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"In America there are two tax systems, one for the
informed and one for the uninformed. Both systems are
legal." One of America's most famous jurists, Justice Learned Hand made this statement many decades ago. When used today one would certainly have to include the world of Individual Retirement Accounts (IRA). If you are not in the category of the "informed" about what IRA alternatives are available to you, then you fall into the other category of the "uniformed". Being in this category almost certainly means you are not taking full advantage of the opportunity to get higher and much safer returns than you could ever wish or hope to get through stocks, shares or mutual funds. Your Broker Doesn't Want You to Know This! There are many incredible wealth-building opportunities offered by your IRA, this includes an IRA's ability to buy real estate Tax Lien Certificates and Tax Deeds. The vast majority of Americans since 1974 unfortunately have sat back opting instead to take a more passive position. They have allowed their IRAs to be directed by someone else, namely their Broker, Wall Street and its affiliates. This very passive "let someone else do it for me" attitude may well have continued forever had it not been for the Wall Street debacle of early 2000 that challenged this laissez-faire posture. An estimated trillion dollars plus were lost in IRA equity alone, millions of Americans lost even more trillions in non IRA accounts. If you had used your IRA to purchase Real Estate Tax Lien Certificates and Tax Deeds for most Americans the difference would be truly alarming. Their current anemic IRAs might instead hold property that they got for pennies on the dollar. These properties may well have doubled or even tripled in value over the last thirty years. The clear fact is if Americans had known back in 1974 that their IRAs could be used to purchase real estate Tax Lien Certificates and Tax Deeds, millions of baby boomers would today be retiring with vast sums of cash and assets inside of their IRAs. Let's do a few very simple comparisons... $100,000.00 invested in NASDAQ in 1999 would now be worth $59,000.00. That's not very encouraging but it's where most Americans are. If you had put $5000 into a CD with a local bank in 1975 and secured a 6.02% interest rate and left it there for 30 years you would now be collecting $29,541. If you had purchased Tax Liens Certificates at the following Rates for 30 years this is what you would have collected: In AZ $5000 @ 16% for 30 years $429,249 In FL $5000 @ 18% for 30 years $716,853 In IA $5000 @ 24% for 30 years $5,120,000 How many banks are still paying 6% on CD's NONE, the rate today is around 4% $5,120,000 from Tax Lien Certificates or $29,541 from a CD or a lost of $41,000 on NASDAQ which one would you choose? Your Self-Directed IRA Can Set You Free Magazine, newspaper and television advertising campaigns have created the illusion to millions of Americans that Wall Street products were not only the best financial products to buy, that their products were the only products to buy. This is not the fact and as outlined above Wall Street has not preformed well over the last 30 years. If you like most Americans have a typical IRA with a brokerage firm as your custodian, then all you can instruct your custodian/trustee to do is buy Wall Street Financial products. We really don't have to dwell on how successful that has been do we. NASDAQ reported on March 10, 2005 that it had risen to 59% of what it was five years earlier! To put that in perspective, remember what we outlined above if you had $100,000.00 invested in NASDAQ in 1999/2000. Today that would be worth $59,000.00, that's a loss of 41 cents on the dollar. I wonder what would happen if we asked for 41% of our commission fees back? As an IRA holder you must acquire sufficient knowledge to make the transition from the "uninformed" to the "informed". Then take an active part in what your IRA buys, when it buys it, how long it holds it, and when and how it sells it. You cannot really expect your IRA to earn the entire profit if you choose to sit back and passively watch someone else "take care of business" as millions of Americans have for the last thirty years or so with Wall Street. We all know how that game plan finally played out. Real Estate has always been a safe investment for the "informed" and with Tax Lien Certificates your retirement dollars are secured by Real Estate. There has never been a year when Real Estate has gone down, it has out preformed everything over the last 30 years by a very long way. IRAs in general have over ninety percent of the funds in financial products. This may lead you to ask: "Are Wall Street financial products really that superior to real estate?" No, even the financial media is now pointing this out, again and again. "... since the major housing organizations began keeping records in the 1960s, there has never been a year in which the average existing U.S. residence lost value. Not a one." FORTUNE Magazine, August 12,2002 "Twenty-eight states haven't had a down year for real estate since 1990. 