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This is an introduction to self-directed IRAs and how they can be used to invest in alternative assets like Real Estate, Notes, Precious Metals, Oil & Gas, Entities, and a whole lot more.
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Investing in Real Estate and Investing in Real Estate and Other Alternative Assets to Other Alternative Assets to Grow Your RetirementGrow Your Retirement
DisclaimerDisclaimer
The Entrust Group, Inc. and its franchisees ("Entrust") do not provide investment advice or endorse any products.
All information and materials are for educational purposes only. All parties are encouraged to consult with their attorneys, accountants and financial advisors before entering into any type of investment.
Who is Entrust?Who is Entrust?
LARGEST NETWORK of Self-Directed TPAs.
NO CONFLICTS OF INTEREST with how you want to invest.
WITHOUT LIMITS imposed by other custodians.
OVER 25 YEARS managing self-directed accounts!
Traditional CustodiansTraditional Custodians
What Wall Street Doesn’t Want You To Know
Traditional CustodiansTraditional Custodians
Never, ever think outside the box!
Entrust’s PhilosophyEntrust’s Philosophy
You don’t have to think outside the box, because the box is bigger than you think!
What is a “Self-Directed” IRA?What is a “Self-Directed” IRA?
An IRA in which the IRA owner directs all investments in the account. There is no legal distinction between a “self-directed IRA” and any other IRA except with a truly self-directed IRA the account agreement allows the broadest possible spectrum of investments.
Take control of your retirement!Take control of your retirement!
What are the benefits of self-direction?What are the benefits of self-direction?
DiversificationDiversification
What are the benefits of self-direction?What are the benefits of self-direction?
IRSIRA Investor
Tax Savings
What are the benefits of self-direction?What are the benefits of self-direction?
Social investing! It’s midnight. Do you Social investing! It’s midnight. Do you know where your IRA dollars are?know where your IRA dollars are?
What are the benefits of self-direction?What are the benefits of self-direction?
Invest in what you know best!
What are the benefits of self-direction?What are the benefits of self-direction?
Why save for retirement?Why save for retirement?
• Realtor Rose is 51 years old.
• Rose has saved $200,000 for retirement.
• Rose earns $80,000 net per year on her Schedule C.
• Rose would like to have retirement income of $60,000 (75% of her working income) so she can retire in style and enjoy life.
• Assuming 6% income from her retirement assets, and ignoring the effects of inflation, Rose needs to have $1,000,000 in retirement assets when she retires in 15 years.
• This means Rose’s retirement savings must grow at a rate of more than $53,000 a year, including gains from her investments and contributions.
Why save for retirement?Why save for retirement?
Why save for retirement?Why save for retirement?
Rose’s choices include:
Dying sooner
Working longer
Relying on Social Security
Increasing savings
Increasing yield from assets
What types of plans can be self-directed?What types of plans can be self-directed?
• Traditional IRA
(including rollovers)
• Roth IRA
Employer plans:
• SEP IRA
• SIMPLE IRA
• Individual 401(k)
• Roth 401(k)
What types of plans can be self-directed?What types of plans can be self-directed?
Special plans:
• Coverdell
Education Savings
Account (ESA)
• Health Savings
Accounts (HSA)
What types of plans can be self-directed?What types of plans can be self-directed?
ALL of the above accounts can be self-
directed!
What types of plans can be self-directed?What types of plans can be self-directed?
Which account is right for Rose ?Which account is right for Rose ?
Roth IRARoth IRA
There are worse problems to have!But wait…there’s hope!
Roth IRA Fun Fact #1Roth IRA Fun Fact #1
You can take a tax and penalty free distribution to help purchase a home if you are a “First-time Homebuyer.”
“First-time homebuyer” means that you and your spouse have not had a present interest in a main home during the prior 2 year period.
First-time homebuyer can be you or other family members, including children or parents.
$10,000 lifetime limit per person.
Roth IRA Fun Fact #2Roth IRA Fun Fact #2
Distributions from a Roth IRA of any amount up to your total contributions at any time are PENALTY FREE and TAX FREE!
Great for those who may need access to these funds prior to age 59 ½.
Make your child a millionaire by encouraging savings in a Roth IRA risk free while young.
Traditional IRATraditional IRACan be converted to a Roth
IRA if modified AGI is $100,000 or less.
IMPORTANT NEWS FLASH: In 2010, the $100,000 limit for converting to a Roth IRA is removed!
For conversions in 2010, you may pay the taxes 50% in 2011 and 50% in 2012!
RoseRose’’s Work Plan Optionss Work Plan Options
In addition to her Roth IRA or Traditional IRA, Rose may have one of several types of retirement plans related to her working income.
Rose’s options include:
- SEP IRA- SIMPLE IRA- Profit Sharing/401(k) Plan
Rose’s Work Plan ComparisonRose’s Work Plan Comparison
For 2009 tax year, Rose can put:
- $16,216 into a SIMPLE IRA or
- $14,870 into a SEP IRA or
- $36,870 into a Profit Sharing/401(k)
Which is best?
