Using Your Self-Directed IRA to Obtain Non-Recourse Loans

There are a countless number of ways to utilize your 401k and diversify your portfolio. An option that most people don't often utilize are non-recourse loans for self-directed IRA's. The IRS requires a non-recourse loan for all real estate purchases that use leverage with a self-directed IRA, which means that if the loan were to default the lender can only take the property and can not come after the borrower or their IRA account.

Non-recourse loans are more often used for investors who want to acquire property using their self-directed IRA but don't have enough capital to purchase the property, and don't want to use their hard earned IRA as collateral. Non-recourse loans allow clients to purchase and use the property and only the property as collateral for a loan. That means that credit/fico scores are often not used in the underwriting decision on these loans because the borrower is not the guarantor for the loan. This does however require the properties being lent on being cash flow positive. Most of the time non recourse lenders will even lend up to 70% loan to value.

For example lets say investor Bob has $90k in his 401k IRA that he is looking to invest but really doesn't want to use it all on one property. While searching for the right investment he finds an amazing property that is going for $100k, that he knows is way under valued and can cash flow positively even in the current market. Bob knows he can do a 401k rollover into a self-directed IRA for $30k and then obtain a non-recourse loan for $70k in order to complete the purchase.

Assuming that the property is cash flow positive, which is extremely common in this market, Bob can now use the remaining funds within his IRA account and purchase several properties instead of just one. This not only diversifies his portfolio but reduces his exposure to any potential down turn in the market, or unexpected vacancy. Now with the $90k Bob had ready to purchase an investment property he now has 3 properties that are all cash flow positive and each month the rental checks go right back into his self-directed IRA account.

Here are some basic guidelines for IRA financing:
Requirements for IRA Debt Financing:

1. Purchase transactions for investment properties only
2. IRA assets to be managed by a custodian in a self-directed IRA or SEP.
3. IRA assets must be verified for purchase and reserves. IRA reserve requirement may be up to 20% of the loan amount, to be available in the event of insufficient cash flow to pay operating expenses and mortgage payments.
4. No employment or income verification

Documentation Require for Loan Approval:

1. Completed loan application
2. Current detailed Rent Roll or copies of signed leases.
3. Most recent asset statement verifying IRA assets for purchase and reserves.
4. Purchase/Sale contract, signed by the IRA account holder and the custodian. The contract must show the buyer to be in the name of IRA.
5. Appraisal fee required at the time of loan application for 1-4 family.

Obviously each deal is different and some restrictions may apply, but this is another tool that can be used to help your IRA account grow and to diversify the assets held within it.

Faisal is the Co-Founder of Brooklyn Troy, a real estate land acquisition and self-directed IRA company. He graduated with honors from University of California San Diego with a BS in Management Science and a minor in Spanish.In 2003 he co-founded La Jolla Wealth Management, a real estate finance and private equity company. He has assisted in the acquisition and management of over $45 million dollars in assets. http://www.brooklyntroy.com

Article Source: http://EzineArticles.com/?expert=Faisal_Sublaban

Read More...

The Truth About Roth IRA's

Roth IRA's are beneficial to a traditional IRA because the guidelines allow you to withdrawal money tax free before you officially reach retirement age. If you're saving only for retirement, you can start making tax free withdrawals after you reach 59. 5 years old. If you choose to withdrawal before this age, you have to meet certain criteria. One way is to become officially disabled. Another option is to use the withdrawal toward your first home, or the first home for your children or grandchildren. These withdrawals are still tax free.

While this type of account does make it much easier to access your money before you reach the age of retirement, there are also some restrictions on the amount of money you can put into the account each year. The ultimate amount is determined by how much money you earn in a year and your age. Anyone over 50 years old will be able to contribute more.

The 2009 IRA contribution limits are unchanged. In both 2008 and 2009, the limit you may contribute is $5,000. However, if you will be 50 or older by the end of the year, you can contribute an extra $1,000, for a $6,000 total contribution limit. These limits apply to both regular and Roth IRAs. Although you may be eligible to contribute to both plans, your combined contribution to both accounts cannot exceed your above limit ($5,000 or $6,000).

