Self-directed IRAs allow real estate professionals to diversify their portfolios beyond traditional stocks, bonds, and mutual funds. Self-directing IRA investments is a well-kept secret of the wealthy. Despite being available since 1974, during a recent webinar with approximately 150 real estate agents, it was surprising to discover that most were unaware of this incredible opportunity.
This strategy offers REALTORS® a faster potential for asset growth in an industry you know and understand intimately. If you're not a real estate agent, share this guide with yours to help them supercharge your IRA and theirs too!
Guide
- Key Benefits of Self-Direction
- Real Estate Investing For REALTORS
- How Does It Work?
- Opening an Account
- Growing Your Business
Benefits of a Self-Directed IRA for REALTORS®
Self-Directed IRA (SDIRA) investing offers real estate agents a powerful tool for wealth accumulation and business growth. Using market expertise, agents can build a substantial retirement portfolio.
Key benefits include:
- Leverage industry knowledge: Invest directly in real estate assets, using your in-depth market understanding to generate potentially higher returns.
- Diversify investments: Expand your portfolio beyond traditional stocks and bonds, reducing reliance on volatile market conditions.
- Build long-term wealth: Create a robust retirement plan aligned with your financial goals and risk tolerance.
- Enhance client relationships: Offer valuable expertise to clients by sharing your knowledge of SDIRAs, leading to increased business opportunities and contacts.
Unlocking the secrets of self-directed IRAs can unlock the door to greater financial freedom and stability, using your expertise to maximize your IRA account.
Real Estate Investing for REALTORS® and Clients
Successfully using real estate within a self-directed IRA can unlock substantial financial growth.
Increasing property values can significantly enhance retirement portfolios through both appreciation and rental income.
Self-directing your IRA offers unparalleled flexibility in choosing properties and aligning investments with personal financial goals. Through market and career expertise, you have the advantage of identifying deals for your IRA firsthand.
Real estate investments offer you a unique advantage by providing a stable foundation for your overall financial portfolio. Unlike stocks or bonds, which can fluctuate dramatically, real estate tends to appreciate over time, offering a hedge against inflation and market volatility.
Additionally, rental properties can generate consistent cash flow, creating a reliable income stream. By incorporating real estate into your portfolios, you can build long-term wealth while mitigating risks associated with other investment classes.
How Does Self-Directing an IRA Work?
You can self-direct any type of IRA; Traditional IRA (tax-deferred), Roth IRA (tax-free), SEP IRA, SIMPLE IRA. You can even self-direct a Solo 401k if you have a small business with no employees. The key to tax-advantaged investments in these accounts lies in understanding title ownership and adhering to the rules.
Ownership of Real Estate
Unlike traditional IRAs, an SDIRA lets you invest in a wider range of options, including real estate— penalty free. The reason this is possible is because the investment is in the IRA. With an SDIRA, the IRA itself owns the investment, not you personally. This means your IRA can invest in real estate without paying taxes or penalties.
The investment contract and/or offer is made in the name of the IRA, in this case if I were buying a property my investment would be vested as:
IRAR Trust FBO Yvonne Garcia, IRA 123456
In this example, IRAR is the custodian, FBO means For the Benefit Of, my name, and my account number.
Self-directing your IRA offers unique opportunities, but it also comes with specific rules. To ensure compliance and protect the tax-advantaged status of the IRA, you must partner with a qualified custodian to manage your self-directed IRA accounts.
Choosing a SDIRA Custodian
What is a Self-Directed IRA Custodian?
SDIRA Custodians are financial institutions that hold your retirement account's alternative assets for safekeeping and IRS reporting. Custodians are regulated, audited, and must adhere to IRS rules and guidelines. Selecting the right custodian is paramount.
The custodian does not provide investment advice, allowing investors to make autonomous decisions. The REALTOR® is responsible for conducting all due diligence on properties and investments. Typically, custodians will only offer detailed guidance on the setup process, ensuring compliance with IRS regulations and maximizing the tax-advantaged benefits of the IRA.
IRAR Trust Company and the National Association of Realtors® (NAR) have joined forces to create a special retirement savings platform for real estate agents. As the preferred provider of self-directed retirement plans for NAR members, IRAR offers exclusive perks and a low fee structure. This partnership helps real estate professionals build their retirement nest egg while also growing their business through real estate investments in IRAs.
Rules for Self-Directing IRA Investments
Certain investments, such as collectibles, life insurance, and transactions involving disqualified persons, are prohibited. Understanding and following these rules will help you maintain the tax-advantaged status of your IRA.
Definitions:
Disqualified persons
Disqualified Persons are individuals that the SDIRA cannot do business with and include:
- You, the IRA owner
- Beneficiaries of your IRA
- Your family members:
- Spouse
- Parents
- Grandparents and great-grandparents
- Children and their spouses
- Grandchildren, great-grandchildren, and their spouses
- Service providers who might receive compensation for investment advice related to SDIRA assets.
- Entities that are at least 50% owned by individuals with a significant relationship to the SDIRA or its assets. Or individuals holding key positions within these entities who may have conflicts of interest.
Prohibited Transactions
Prohibited transactions are IRA activities that the IRS interprets as providing immediate, personal financial gain from investments owned by your IRA. Making a prohibited transaction or dealing with a Disqualified Person strips away the tax-advantaged feature of your account.
Example of Prohibited Transactions with Disqualified Persons:
You use your SDIRA to buy your son's house because his family needs more space and is moving.
In this scenario, your son is a disqualified person, therefore purchasing his home is a prohibited transactions.
See FAQs below for more examples.
Opening an Account to Self-Direct Investments
Setting up a self-directing IRA is easy, and you can do it yourself. This crucial choice lays the foundation for accessing a broader spectrum of investment options, allowing you to design your own real estate portfolio and financial goals.
Before setting up a self-directed IRA, it's wise to consult with your financial advisor to ensure it aligns with your overall retirement goals.
Getting Started
- Open Your Account: Take advantage of exclusive benefits offered through NAR by opening an SDIRA with IRAR.
- Fund Your Account: Transfer existing savings or make contributions to your new IRA.
- Develop Your Investment Strategy: Decide how you'll use your IRA to invest in real estate; you can partner, borrow, or even lend from your IRA.
- Find Your Property: Use your real estate expertise to identify a suitable investment.
- Complete the Purchase: Instruct IRAR (custodian) to use your IRA to buy the property.
Income and expenses from your rental property flow directly into your IRA, tax-deferred. When you sell the property, the proceeds are added back to your IRA without triggering capital gains taxes.
Share Your Expertise, Grow Your Business
Once you've mastered self-directed IRA investing, you can become a valuable resource for your clients. By sharing your knowledge, you can help them achieve their financial and real estate investing goals.
As a marketer, I can assure you that there are many ways to build a successful real estate business using self-directed IRAs. Focus on creative marketing and, most importantly, show your clients how it works by investing in properties with your IRA— lead by example.
By incorporating self-directed IRAs into your business strategy, you can position yourself as an industry leader. Not only can you build substantial retirement wealth, but you can also differentiate yourself from competitors and attract a new clientele. Partnering with a trusted SDIRA custodian like IRAR is the first step to unlocking these opportunities.
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