Self-directed IRAs and 401(k) plans have been around for more than 25 years. There are currently billions of dollars in self-directed retirement plans. Do you know how to unlock your retirement funds and those of your clients for real estate related investments, including loans secured by real estate? Your knowledge of self-directed retirement plans can help make you money now as well as ensuring that you retire in style.
7 types of plans which can be self-directed. There are seven different types of plans which can be self-directed, each of which may be invested in real estate secured loans and other non-traditional investments. They are the Roth IRA, the Traditional IRA, the SEP IRA, the SIMPLE IRA, the Individual 401(k) Plan, the Coverdell Education Savings Account (ESA), and the Health Savings Account (HSA).
Endless investment possibilities for self-directed IRAs. Self-directed IRAs and other plans may invest in a wide variety of non-traditional investments, including real estate secured loans, loans secured by collateral other than real estate, unsecured loans, real estate of all types, options, and private company ownership, including limited liability companies, limited partnerships, and non-publicly traded stock in corporations. If title can be held to an asset, it can likely be held in a self-directed IRA. This is because the IRS only tells you what you cannot invest in within an IRA (life insurance and collectibles), not what you can invest in. With few exceptions, the only limitation is your imagination!
Restrictions on what you can do with your IRA. Although as noted above there are very few investment restrictions, certain transactions (as opposed to investments) are considered to be prohibited. If your IRA enters into a prohibited transaction, there are severe consequences, so it is important to understand what constitutes a prohibited transaction. Essentially, the prohibited transaction rules were written to discourage certain persons, called disqualified persons, from dealing with the income and assets of the plan in a self-dealing manner. Disqualified persons to your IRA include, among others, yourself, your spouse, your parents and other lineal ascendants, your kids and other lineal descendants and their spouses, and any corporation, partnership trust or estate which is owned or controlled by any combination of these persons. Lending money from your IRA to any disqualified person is included within the definition of a prohibited transaction.
How you can use knowledge of self-directed IRAs to make more money today and to secure your future retirement. Although you cannot use your own IRA to make more money for yourself now (unless you are over age 59 1/2 and can take distributions), there is nothing prohibiting you from making money using OPI – Other People’s IRAs. As a professional in the lending industry there might be a number of ways you can do this. First, if you are a real estate investor yourself, you may borrow OPI to fund your real estate deals. This is an especially powerful tool for acquiring real estate which may need some fixing up. After the property is fixed up, you can refinance into a permanent loan or sell the property. Second, you can assist your loan customers in getting bridge loans from self-directed IRAs on properties for the purchase and repair, then set yourself up as a refinance lender. This is a direct way to put money in your pocket now from arranging the refinance loan and possibly even the IRA loan, depending on the law where you live. Many lending professionals use this technique to generate business for themselves. Dealing with savvy real estate investors can lead to multiple loans for them as well as for their buyers when the properties are resold.
Ignorance may be bliss to some people, but it will not make you wealthy. In this extremely competitive market, you owe it to yourself to learn about and utilize whatever techniques there are to generate a steady stream of quality clientele. The more you know, the better you look as a lending professional, which in turn generates more and better business for you. Between the advantages of using OPI to generate more business and income for yourself today and self-directing your own retirement accounts into something which you know and work with everyday for income in your retirement, there are very few tools out there today more powerful than the self-directed IRA.