But wait, there’s more….But wait, there’s more….
Rose may qualify for 2 additional types of Entrust self-directed accounts:
- Health Savings Account (HSA)
- Coverdell Education Savings
Account (ESA)
Health Savings Account (HSA)Health Savings Account (HSA)
Used to pay qualified medical expenses, which are broadly defined.
Contributions to HSAs are TAX DEDUCTIBLE.
Distributions for qualified medical expenses are TAX FREE FOREVER!
No income limits for contributions.
Health Savings Account (HSA)Health Savings Account (HSA)
Catch up contributions are permitted after age 55.
Must have a High Deductible Health Plan (HDHP).
Contributions after Medicare enrollment are not permitted (currently age 65).
Coverdell Coverdell Education Savings Account (ESA)Education Savings Account (ESA)Used to pay qualified education
expenses.
Eligible expenses include college expenses as well as expenses for elementary or secondary school.
Contributions are not deductible, but distributions for qualified education expenses are TAX FREE FOREVER!
How much can youHow much can you contribute with $30,000 in wage income (2009)? contribute with $30,000 in wage income (2009)?
Roth IRA – Husband (50+) $ 6,000
Roth IRA – Wife (50+) $ 6,000
Roth 401(k) Salary Deferral (50+) $22,000
Profit Sharing Contribution (25%) $ 7,500
Health Savings Account (Family) $ 5,950
(Catch Up Contribution $1,000 if 55)
Education Savings Account (1 child) $ 2,000
Totals $49,450
Restrictions on IRAs
People Restrictions
Transaction Restrictions
Investment Restrictions
People Restrictions on IRAs
Disqualified Persons = Those persons who cannot benefit from or enter into transactions with your IRA or other plan.
Think of your IRA as Mr. IraThink of your IRA as Mr. Ira
You Mr. Ira
People Restrictions on IRAs
Disqualified persons may not enter into Disqualified persons may not enter into transactions with Mr. Iratransactions with Mr. Ira
You Mr. Ira
NO
NO
People Restrictions on IRAs
Mr. Ira Fiduciary
Disqualified PersonsDisqualified Persons
People Restrictions on IRAs
Fiduciary “F”(includes IRA Owner)
Member of F’s Family
Corporation “C” if F owns
(directly or indirectly)50% or more of vote or
value of stock
Partnership “P” if F owns
(directly or indirectly)50% or more of capital or profits
interest in P
Trust or Estate “T” if F owns
(directly or indirectly)50% or more of
Beneficial interest in T
10% or more
partner or joint
venturer with CF’s Spouse
F’s Ancestor
F’s LinealDescendant “LD”
LD’s Spouse
Officer or Director of C
Highly Compensated
Employee of C (10% or more of
wages)
10% or more shareholder of C
Person with management
or administrative functions of P
Highly Compensated
Employee of P (10% or more of
wages)
10% or more partner of P
Trustee of T
Highly Compensated
Employee of T (10% or more of wages)
10% or more beneficial interest
owner of T
10% or more
partner or joint
venturer with P
10% or more
partner or joint
venturer with T
IRA
Prohibited Transaction RestrictionsProhibited Transaction RestrictionsAny Any direct or indirectdirect or indirect
Sale, exchange, or lease
Lending Money
Prohibited Transaction RestrictionsProhibited Transaction RestrictionsAny Any direct or indirectdirect or indirect
Goods, Services, or Facilities
Prohibited Transaction RestrictionsProhibited Transaction RestrictionsAny Any direct or indirectdirect or indirect
Fiduciary self dealing
Prohibited Transaction RestrictionsProhibited Transaction RestrictionsAny Any direct or indirectdirect or indirect
What is the effect of a prohibited transaction?What is the effect of a prohibited transaction?
Is there an IRA Jail?
What is the effect of a prohibited transaction?What is the effect of a prohibited transaction?
What is the effect of a prohibited transaction?What is the effect of a prohibited transaction?
Investment RestrictionsInvestment Restrictions
Life Insurance Contracts
Investment RestrictionsInvestment Restrictions
Collectibles
Collectibles are defined as:
• Any work of art;
• Any rug or antique;
• Any metal or gem;
• Any stamp or coin;
• Any alcoholic beverage.
An exception exists for certain U.S. minted gold, silver and
platinum coins, coins issued by U.S. states, and gold,
silver, platinum or palladium bullion.
Investment RestrictionsInvestment Restrictions
Owning a BusinessOwning a Business
Unrelated Business Income (UBI)Unrelated Business Income (UBI)
Renting Personal Property
Debt Financed Debt Financed Rental IncomeRental Income
Unrelated Debt Financed Income (UDFI)Unrelated Debt Financed Income (UDFI)
Debt FinancedDebt FinancedCapital GainsCapital Gains
Unrelated Business Income TaxUnrelated Business Income Tax
Partnership Income
401(k) Exemption401(k) Exemption
Unrelated Debt Financed Income (UDFI)Unrelated Debt Financed Income (UDFI)
What can I invest in with my IRA?What can I invest in with my IRA?
