What Is A Roth IRA?

Your first question may be what is an IRA? Simply put an Individual Retirement Arrangement (IRA) is a type of retirement account that has certain tax advantages for individuals.  This is not a new concept.

How long has the IRA been around?
IRAs were originally introduced to the public in 1974. However, the Roth IRA was introduced to the public in 1998.

Named after its sponsor, William Roth, the Roth IRA was the result of the Taxpayer Relief Act of 1997. You are able to hold the same types of investments inside the Roth that you can inside the Traditional IRA. These investments are most typically assets such as:

• Stocks
• Bonds
• Mutual Funds
• Certificates of Deposits

You have to have a custodian hold the account for you. 

What is different about the Roth?

There are a few differences between the Roth IRA and the Traditional IRA.

1. Contributions to the Roth are after tax dollars
2. Earnings grow tax free

What do you mean Contributions are after tax dollars?

With a Roth IRA, unlike the Traditional, you are not able to take any tax deductions for the annual contributions. 

Does the money really grow tax free?

Yes. The funds that you place into the Roth grow tax-free. You do want to leave the money inside the account in order to take full advantage of this tax-free growth. In a Roth you will be required to leave the earnings inside the account for 5 years and until you reach the age of 59 1/2 before you will be able to remove the money both tax-free as well as penalty free. However, do not be discouraged this is for your retirement. You want to leave all your retirement money alone and allow it time to grow.

Do I need a Roth or a Traditional IRA?
Your current tax situation may be the determining factor in answering this question. You want to schedule a time to talk this over with your financial advisor. There are a lot of things to consider when making this decision. You may need to look at your current tax situation, what do you think will happen to taxes over the long term, will they increase or decrease and many other factors.

While the decision may need to be made on if you need a Traditional IRA or a Roth IRA the truth is you need one of them. You have to take control and become involved in your retirement to ensure that all your financial goals are met. Your plan needs to include several different things. An IRA is a must!

Real Estate inside an IRA

What are your investment options in a self-directed IRA?

We recently had this discussion with Tom, a client, who we met through an online discussion forum. His story may sound familiar or similar to yours. He was invested in traditional stocks and bonds through a long time friend and broker. Over the past two years, his account had not preformed badly considering the economic conditions; however, he wanted to take some of his retirement portfolio and diversify into some non-traditional assets.

You may be asking yourself, what is a non-traditional asset?

Great question!

A non-traditional asset could include, but is not limited to: Limited Partnerships, Limited Liability Companies, Promissory Notes, Precious Metals, and Real Estate.

Tom was interested in using his retirement account to purchase real estate. He was very familiar with the real estate market in his area. While he was comfortable with the real estate market in his area, the idea of using his retirement funds for real estate investments was completely new to him.

We discovered Tom’s questions about the process on a discussion board. We were glad to take time to answer his questions and eliminate his concerns.

Simply put, the process is no different than buying real property personally.

Tom opened an IRA with MyRA and moved $225,000.00 from his brokerage account to his newly established MyRA self-directed IRA.

Tom had been working with a local real estate agent to find rental property. He made the decision that he would like to have a multi-family unit.  His real estate agent located a few different duplexes and quads for Tom to consider.

During the review of the cash flow, location, and conditions of the units, he discovered a duplex that was a must have. The owner had to sell the property. One unit was vacant and one was rented for $700 per month.

Tom discovered that with $5,000 to $10,000 he could make improvements to the units, and, based on the market, both could be rented at $900 to $1,100 per month.

Tom, excited at the possibility, discussed this opportunity with his real estate agent and determined that the asking price on the duplex was $206,000.00. Knowing that improvements were going to be needed, he instructed his agent to offer the seller $190,000.00.

After negotiation, Tom and the seller agreed on a price of $195,000.00, but Tom had to close in 10 days. No problem, thought Tom. His IRA was set up and funded. His $225,000.00 was just waiting for this deal.

He sent a copy of the purchase agreement to MyRA and instructed us to execute the agreement and send the down payment of $5,000.00. At the same time Tom located a local contractor to complete the property improvements. Tom is very capable of completing all the improvements on his own, he is a contractor as well, but he learned through his conversations with the staff at MyRA that he is not able to perform these improvements since this property is held inside his IRA. The updates are quoted at $7,500.00.

Two days prior to the closing date, Tom provided MyRA with all the needed documents and instructed MyRA to fund the remaining amount of $190,000.00. On closing day, MyRA had the closing documents signed and faxed to the closing agent and wired the remaining amount of $190,000.00. That was it!!!! Tom now owned his first piece of property inside his IRA.

Tom’s contractor began the needed improvements and in one month Tom was able to rent out the remaining side of the unit. He kept the rent at $700 for the existing renters and rented the second unit for $1,000 per month. He has every intention of raising the rent for the occupied unit but decided to do it in small increments.

Tom received the invoice for the improvements and sent that into MyRA with instructions to pay the invoice. Tom is excited to review his transaction.

