Docstoc

Advantages of Investing Through an Entity in an IRA

Document Sample
Advantages of Investing Through an Entity in an IRA Powered By Docstoc
					Investing in Real Estate and
Other Alternative Assets to
Grow Your Retirement
Disclaimer

    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?
 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 Custodians




  What Wall Street Doesn’t Want You To Know
Traditional Custodians




       Never, ever think outside the box!
Entrust’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?




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.
What are the benefits of self-direction?




     Take control of your retirement!
What are the benefits of self-direction?




             Diversification
What are the benefits of self-direction?




     IRA Investor                 IRS
                    Tax Savings
What are the benefits of self-direction?




Social investing! It’s midnight. Do you
know where your IRA dollars are?
What are the benefits of self-direction?




     Invest in what you know best!
 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.
Why save for retirement?

• 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?

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?

 • Traditional IRA
   (including rollovers)

 • Roth IRA
What types of plans can be self-directed?

 Employer plans:
 • SEP IRA
 • SIMPLE IRA
 • Individual 401(k)
 • Roth 401(k)
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?




   ALL of the above accounts can be self-
    directed!
Which account is right for Rose ?
Roth IRA




 There are worse problems to have!
 But wait…there’s hope!
 Roth 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 #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 IRA
Can 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!
Rose’s 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 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….

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)
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)

                   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
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 you
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.
People Restrictions on IRAs




      You                      Mr. Ira

       Think of your IRA as Mr. Ira
People Restrictions on IRAs
                            NO




       You                        Mr. Ira
                NO
   Disqualified persons may not enter into
   transactions with Mr. Ira
People Restrictions on IRAs
      Mr. Ira                    Fiduciary




                Disqualified Persons
                                                                       IRA


                                                                 Fiduciary “F”
                                                             (includes IRA Owner)



Member of F’s       Corporation “C” if F        10% or            Partnership “P” if F            10% or       Trust or Estate “T” if       10% or
  Family                    owns                 more                     owns                     more               F owns                 more
                   (directly or indirectly)    partner or        (directly or indirectly)        partner or   (directly or indirectly)     partner or
                   50% or more of vote or         joint             50% or more of                  joint        50% or more of               joint
                       value of stock           venturer            capital or profits            venturer     Beneficial interest in       venturer
    F’s Spouse                                   with C               interest in P                with P                T                   with T




   F’s Ancestor                        Officer or Director                                Person with
                                                                                                                                    Trustee of T
                                              of C                                       management
                                                                                       or administrative
                                                                                        functions of P
   F’s Lineal
                   LD’s                                                                                                        Highly Compensated
   Descendant
                  Spouse              Highly Compensated                                                                       Employee of T (10%
   “LD”
                                      Employee of C (10%                                   Highly                               or more of wages)
                                       or more of wages)                                Compensated
                                                                                        Employee of P
                                                                                       (10% or more of
                                                                                           wages)                                  10% or more
                                                                                                                                 beneficial interest
                                          10% or more                                                                               owner of T
                                        shareholder of C
                                                                                            10% or more
                                                                                             partner of P
Prohibited Transaction Restrictions
Any direct or indirect




           Sale, exchange, or lease
Prohibited Transaction Restrictions
Any direct or indirect




               Lending Money
Prohibited Transaction Restrictions
Any direct or indirect




         Goods, Services, or Facilities
Prohibited Transaction Restrictions
Any direct or indirect




            Fiduciary self dealing
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?
Investment Restrictions




       Life Insurance Contracts
Investment Restrictions




             Collectibles
Investment Restrictions
 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.
Unrelated Business Income (UBI)




                     Renting Personal
 Owning a Business   Property
Unrelated Debt Financed Income (UDFI)




     Debt Financed       Debt Financed
     Rental Income       Capital Gains
Unrelated Business Income Tax




           Partnership Income
Unrelated Debt Financed Income (UDFI)




           401(k) Exemption
What can I invest in with my IRA?
What investments are
you knowledgeable
about?

You can buy that
in your IRA!
Investment Choices

• Real Estate, including foreign property
• Real Estate Notes
• Secured/Unsecured Notes
• Limited Liability Companies
• Limited Partnerships
• Private Stock
• And a whole lot more……
Investment Choices




               Horses
Steps to Purchasing Real Estate
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
Steps to Purchasing Real Estate
Assets in a Retirement Plan

 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
Case Studies

 • Rental Property

 • Rehab Real Estate
 • Flipping
 • Options/Assignments
 • Real Estate Note
 • Entity Investment
Example #1




  Purchase Rental Real Estate for Cash
Example #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)
Example #1




• Purchase Price: $40,000
• Tax Value: $94,000
• Square Footage: 2,928
Tales from The Money Vault




  • 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 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%
Example #2




      Purchase, Rehab and Resale
Example #2




• Purchase Price: $101,000
• Rehab Costs: $30,000
• Sales Price: $239,000
• Profit After Sales and Holding Costs: $94,000
Tales from The Money Vault




 Purchase and Immediate Resale (Flipping)
Tales 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 Vault




        Assignments and Options –
         Getting Paid NOT to Buy!
Tales from The Money Vault




  • Purchase Price: $5,500
  • Earnest Money: $100
  • Assignment Fee: $8,500
  • Profit in Only 30 Days: 8,400%!
Example #3




   Hard Money Lending/Private Money
Example #3: Real Estate Note

 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
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 #4




             Private Placements
                Private Stock
Example #4




• Initial Investment: $50,000
• Partnership Distributions: $59,321
• Current Estimated Equity: $31,598
• Estimated ROI in 36 months: 82%
Example #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%
     5 Key Points

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!
How can I get more information?




      For More Information:
      www.EntrustTexas.com
    800-320-5950 or 214-800-3488
    RKimura@EntrustTexas.com