There is also a cap on income earned, which means you have to earn less than a certain amount in order to qualify as a Roth IRA contributor for the year. In 2009, the cap is $105, 000 for anyone who files as a single taxpayer. For anyone filing jointly or as a married couple, the cap is currently at $166,000.

There are some disadvantages with Roth IRA accounts.

You have to pay the taxes today for the contributions. How is this a disadvantage?

Let's say you make $80,000 this year on taxable income, making you in the high tax bracket. If you contribute $4000 to your Roth IRA, you are taxed on that $4000 at the high tax rate. You are better off making Roth IRA contributions when your income is low (to avoid paying big taxes today) and not when your income is high. For instance, if one contributes $1000 to a traditional IRA while in a high tax bracket, you can receive a substantial tax deduction thereby reducing the initial cost of contributions. This is not the case with Roth IRA. If during retirement one ends up in a lower income bracket than today, one will wind up with less usable cash by choosing a Roth IRA over a Traditional IRA. Please note that money in a traditional IRA is taxed once it is withdrawn at retirement.

Another major disadvantage of Roth IRA is heavy penalty for early withdrawals. Withdrawals up to the total of contributions + conversions are tax-free. However, an unqualified withdrawal of earnings will result in federal income tax plus a ten-percent penalty on the amount. Though there are exceptions to it like buying a first home and paying qualified educational expenses, you need to be careful.

Faisal is the Co-Founder of Brooklyn Troy, a real estate land acquisition and self-directed IRA company. He graduated with honors from University of California San Diego with a BS in Management Science and a minor in Spanish.In 2003 he co-founded La Jolla Wealth Management, a real estate finance and private equity company. He has assisted in the acquisition and management of over $45 million dollars in assets. http://www.brooklyntroy.com

Article Source: http://EzineArticles.com/?expert=Faisal_Sublaban

Read More...

Self-Directed IRAs Are Buying Lots of Real Estate

While today's residential market is flooded with foreclosed properties, the resulting devaluations in many parts of the country are creating unique opportunities for long-term investment buyers. With many consumers increasingly concerned about liquidity as a result of the reeling economy, investors are turning to their retirement accounts to take advantage of an incredible buyer's market. Since the credit market is effectively in neutral, investors are scooping up properties in some areas for less than 50% of appraised value, with all cash purchases with their self-directed IRAs.

For example, on July 6, I heard from a real estate broker in Florida that he was able to purchase a 2,800 square ft. home on a golf course in a gated community (and needing no repair) for $100,000. It was listed by the bank that foreclosed on it at its appraised value of $200,000, and it sold two years ago for $440,000!

Although we may not yet have reached the bottom of the market for residential real estate, and the window of opportunity will likely stay open until the third or fourth quarter of 2010, the opportunities today have the dual potential for significant appreciation in the five to 10 year time frame and the production of positive cash flow during the holding period at today's prices.

Experienced real estate investors, brokers and realtors are taking action now, recognizing that more foreclosures will follow early next year as adjustable rate mortgages (ARM mortgages) sold in 2007 kick in with a vengeance in the first quarter of next year.

At PENSCO Trust, we have seen a 26% increase in IRA real estate purchases (to $26 million) between the first and second quarters of this year. Most of this increase was associated with foreclosures in the residential market, however, we have also seen quite a few real estate syndicators buying up unimproved land (undeveloped lots), with the idea of conditioning it through entitlement in time for the next upswing in the real estate development sector. In some cases, they are buying at 10 cents on the dollar. These deals are not for the faint of heart and may require a longer holding period, so they are not suitable for anyone with liquidity needs.

Another avenue self-directed IRA investors are pursuing is to provide credit to others for the purpose of buying real estate. With traditional credit markets almost nonexistent, borrowers are getting needed funds from IRA investors looking to increase their investment yield on their retirement accounts. Such investors may offer the down payment, first mortgage or second mortgage or even become a co-tenant on a purchase when the buyer does not have the necessary funds.