Purchase amount                     $195,000.00

Improvement cost                    $7,500.00

Total Investment                      $202,500.00

Monthly Rent Proceeds           $1,700.00

Property Mgmt Fee                 $170.00 (10%)

Monthly Expenses                   $510.00 (30%)

Net Monthly Income               $1,020.00

Annual Income                        $12,240.00

Annual ROI                             6%

6% returned backed by real estate is not bad at all in a tax-deferred account. But Tom converted his Traditional IRA to a Roth IRA. His financial advisor and he decided that this was a good time for him to  convert.  Because he converted in 2010, Tom will be able to split the tax burden over two tax years, 2011 and 2012.

His 6% is not tax-deferred it is now growing tax-FREE.

Be Sure to FINISH!

Well it was clear again tonight while I was watching the Finale for the Ultimate Fighter that you can never leave anything up to a Judge or a referee.

It never seems to amaze me how bad judges can be at times. Trust me, I do understand that humans tend to error from time to time, but how can it be that a judge watches a complete different fight than what everyone else  was watching. It is the job of the judge to be skilled and exactly that, judging a FIGHT.  The Nevada Athletic Commission should be embarrassed.

Fight Commentator, Joe Rogan, hit it right on the head when he indicated that the Judges for the Garcia vs. Phan fight were merely incompetent. The judges of this fight robbed Phan of a victory. With the crowd voicing their displeasure with the outcome Joe conducted his post fight interviews with both fighters.

There is a lot to be said when the fighter that wins looks surprised by the decision. However, as Garcia stood in the middle of the ring next to the referee he had a defeated look on his face until he heard his name called out as a winner by split decision.

Well, I guess that is why as a fighter you have to finish the job before the bell rings and never leave it in the hands of the judges.

Time Is A Wasting

I have time to do this or do that. There will be time to play catch with your child or to sit on and hold hands with the love of your life.

Why do those things we don't want to do today when we will have time tomorrow.

Time is the one thing that money can't buy. It is the great equalizer. You have the same amount of time each and every day how you use those precious moments is up to you. We make the decision to spend our time talking on a phone, tweeting, facebooking, working, or talking to those around us. We assume that we can do those things that we don't get to tomorrow.

ALERT! Tomorrow is not guaranteed! You are not sure that you will be able to complete those important task tomorrow.

What important tasks?

Life insurance, Estate Planning, Retirement Planning to name a few of the things that seem to take a back seat to our everyday life.

I once heard a saying that has stuck with me over time "You ought to do today the things you ought to do so you can do the things you want to do tomorrow."

The Chronicle-Telegram - Lorain County's leading news source

A great example of what happens when you work hard and set goals! Congratulations and way to go Dan!

The Chronicle-Telegram - Lorain County's leading news source

What Is A Self-Directed IRA?

A Step at Taking Control.

Can you

imagine using investments like real estate, precious metals or promissory notes

to get you that condo on the beach during retirement?

What if you could loan a close friend money from your IRA and secure the loan with a deed

of trust or what if you could help finance a local business, or help a local bank raise capital?

All of this is possible and takes place every day in self-directed IRAs.

What is a self-directed IRA?

A self-directed IRA is just an IRA that you, the accountholder, locate investments you wish to purchase. A self-directed IRA can be a Traditional, Roth, SEP, or SIMPLE IRA. You may be saying "I have a self-directed IRA already. It’s at my bank (or my broker or my mutual fund company)."

We see these all the time. The real question is: Is your IRA really self-directed?

It may be in the sense that you get to pick from a list of stocks and mutual funds into which you may invest, or, perhaps, you have an IRA at a brokerage that allows you to purchase any publicly traded stock.

That’s great! But it really isn’t self-directed. Ask you custodian if you can invest in real estate with your IRA. If the answer is no, your account is not really self-directed. It’s self-directed with limitations, substantial limitations.

A real self-directed IRA will allow you to hold a wide range of assets inside the account. You need a custodian that specializes in holding non-traditional assets as well as traditional assets.

There are custodians that will hold almost any type of investment or asset that you can imagine. I have seen people purchase everything from raw land to sporting event tickets. Most of these custodians exist in order to offer you the vehicle to use your retirement account to make investments that you are more comfortable with and understand. Please do not misunderstand me, if you understand stocks, bonds, and mutual funds you may be doing very well in the market. However, if you understand and are more comfortable with real estate, promissory notes, or business start-ups, you are in need of a real self-directed retirement account.

The first step is up to you. These custodians are located around the country. You do not need to have an office in your town in order to take full advantage of their services. Locate them, call them, e-mail, them, ask them anything that you can possibly think of. Find out which one is willing to provide you the service that you expect. While they are not likely to tell you if your investment choice is a good idea, they will or should be willing and able to talk to you about a few things.

First, they will be able to let you know if there is anything that needs to be further investigated based on the details of the transaction. These firms are not your legal advisers, but they do have a good working knowledge of the IRS code and they can usually pick up very quickly if you may be exploring an investment that would disqualify your account.

Second, they will be able to let you know what the process will be for setting the investment up in their system and they will be able to tell you what will need to be provided in order to determine if your investment is something that they will be able to administer. Do not be discouraged if the company you selected is not able to hold it, there are more companies, keep up the search.

Take the first step forward in taking complete control of your financial future. Locate a provider of self-directed IRA accounts and begin to discuss your investment options today!