"So many investors are tired of watching their retirement accounts dwindle away from the lackluster performance of the stock market, while the value of their home and surrounding areas increase in the double digits," said Marco Caporale, President and CEO of Independent Executive Management, LLC.
Although using your retirement account to purchase real estate does offer the potential for two to three times the annual appreciation of traditional stocks, it does come with a lot of regulations and severe penalties, if not correctly applied. That is why the right account has to be set up.
If you read this far you are thinking, "All I have to do is open a self-directed IRA." However, to truly set your IRA free, there are a couple of simple steps that will give you checkbook control of your IRA and profound asset protection that you may not otherwise enjoy.
First of all, most custodians, even true self directed custodians, require massive amounts of paperwork and numerous hoops to jump through in order for you to invest your IRA money in an "alternative" investment. This costs you time and money (custodian fees). To more effectively use your IRA, your IRA will instead place all of its assets into a limited liability company (LLC). Therefore, there is only one asset to manage by the custodian and this means fewer fees to you.
Why an LLC? The LLC gives great asset protection and tremendous tax advantages. The LLC enjoys the asset protection of a corporation while it can be taxed as a partnership. Partnership taxation is great because the LLC itself will not pay taxes. Instead, the owner of the LLC pays taxes as if they earned the income. Who is the owner of the LLC? That's right, your IRA (a tax- exempt entity). Therefore, you can maximized your investment and pay no taxes, what a deal.
Is the concept of an IRA owned LLC legal? Yes, and the case Swanson VS. The Commissioner in 1996 cleared up any doubts that anybody had about this issue. In this case the court rejected the IRS position that the business structure constituted a prohibited transaction. The IRS was so wrong that the judge had the IRS refund legal fees to Mr. Swanson.
How can you create this magnificent business structure to increase money for your retirement years? Here are the simple steps:
1. Open a self-directed IRA. 2. Transfer your IRA assets to the new, self-directed IRA account. 3. Establish a LLC. 4. Apply for your LLC's employer's identification number (EIN). 5. Set up a brokerage account or bank account for your LLC. 6. Instruct the custodian to place the IRA assets into the LLC brokerage account or bank account. 6. Start investing in what you know. Author: J McGlothlin.