For example, one investor may locate a great investment property, but not have sufficient funds to buy the property. By combining forces and funds with an IRA investor, who may participate through an equity investment or an extension of credit, they can acquire the property. It is important when investing in real estate with a self-directed IRA, that you choose a competent IRA custodian with a strong track record. Good custodians will help you to understand the rules and the process, easing your entry to self-direction.

In addition, it is very important that your custodian is geared to execute in a timely and accurate manner, as real estate transactions can close very quickly and earnest money deposits frequently have to be made from your IRA on the same day to secure the best opportunities. PENSCO Trust is proud of the fact that we generally get all real estate transactions funded on the same day they are authorized by our clients, and, in almost all cases, within 48 hours.

Certainly, investing today is more challenging than in a bull market, but some things are certain. Real estate values are down in most areas of the country, building has almost come to a screeching halt and demand will eventually catch up to supply, at which time prices will rise. How long that takes is anyone's guess, but some like those odds better than investing in the stock market. Choose your own poison, but eventually you have to take action to keep your wealth growing.

http://www.brooklyntroy.com

Faisal is the Co-Founder of Brooklyn Troy, a real estate land acquisition and self-directed IRA company. He graduated with honors from University of California San Diego with a BS in Management Science and a minor in Spanish.In 2003 he co-founded La Jolla Wealth Management, a real estate finance and private equity company. He has assisted in the acquisition and management of over $45 million dollars in assets. http://www.brooklyntroy.com

Article Source: http://EzineArticles.com/?expert=Faisal_Sublaban

Read More...

Difference Between 401k and IRA

The difference between 401k and IRA plans are both small and large. You'll find many small details that differ between the two, but for the most part, you can break it down to one main thing, your level of control.

401K plans are employer sponsored, which means you sign up for the plan through your employer and your account is handled through them. You are typically offered a few choice plans on how you will invest your money, which does take some of the control out of your investments, but some people like how this simplifies the process for them. The biggest advantage of one of these plans is that many employers will offer you a company match up to a certain percentage. So, for instance, if your company will match you up to 2%, then when you invest 2% of your income they will match that amount. This gives you more than just the money they match directly, this also gives you more money to invest and grow towards retirement, which can be a great help.

IRA, or, independent retirement accounts, are much more self directed. You go out on your own and find a company that you would like to handle your account, and you make all the decisions about how the account will be handled. While with an employer sponsored plan you are offered several plans to choose from that will decide how your savings are invested, with an independent retirement account you make all the individual decisions about how your money will be invested. You also always have the option to set up a traditional or Roth account, traditional accounts are before taxes (which means you will pay the taxes when you withdraw the funds in retirement) while Roth accounts are after taxes (which means you withdraw tax free in retirement).

So, basically, broken down, the main difference between 401k and IRA savings plans is the level of control you have, and of course, the employer match.

Retirement accounts don't have to be so confusing. At my site I try to simplify how to do everything you need to, like 401k balance questions, contribution limits, cashing out, and other 401k IRA options people need information about.

Article Source: http://EzineArticles.com/?expert=Jennifer_Quilter

Read More...

The 401k 20% Withholding Trap, and How to Avoid It!

With all of the complex rules surrounding your 401k or your company sponsored retirement plans it's no wonder people end up paying taxes and penalties they didn't think they would have to. You have probably heard of the 20% withholding requirement and most plans consider this to be a mandatory part of doing business. However this withholding could cause some serious problems and if you read on you will find out that it is not as mandatory as you thought.

Most company sponsored retirement plans require that every time you take money out you must withhold 20% for taxes. So if you take a $10,000 distribution you may only get a check for $8,000. The good news is that the $2,000 is not lost it has just been sent to the IRS on your behalf. The bad news is that you get less money now and you are withholding taxes when you may not even owe any. Think about this. If you are laid off or out of work for an extended time what tax bracket are you in? If you have been collecting unemployment for the last 12 months and now it has run dry might you be in a lower tax bracket? And what if you really need the full $10,000 now and figure you will be in a better position to pay the taxes by next April when they will be due? Or lastly what if you just don't like the idea of paying your tax ahead of time and would much rather use ALL or YOUR money now and pay your taxes ONLY when they are due and not one minute sooner?

