over the years, advisors have wrongly convinced many people they cannot own
real estate, as well as a number of other alternative investments, inside
of their IRA and Retirement Plans. Nothing could be further from the truth.
In actuality, the IRS allows a great deal of flexibility when it comes to
investing the assets of your retirement account. But the problem is many
investors do not have a “self directed” IRA or they work with a custodian
who imposes their own investment restrictions. Most of these restrictions
have nothing to do with the actual Code governing retirement accounts but
are instead employed to make life easier for the custodian.
Actually, the rules governing the ownership of real estate are very simple.
Allowable Investments
1. Raw Land
2. Condos
3. Office Buildings
4. Single Family Homes
5. Multi-Family Homes
6. Apartment Buildings
7. Improved Land
In fact, there is virtually no type of real estate you cannot own beyond
the general rules governing “Prohibited
Transactions”.
Prohibited Transactions and Self Dealing
The IRS has some rather simple and straightforward rules that define what
you cannot do. A simple rule of thumb is your retirement plan is meant to
benefit you at retirement and not before. You may not, directly or
indirectly, deal with yourself or a disqualified person. The term, “deal
with yourself” means you cannot lend money, extend credit, furnish goods,
services or facilities to yourself or a disqualified individual.
Let me put it in plain English instead of the typical legalese of the code.
You can invest in any type of real estate you want as long as it is an
investment and not for your own use currently.
Currently is an important part of this puzzle. Let’s assume you have found
your dream retirement home or the piece of property you would like to build
it on. And as I have said earlier, it can be in the US or outside of the
US. Some day when you retire you would like to own the property personally
or use it for your own benefit at that time. The answer is simple. You take
possession of the property at that time, in effect taking it as a
distribution of your plan. You would be taxed upon whatever the value is at
that time. Of course you could sell the property outright at anytime as
well.
Other Requirements
• You may not purchase the property from yourself
• It may not be purchased from family members, except for siblings.
• Neither you, your business nor family members may lease or live in any
investment property owned by your plan
• Only Retirement Funds may be used as the down payment or good faith
deposit
• The title must be in the name of the Retirement Account
• You may have a fractional ownership in a property
“Disqualified Person(s)”
1. An owner, direct or indirect of 50% or greater of:
• The capital interest of a partnership.
• The total value of all shares of stock of a corporation including all
classes.
• The combined voting power of all classes eligible to vote.
2. A member of the family, again siblings are allowed
These are the basic definitions of disqualified individual but I urge you
to contact our office, or view the complete IRS definition for a full
description of this term.
“Exemptions”
One of the most exciting aspects to this area of investing is there are 10
government approved blanket exemptions to the “prohibited transactions” as
I have described them above. Amazingly, these exemptions have been granted
in areas that seemingly contradict the “self dealing” provisions of the
code. In one exemption a retirement plan was allowed to purchase the
mortgage for the participants primary residence with plan assets. In a
second, plan assets were used to purchase the existing mortgage on a
property currently being used for the participants business. You too can
make use of these blanket exemptions by following the government-approved
process. Of course we would be pleased to assist you in this process if
need be.
Good News!
The good news is you can find the dream property you have always wanted,
and purchase all or part of it with your retirement assets and eventually
take ownership of it. And it can all be done legally and compliantly.
Property Ownership
There are a number of ways to actually purchase real estate. You may own
the real estate fully or in fractionally with other entities or investors.
You may purchase an option on the real estate or by using a land trust, LLC
or similar entity.
The property may be paid for fully by using retirement assets or may be
financed. If the property is financed you must ensure it is structured
correctly to avoid any adverse tax consequences. The down payment must be
paid for by the plan and all future payments must come from the plan
assets, new contributions, and or income the property may produce. Again,
the property may be fractionally owned by the plan but the down payment and
an equivalent amount of the on-going payments must come from the plan. The
instructions as to how this is accomplished are included verbatim from a
custodian who allows these types of investments.
Real Estate with Debt:
Special Instructions -
If you wish to purchase real estate and you do not have sufficient funds in
your IRA, your IRA may incur debt. This debt/mortgage must be in the form
of a non-recourse note loan. The only recourse for default of the loan is
the underlying real estate/property.
A non-recourse loan may be obtained from a lending institution, a private
investor or the seller of the property.
(The loan may not be originated from you or any family member that is of
direct linear descent. (i.e. grandfather/grandmother, father/mother,
husband/wife, son /daughter etc.) You may not personally sign for the loan.
Managing The Property
As a result of a recent tax ruling, some custodians will now allow you to
act as your own property manager. You may collect a “reasonable fee” for
this service from your retirement plan. You will receive a 1099 at the end
of the year for these fees. Any income from the property must be returned
to the retirement plan as a profit of the plan, less any expenses incurred.
The plan assets may pay administrative and record keeping expenses as well.
Conversely, you may hire an outside property manager to perform this
service as well provided they do not fall under the “disqualified
person(s)” definition.
How Do I Do This?
There are 2 critically important keys to this process to maintain the
integrity of your retirement plan. You must work with a qualified custodian
who understands these issues and allows you make these types of
investments. We have identified and established relationships with several
custodians who specialize in this area. It is equally important to work
with a qualified advisor, like myself who understands this process and can
assist you in making these types of investments in a timely, smooth and
compliant fashion.
Fees
The fees vary somewhat depending upon the type of transaction(s) you are
considering and the transactions structure. In general the fees are as
follows;
1. Account Establishment- $100 includes 1st years annual fee
2. Annual fee $100-$400 depends upon custodian and value of account
3. One time fee of $100 to review a real estate purchase
4. One time fee of 1% of the value of the purchase price ($500 Minimum)
Six Important Reasons You Should Own
Non-U.S.
