Why Choose Self Managed IRAs Over Traditional Financial Investments?

  • Print Article |
  • Send to a Friend |
  • |
  • Add to Google |

Have you ever wondered why two people can both work hard all their lives, make about the same income, then retire at the same age, and yet... they have two completely different financial situations?

One retires with plenty of money in the bank and no financial constraints.

The other person's picture could be completely different though, and not in a good way. He's reduced to struggle well into his golden years - worrying about how he's going to just get by, let alone have all the nice extras in life.

This is a sad picture to paint, but it's also a very real one. So, you may ask, "what's the difference between those two people?" Usually it comes down to simple financial planning many years before that... planning that paints your financial picture of the future.

In this article, one financial planning subject I'd like to cover in small detail is the self directed IRA, and self managed IRAs. These are basically the same thing by definition, and by the end of this article you'll be well on your way to understanding how this amazing investment can show you the better side of life when you're ready to retire.

Due to length issues, I obviously can't go into extreme detail on all of the advantageous "perks" behind a self managed IRA. However, I can briefly explain one thing: if you don't take advantage of this great investment tool, you'll surely be passing on some of the best investment opportunities you could possibly imagine. The type of investments that will make your retirement not just "okay", but amazing!

One of these "amazing" opportunities I'd like to emphasize is Real Estate.

Some people don't even know they can use an IRA account to invest in real estate, and this is unfortunate. If they did, they would know that with a self directed IRA you can invest in residential properties, commercial properties, mortgages, deeds of trust, notes, and various types of corporations. Even raw land!

What's so incredible about these types of investment avenues is that they aren't even available with most traditional investment accounts.

When working with a brokerage or bank to open your own retirement account, you are severely limiting your options as far as WHAT you can invest in. Typically your choices include more traditional investments such as stocks, bonds, mutual funds, etc. Don't get me wrong, these can be and are great choices, but there's a huge catch.

What is it? Well, remember in the beginning when I talked about the two people with the two very different retirements?

The thing is, when you limit your options, you're limiting your potential growth. It's really that simple.

You're not even close to tapping what's possible for you and your future. There are simply too many investments out there with higher returns at a faster pace that you'll be passing over.

Let's assume for example that you decide to rehab investment properties with your self managed IRA. You find a home that is in need of repair. You buy it using your self directed IRA, fix it up, and then sell it for a profit.

Doing these types of transactions can net you several hundred thousand dollars within a few short years... easily. And on top of the amazing profits you would be netting, you would also avoid capital gains taxes in the process!

It gets even better than that though, because like I mentioned before - it's all about options. Aside from the above example you can also invest in tax liens, foreign currency, judgements and structured settlements, gold bullion, and lease agreements. That's just the tip of the iceberg, as there are many other investments the law allows.

A few things the law doesn't allow, though - antiques and collectables, foreign investments (except currency, of course), and things of that nature. Reason for this is because these type of assets would be more difficult to liquidate if and when it became necessary to do so.

I used real estate as my prime example also because it's so easy to liquidate. Should the worst happen, and you died while your self managed IRA account was holding various real estate assets, your account could be converted into cash. Your loved ones would receive the cash value of your account in a timely manner.

Obviously there's a ton of information out there regarding this subject that delves deeper into rules and whatnot regarding a self managed IRA. One more rule I'll quickly cover though is an important one - the "self-dealing" guideline.

It's pretty simple. It forbids you to purchase from, or sell assets such as real estate to certain close relatives (or yourself) for personal use. With a traditional account where your investments are usually handled for you, this isn't too big of a deal, nor anything you should worry about.

This law is primarily in place so you can't just buy a house and rent to your children, for example. If you do this, your account could be stripped of its beneficial tax status, and your profits and assets will face taxation, instead of deferment/tax free status.

I'll leave you with this valuable advice: If investing in real estate with your IRA sounds like something you'd be interested in... if you think it will make your retirement a secure and abundant one... then go for it! I think you'll be glad you did. Just be sure you start by contacting a professional on the matter before you make any huge decision.

A good investor in an informed investor. There's no reason to go at it alone.

Ray Stockwell is a real estate investor who enjoys making money by investing in projects that help people and their communities, all without capital gains taxes. Visit his web site at www.IRA-Investment.org

Article Rating (2.5 stars):
  • article full star
  • article full star
  • article no star
  • article no star
  • article no star
Rate this Article:
  • Article Word Count: 925
  • |
  • Total Views: 893
  • |
  • permalink
  • Print Article |
  • Send to a Friend |
  • |
  • Add to Google |
>