I will tell you how to avoid this so called "mandatory" rule in a minute but first let me tell you one more problem it creates. Did you know that if you do a 60 day rollover of your 401k plan into an IRA and you let them take the mandatory 20% withholding you will owe FULL TAX AND PENALTY on that money? For example, if you take a $100,000 distribution from your company plan to reinvest into an IRA they will withhold $20,000. Because you can now only reinvest $80,000 into your new IRA you will be short $20,000 on your 60 day rollover and FULL TAX AND PENALTY will be due on that $20,000 they forced you to withhold. You are probably thinking that this is not fair. After all you are entitled to roll over the whole amount and pay no tax, and it was not even your idea to withhold any money. If there was a way to avoid this problem wouldn't you want to know how, than read on...

Fortunately there is a way around these problems but chances are your human resource person will never tell you about it, nor will the company holding on to your funds. What you will useually hear is that the withholding is mandatory and that there is nothing they can do. Well here is how you fix this. Instead of doing a 60day rollover or taking a distribution directly from your company plan you TRANSFER your company plan to an IRA first. The key word here is TRANSFER. What you want to do is technically called a "Trustee to Trustee Transfer" or sometimes a "Direct Transfer". Doing a TRANSFER instead of a 60 Day Rollover will avoid the 20% withholding problem and once you have your money in an IRA you will have much more freedom to do with your money what you wish.

Antonio Filippone is an author, speaker, and consultant. He has been published in the official journal of the IARFC as well as interviewed on the Radio about his unique financial strategies. For more information you can request one of his free booklets or contact him directly at http://www.tonyfilippone.com

Article Source: http://EzineArticles.com/?expert=Antonio_Filippone

Read More...

IRA Investment Options Should Be Considered at Every Age

One thing that most people usually start thinking about when nearing their retirement age is what their lives will look like after retiring. Expenditures on food, housing and other common expenses are just a few of the things to consider once you no longer have a full-time job to depend on. The fact of the matter is that the hope and assurance you have for your retirement years depends largely on the amount of preparation you put into place right now.

Considering the dizzying number of IRA investment options that are available to you, the ability to make an informed choice can be a daunting task. But since most company retirement pensions are gradually dying out, it is a critical task. This is why the need for retirement preparation and arrangement is very necessary - even if you are still in your thirties or forties.

The best way to approach this is by using IRA investment options that elicit specific tax features and benefits. This will allow you to save a lot more money over time. The IRS tax code in the United States gives you the option of investing a specific amount of money every year for the purpose of funding your retirement years. In 2008, for instance, you are allowed to contribute $5,000 into a traditional IRA - $6,000 if you are over the age of 50. It should be noted that this amount may be limited by how much you earned in a year and whether you participated in a company retirement plan. The best place to find the current IRA rules is at the IRS website.

If you are new to retirement investing, it is important to understand the benefits of using an IRA. The prime advantage of your savings in IRA's is that you not only will get a tax deduction for your IRA investment, but your money will earn for you tax-deferred. You won't have to pay taxes on these earnings until you actually withdraw them in retirement. At that time, you will generally be in a lower tax bracket and pay a much lower rate on your earnings. This will allow your IRA investments higher rates of return and more growth. Your invests will compound, especially if you have many years left before retirement.

The time to start planning for your retirement is right now, no matter what your current age. The longer your investments have time to compound, the more comfortable your retirement will be.

For more information on the best investments for IRA, please visit our IRA Reviews site.

Article Source: http://EzineArticles.com/?expert=Linda_J_Bruton

Read More...

IRAs, Roths, and 401ks With Taxed and Untaxed Minimum Required Distributions - MRDs

IRA and Roth IRAs are two examples of government-regulated retirement savings plans - called qualified plans. Both are generally personal plans you set up at banking-type institutions that you can contribute to and withdraw from yourself. Other examples of qualified plans associated with work are 401(k), 403(b) and their Roth versions- like Roth 401(k).