11 haven't since 1985. What's more, from 1985 through the first quarter of 2002, five states in the Rustbelt-Illinois, Indiana, Michigan, Ohio, Wisconsin-have never even had a single down quarter. Name a Mutual Fund that has produced 69 straight positive quarterly returns." FORTUNE Magazine, August 12,2002 "It is striking that after the longest, strongest bull market in history, the average American built more wealth owning a home than investing in the stock market." Denver Post, March 14,2002 After reading these quotes, it really is hard to understand why IRAs are not 90% real estate versus 10% Wall Street products. Their very effective marketing has really made all the difference, Wall Street has out-marketed and out spent the real estate markets and as such has succeeded in capturing the trillions of IRA and 401K dollars available. It really is as simple as that. The History of IRA's Employee Retirement Income Security Act (ERISA) was enacted by Congress in 1974. President Ford signed it into law later that same year. ERISA: The main aim of the act was to correct the abuse of mismanaged private pension plans. Some would say that the mismanagement still prevails today. ERISA: Designed to move the responsibility of retirement savings and investing for an individual's retirement plan from the employer to the employee. ERISA: The main purpose of the act had a very simple objective: to encourage the average working American to invest money during their working lifetime by moving pre-tax dollars into an IRA. The IRS calculated that a taxpayer's IRA would be entirely depleted by the time he or she expired. This also meant that the IRS would have taxed all of the distributions that were put into the IRA tax free. When Congress passed ERISA it unfortunately neglected to provide any guidelines to protect an extremely naive public regarding these investments. What Is An IRA? To keep it simple an IRA is a personal savings plan that allows you to receive individual tax incentives to set aside earnings for your retirement. Your IRA is a trust or custodial account which must be established in the United States for the exclusive benefit of you or your beneficiaries. The IRA account is created by a written document that must meet the following requirements: (See IRC 408,408a and 530). The trustee or custodian must be a bank, a federally insured credit union, a savings and loan association or an entity approved by the IRS to act as a trustee or custodian. The trustee or custodian generally cannot accept contributions of more than the statutory limits established by the IRS. Contributions, except for rollover contributions, must be made in cash. Money in your IRA account cannot be used to buy a life insurance policy. Assets in your IRA account cannot be combined with other property, except in a common trust fund or common investment fund. You must begin to receive distributions by April 1 of the year following the year you reach the age of 70. There are five basic individual retirement plans plus one additional plan that covers Education. Traditional ROTH SEP (Simplified Employee Pension) SIMPLE (Savings Incentive Match Plan for Employees) Spousal ESA (Coverdell Education Savings Accounts) A Traditional IRA The Traditional IRA is an IRA that is not one of the following: a ROTH IRA, SIMPLE IRA or Coverdell IRA. An individual who has earned income and then desires to defer or eliminate taxes on income from funds set aside for their retirement is allowed to open a Traditional IRA. You cannot make contributions to a Traditional IRA after the age 70. Distributions may be taken without any penalties from a Traditional IRA beginning at age 59. The Roth IRA Unlike the Traditional IRA the Roth IRA is an after-tax retirement plan and as such is not tax-deductible. The earnings accumulate tax-free it should also be remembered that all subsequent distributions are tax free from the age of 59. Qualified withdrawals can be made tax-free without any annual limits and there are no minimum distributions required when you reach the age 70. Many CPAs will tell you the Traditional IRA may be better for those taxpayers who expect their tax rate to be lower when withdrawals are due to be taken. An IRA opened for a non-working spouse (Spousal IRA) may also be opened as a Roth IRA provided the qualifications for the ROTH IRA are met. The SEP IRA A Simplified Employee Pension (SEP) is the plan that allows an employer to make contributions toward their employees retirement plans without becoming involved in the more complex arrangements. Their contributions are made to the Traditional IRA of each participant in the plan. This plan saves the employer from having to set up a profit sharing or money purchase plan with a trust. They can adopt a SEP Agreement and make the contributions directly to a Traditional IRA for each eligible employee. The participants under a SEP may establish their own IRA at the institutions of their choice. Due to the fact that the underlying account is an IRA account covered employees may choose to have a Self-Directed IRA as their SEP IRA. This can be in addition to any other IRA the employee may have. The Simple IRA Millions of Americans employed by large corporations already benefit from the small business pension plan (SIMPLE). Savings Incentive Match Plan for Employees is the full name of the plan. As an employee you can make tax-deductible contributions of up to $8,000.00 per tax year. The employers match the contributions and the money is not taxed until it is withdrawn. Under the "SIMPLE" plan the term "employee" also includes a self-employed individual who received earned income. There are two types of SIMPLE plans, the SIMPLE IRA and the SIMPLE 401(k) Plan. You are allowed to have a Traditional IRA in addition to any other qualified plan or SIMPLE IRA in effect. An IRA opened for a non-working spouse (Spousal IRA) may also be opened as a Traditional IRA. The Spousal IRA Designed for married couples filing a joint tax return, they can contribute $4,000.00 ($4,500.00 if age 50+), to their IRAs (excluding a SIMPLE IRA) on behalf of each spouse even if one spouse has little or no earned income. The Coverdell Educational Savings Account (ESA) The Coverdell Educational Savings Account also known as the "Coverdell ESA", is a trust or custodial account. The account is created or organized within the United States exclusively for the sole purpose of paying for qualified higher educational expenses of the designated beneficiary of the ESA Account. This account must be designated as a Coverdell (ESA) when it is established in order for the account to be treated as a Coverdell (ESA) for tax purposes. Are All IRAs Created Equally? The answer to that question is "NO". The type of IRA that is right for you is something you should discuss with your CPA or accountant. In the end choosing the right type of IRA is a responsibility that belongs to you and you alone. The main difference between a typical IRA and a Self-Directed IRA can easily be summed up in one word, CONTROL. What do we mean by "control" we mean you control what goes into your IRA, when it goes in, how long it stays there and when it comes out. Normally only one of two people would have control of your IRA, the IRA custodian/trustee or you. With over 42,000,000 IRAs in America today the vast majority of control lies with an IRA custodian/trustee. Ensuring that you choose the right custodian is very important it can make a big difference to how well your IRA performs. The IRA custodian cannot go on a buying or selling binge without the permission of the IRA holder, however, it does mean that the custodian or trustee can severely limit the products or category of investment products that it offers to the IRA holder. Call your IRA custodian and ask them if your IRA is a "Self-Directed IRA". When they ask "why" tell them that you wish to purchase real estate Tax Lien Certificates with your IRA funds. If your IRA custodian/trustee is one of the many stock brokerage houses, banks, mutual fund or insurance companies it is very likely that they will tell you "You can't do that with your IRA". They like to create the illusion that you cannot buy real estate Tax Lien Certificates with your IRA because they are not equipped to facilitate or service the purchase. The only reason for this answer is they (the broker) don't make any money from non-financial market products. Their only concern is the fees they (the broker) earn from you, not your wealth. Big Benefits to Setting Up a Self-Directed IRA or SEP With Check Book Control You will need the assistance of an experienced Self-Directed IRA facilitator to help you set up a single-entity LLC (you will be the single entity as opposed to multiple parties). The formation of the LLC is the most important part of this process and it must be done in compliance with IRS Regulations. Establishing the correct LLC is not an area for the novice, including attorneys who have never established one before. If formed improperly the IRS could well interpret any IRA funds deposited into the newly created LLC a prohibited transaction and impose a hefty penalty. After the LLC (you) has been formed, the LLC then elects a manager to run the fund, this of course would be "You". As the manger of the LLC you now instruct the Self-Directed IRA to place all, or part, of its funds into the new LLC. As the LLC manager you would have already opened a bank checking account for the LLC. You now have direct and immediate access to the funds that reside in the LLC checking account. You are now ready to start enjoying the benefits of a Self-Directed IRA with check book control. Your Check Book Control Self-Directed IRA empowers you (as the manager of the LLC) to decide what to purchase and that includes but is not limited to: Purchase Real Estate Tax Lien Certificates Act as a partner in real estate Lend money on real estate Purchase real estate options Purchase a real estate lease Consummate a short sale Purchase a pre-foreclosure Purchase a foreclosure (HUD included) If you would like more information on how to take control of your investments and maximize your retirement savings plan please call us direct and request an updated list of our FREE workshops and telephone conference training dates. |
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