Investments In Your Retirement Plan
By Larry Grossman
Contrary to what you may have been told by your broker or
that end with big judgments—if you do not appear to have enough assets to
justify the time and expense of an attack in
banker, you can own almost any U.S. or non-U.S. investment in your
retirement plan, including offshore mutual funds and virtually any kind of
foreign real estate.
Imagine owning an exotic beachfront retirement home on a lush tropical
island—purchased with the tax-deferred dol- lars you have been saving. Add
to that the salary your retire- ment plan will pay you to manage the
property. The icing on the cake is the freedom from the worries that plague
most Americans when they think about their dwindling retirement plan
assets.
Most of these opportunities are never made available to the average U.S.
citizen—few people aside from the ultra-wealthy have ever even known of
their existence. Trust me, your regu- lar U.S. broker will never tell you
these opportunities exist, probably because he’s simply unaware of them
himself.
Why Take Your Retirement Plan Offshore?
1. Investment diversification. Many of the world’s best investments and
money managers will not do business with U.S. citizens directly. They have
simply made the choice that it is easier to do business with the rest of
the world than to comply with the draconian U.S. rules.
2. Higher returns. There are opportunities in the tradition- al financial
markets, such as offshore mutual funds and London-traded investment trusts
with much higher returns then are generally available in U.S. markets. For
example, the BFS Income and Growth Fund returned 75% over the last year;
and the Jupiter Financial Fund has a one-year return of 57.1%! These “split
capital” trusts aren’t normally available to U.S. investors.
3. Currency diversification. Investors looking to stabilize their
portfolios can protect their wealth against the falling U.S. dollar by
simply holding other currencies (like Japanese yen or Swiss francs). And
opportunities in foreign currencies
are plentiful—like earning nearly 20% this year on the declin- ing dollar
versus the euro.
4. “Insurance” from closure of U.S. securities markets. We all learned the
need to have part of our assets outside of the United States when our
markets were shut down for five full trading days following the terrorist
attacks of Sept. 11, 2001. But although U.S. markets were closed,
individuals with for- eign accounts were able to trade securities on
foreign exchanges.
5. Asset protection. All types of retirement plans have come under attack
in the courts. If a creditor gets a judgment
against a “qualified plan” that’s not properly administered, or a “non-qualified plan” in a state where such plans aren’t protect- ed, the
judgment is easily enforced.14 In contrast, if you invest your retirement
plan in a suitable jurisdiction—Switzerland, for instance—it can be
configured to be essentially judgment- proof.
6. Financial privacy. Many people want protection from the prying eyes of
business partners, estranged family mem- bers and identity thieves surfing
the Internet. And financial privacy can be the best protection against
frivolous lawsuits
an attorney’s mind, he will not view you as a target. Simply put, assets
you place “offshore” are off the domestic asset tracking “radar screen.”
What investments can your retirement plan make off- shore? Almost anything! The only restrictions that apply are against most collectibles and some
types of insurance. Amazingly, most investment restrictions people have run
into are imposed not by legislation, but by the custodian or plan
administrator.
For instance, are you interested in international real estate? Well, your
IRA or pension plan can own raw land, condos, office buildings, single or
multi-family homes, apart- ment buildings and improved land, so long as the
real estate is not for your current personal use.
How about offshore funds? Most offshore funds won’t sell directly to U.S.
investors, and even if they did, the U.S. tax consequences of owning most
offshore funds can be punitive— unless you purchase them through your IRA
or pension plan.
For many investors, their retirement plans have become one of, if not, the
largest asset they have. Clearly, it is vitally important to have these
assets in a position where they can provide access to the global trading
markets, the world’s best investments and money managers and added asset
protection. I urge you to act now while you are still able.
(About the author: Larry Grossman is a Certified Financial Planner, a
Certified Investment Management Analyst and a mem- ber of The Sovereign
Society’s Council of Experts. Grossman was one of, if not, the first
financial advisor to develop a tax-compli- ant method for taking IRAs and
pension funds offshore. He is Managing Director of Sovereign International
Asset Management, LLC. Contact: Larry Grossman, 1312 Alt 19, Palm Harbor,
Fla.
34683 U.S.A. WATS: (888) 609-7425. Fax: +1 (727) 784-6181.
E-mail: lgrossman@worldwideplanning.com. Link: www.world-wideplanning.com.)
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How to Turn Your Retirement Plan Into an
Offshore Money Machine
If you would like to know more about how to legally invest retirement plan
assets offshore, The Sovereign Society has just published The Retirement
Plan Protection Manual, by Larry Grossman. This manual includes a
comprehensive dis- cussion of the threats retirement plans face; evaluation
of pertinent court cases demonstrating successful attacks on retirement
plans; and a copy of those portions of the Internal Revenue Code governing
retirement plans.
Additionally, the manual includes step-by-step instruc- tions to
re-domicile your retirement plan offshore in a legal and tax-compliant
manner. This is critically necessary to ensure you do not accidentally
trigger an early distribution. There have been advisors and investors who
have tried to do this on their own and disqualified their plans inadver-
tently. You must obtain The Retirement Plan Protection Manual to ensure
your transfer is done correctly. For more information, please see
ww.sovereignsociety.com. |
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Written by:
Larry C. Grossman CFP®, CIMA
727-784-4841 phone 727-784-6181 fax siamsite@gte.net
www.worldwideplanning.com
Sovereign International Asset Management, Inc.
1312 Alternate 19, Palm Harbor, FL 34683
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