This article explains which qualified plans have minimum required distributions (MRDs) associated with them and some strategy.

Qualified plans such as 401(k)s, and IRAs were created with specific tax characteristics as an incentive for people to save for their retirement by contributions from their working income.

There are fundamentally two different qualified plan type tax characteristics. I'll call them

* Deductible Contributions then later taxed, and

* Nondeductible Contributions then never taxed

Taxation and Obligations for the owners (i.e. plan contributors) of the plans

The tax characteristics of the 'deductible contributions' type plans are represented by your 401(k) at work or your own IRA. Your yearly contributions to each plan are limited but deductible from your income in the year of contribution. But the income tax of both those contributions and all earnings they create are tax-deferred until you withdraw money from your plan.

Whenever you withdraw from these plans, the withdrawal amount in that year is added to your income to be taxed at your income tax rates. Since qualified plans are geared for retirement, you're penalized with a tax of 10% on your distribution in addition to whatever income tax is incurred if you're under 59 1/2.

Lastly, government-regulations obligate you to make at least a minimum required distribution (MRD) each year from your IRAs after you've turn 70 1/2.

The tax characteristics of the 'non-deductible contributions' type plans are represented by your Roth 401(k) at work, or your own Roth IRA. Your yearly contributions to these plans are limited, but they're not deductible from your income for taxation. So they're taxed. But the advantage now is that they and all their earnings and gains will grow each year tax-free - not just tax-deferred.

Additionally, when you withdraw from these Roth-type plans, the money comes out tax-free. But you must wait to withdraw your money until reach 59 1/2 or be penalized as above.

If you're the owner of a personal Roth IRA, you have no obligation to make any MRDs ever. If you leave your Roth IRA to your spouse, she also has not obligation to make MRDs either.

If you have a Roth 401(k)s, you must make the normal RMDs as those with non-deductible contribution types above, but - like all Roth plans - the money comes out tax free.

What about plan beneficiaries after you die?

All beneficiaries of plans -401(k)s, IRAs, Roth 401(k)s or Roth IRAs - must make MRDs except the spouse beneficiary of a Roth IRA if she chooses to be owner. But remember, RMDs or withdrawals from Roth plans always come out tax free.

How much money must come out in an RMD?

The MRD for a specific year is the value of your IRA (or total of all your IRAs if you have more than one) as of Dec. 31 of the previous year, divided by your life expectancy factor (from IRA table found in Appendix C of IRS publication 590 (online)) for that specific year. So, each year your MRD will change since the value of your IRA will change and your life expectancy will change. A new calculation must be done each year.

You can withdraw more than your MRD, but you're penalized if you withdraw less. You're penalty is a tax equal to 50% of that part of your MRD you didn't withdraw.

Reasons for converting to a Roth IRA Tax free growth and tax free withdrawals forever is hard to pass up. And that's for owners, spouse beneficiaries and nonspouse beneficiaries.

Only the nonspouse beneficiaries need to make RMDs - but they're still tax free ones. And those RMDs are based on the beneficiary life expectancy. So if their young, very little has to be taken out.

It makes good sense to convert any Roth 401(k) to your own Roth IRA for the freedom of not having to make RMDs by the owner or his spousal beneficiary. The conversion is tax free.

Conversion from a 'deductible contributions' plan to your Roth IRA requires you to pay income tax on amount you choose to convert. For 2010 and beyond there's not income limit prohibiting you from making the conversion - as there has been.

Holding money in a Roth IRA keeps it safe from future increases in income tax rates that plague holders of 'deductible contributions' plans.

Shane Flait gives you workable strategies to accomplish your goals in financial, legal, tax, retirement and protection issues. Get his FREE report on Managing Your Retirement http://www.easyretirementknowhow.com/FreeReportandSignUp.htm. Read his ebook: 'Wise Way to Financial Independence' http://www.easyretirementknowhow.com/WiseWayGate.htm.

Article Source: http://EzineArticles.com/?expert=Shane_Flait

Read More...