What investments are What investments are you knowledgeable you knowledgeable about?about?
You can buy that You can buy that in your IRA!in your IRA!
Investment ChoicesInvestment Choices
• Real Estate, including foreign property
• Real Estate Notes
• Secured/Unsecured Notes
• Limited Liability Companies
• Limited Partnerships
• Private Stock
• And a whole lot more……
HorsesHorses
Investment ChoicesInvestment Choices
Steps to Purchasing Real EstateSteps to Purchasing Real Estate Assets in a Retirement Plan Assets in a Retirement Plan
1. Open a self-directed IRA
2. Contribute or move funds
into the self-directed IRA
3. Locate an investment
4. Complete the proper documentation to purchase the asset
(Buy Direction Letter, Private Placement Instructions, Note, etc…)
5. “Read and Approve” all the documents prior to closing
6. After your approval of all documents, Entrust signs the closing
documents and funds your transaction
7. Asset is recorded in the name of your IRA, for example:
Entrust Retirement Services, Inc. FBO John Smith IRA #12345-11
8. All expenses come from your IRA and all income stays in your IRA
Steps to Purchasing Real EstateSteps to Purchasing Real Estate Assets in a Retirement Plan Assets in a Retirement Plan
• Rental Property
• Rehab Real Estate
• Flipping
• Options/Assignments
• Real Estate Note
• Entity Investment
Case StudiesCase Studies
Purchase Rental Real Estate for CashPurchase Rental Real Estate for Cash
Example #1Example #1
Example #1Example #1
• Purchase Price: $330,000
• No. of Units: 10
• Gross Rents Collected in April, 2008: $5,235
• Gross Rents for Year: $62,820 or 19%
(Still have yet to account for appreciation)
• Purchase Price: $40,000
• Tax Value: $94,000
• Square Footage: 2,928
Example #1Example #1
• Purchase Price: $438,900
• Loan Amount: $307,000
• Loan Terms: 8.15% fixed, non-recourse, annual payments
• Cash from IRA: $137,391
Tales from The Money VaultTales from The Money Vault
• Sales Price 18 Months Later: $614,460
• Net Profit Before UDFI Tax: $124,462
• UDFI Tax : $12,591
• Net Profit After Paying UDFI Tax: $111,871
• Net Return on Investment: 81.43%
Tales from The Money VaultTales from The Money Vault
Example #2Example #2
Purchase, Rehab and Resale
Example #2Example #2
• Purchase Price: $101,000
• Rehab Costs: $30,000
• Sales Price: $239,000
• Profit After Sales and Holding Costs: $94,000
Purchase and Immediate Resale (Flipping)
Tales from The Money VaultTales from The Money Vault
• Purchase Price: $503,553.60
• Sales Price: $650,000.00
• Net Proceeds to IRA/401(k): $146,281.40
Tales from The Money VaultTales from The Money Vault
Assignments and Options –
Getting Paid NOT to Buy!
Tales from The Money VaultTales from The Money Vault
• Purchase Price: $5,500
• Earnest Money: $100
• Assignment Fee: $8,500
• Profit in Only 30 Days: 8,400%!
Tales from The Money VaultTales from The Money Vault
Example #3Example #3
Hard Money Lending/Private Money
Jack Brown has $100,000 in an IRA and wants to loan $70,000 to an investor as a first mortgage on a $100,000 investment home.
• 70% LTV (loan to value)• 12% interest rate• Interest only payments with
balloon payment in 1 year• Minimum loan term of 3 months• 3% origination fee• Borrower pays all costs for legal and Entrust fees
Example #3: Real Estate NoteExample #3: Real Estate Note
Does lending work?Does lending work?
• Balance of Account 9/25/2006: $64,960.09
• Anticipated Balance 3/24/2009: $87,257.43
• Dollar Increase in 30 Months: $22,297.34
• Percentage Increase in 30 Months: 34.32%
Example #4Example #4
Private PlacementsPrivate Stock
Example #4Example #4
• Initial Investment: $50,000
• Partnership Distributions: $59,321
• Current Estimated Equity: $31,598
• Estimated ROI in 36 months: 82%
Example #4Example #4
• Purchase Price Feb. 2007: $10 per share
• Purchase Price April 2009: $15 per share
• Total Assets as of 4-30-2009: $250,000,000
• ROI after 2 years: 50%
1. IRAs can hold all types of investments, not just securities.
2. Partnerships and split ownerships are allowed.
3. IRAs and other Entrust self-directed plans grow tax deferred or tax free.
4. All plans qualify & partial transfers are allowed.
5. Take control of your retirement today!
5 Key Points5 Key Points
How can I get more information?How can I get more information?
www.EntrustTexas.com
800-320-5950 or 214-800-3488
For More Information:For More Information: