By Robert Freedman, Senior Editor, REALTOR® Magazine
Years ago I attended a conference for a major real estate franchise and one of the speakers was a consultant who helped sales associates plan their financial future. The initial question he posed to the practitioners in the audience was, “Are you done yet? If you are, please raise your hand.”
His meaning was, Have you achieved the financial position you envisioned for yourself so that, when the time is right, you can retire comfortably?
As you might expect, few hands went up to signal that they were done.
Retirement is one of those topics that nags at us, and for you, as independent contractors whose earnings reflect what you produce, retirement rests entirely on your own shoulders.
For those of you who are diligent about funding your IRA, you’re to be applauded, because it takes discipline and foresight to fund your tax-deferred account enough each year to prepare for a comfortable future.
Because of your sacrifices, it’s surely been painful to watch the hit your IRA has taken these last few years because of macro-economic matters entirely outside your control. No doubt it makes you wonder sometimes why you’re letting fund managers take a percentage of your account to pay themselves a fee.
At another franchise conference I attended last year, there was another type of financial consultant speaking. This one from a type of firm that’s known as a passive custodian for self-directed IRAs. These entities enable you to take control of all or part of your IRA so you can leverage your expertise and make decisions on how to invest your savings.
I spoke with one of these consultants last week (not the same one as at the franchise show) to learn more about these investment vehicles. Her main point during our conversation was that, as real estate professionals, you are well-positioned to manage at least some of your IRA money by using a portion of it to invest in real estate.
The first question we discussed was: If someone experienced in real estate wanted to invest in real estate, why would they do it through their retirement account? After all, by investing their money in real estate outside their retirement account, they can lower their taxes through depreciation, among other things.
Her answer: If your horizon is long term, then when you’re ready to retire, you can sell your asset without paying capital gains taxes because the property is an asset of your IRA, and the proceeds go into your IRA. Then you can withdraw your proceeds in monthly installments, based on what you need to meet your living expenses, and pay taxes on those withdrawals at just the regular rate.
Any time you get into tax issues, you’re always on complicated ground and any decisions involving self-directed IRAs should only be done in consultation with a specialist; there are always nuances that only a specialist can discuss knowledgeably.
But, generally speaking, a self-directed IRA is something to consider, especially if you know of a good piece of real estate that you believe will see strong appreciation in the years ahead, notwithstanding current market conditions. You can pull out some money and invest in it as you normally might, or you can invest in it through your IRA using a self-directed mechanism. Then, when you sell, your proceeds are tax-free until you start withdrawing the money; then, when you do, your tax liability is at the regular rate.
Because there is a lot more to this type of retirement investment than meets the eye, REALTOR® Magazine will be hosting a free webinar on self-directed IRAs on Thursday, Feb. 25, at 3 p.m. Eastern Time. The presenter is Sandra Reese, senior vice president of Millennium Trust Company in Oak Brook, Ill. She’s been involved in self-directed IRAs for years and knows them top to bottom. We’ve asked her to limit her presentation to about 40 minutes so we can spend the last 20 minutes answering the questions you send to us by instant messaging during the course of her remarks.
Of course, we won’t be able to answer all questions, but we’ll look for areas of the most uncertainty and have her address those issues. We’ll also provide some resources for you to get more detailed information later.
Although we’ll just be hearing from Sandra, we’ll list other passive custodians so you can talk to a wide range of people if you’re interested in exploring the idea with others later.
Register for the free webinar now. After you click on the link, scroll down to find the registration button.