Author: Dr. Daniel Levine

Synergy: Holding Real Estate in Your IRA: Tenancy-In-Common (TIC), Part 3 of 4

For people who identify an attractive property that costs more money than they have in their IRA or more than they can (or are comfortable) borrowing, tenancy-in-common may be a solution. Tenancy-in-common is a form of concurrent ownership in which two or more persons each have an undivided interest in the entire property, but no right of survivorship. Because each person’s interest, or share, is undivided, each can sell his share at any time without the consent or agreement of the others. So, how does this help you? Let’s go through an example: Let’s say you and two of your friends find a good property in which to invest, and the purchase price is $100,000. With a tenancy-in-common arrangement, you can buy the property together, with each person putting in the amount of money he or she has available. Each will own a certain percentage of the property, the income generated from its operation, and, eventually, a percentage of the profits when the property is sold. Owners                      Contribution Amount                    % Ownership You                                      $60,000                                               60% Tom                                      $20,000                                              20% Rob                                       $20,000                                              20% Total                                  $100,000                                             100% A tenancy-in-common arrangement also allows use of both IRA funds and non-IRA discretionary funds to buy a single investment. It is not a requirement that each of the owners use the same type...

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Synergy: Holding Real Estate in Your IRA, Part 2 of 4

Yes, you can use debt financing to purchase real estate in a self directed IRA. However, to do so legally, you must use the IRA-purchased property, not the IRA itself, as security for the loan. This type of permitted borrowing is called non-recourse lending. A non-recourse loan is not like the loan on your personal residence. In fact, it is very different. Here, unlike your home loan, if the loan isn’t paid back as promised, the lender may take the IRA-owned property used to secure the debt, but may not take recourse against any of your other assets. Because of its unique nature, not very many banks or lending institution offer these types of loans, but they do exist, and your self-directed IRA custodian may be able to point you in the right direction. Like other loans, non-recourse loans do have a monthly payment and some type of amortization schedule which will need to be followed. Therefore, your IRA property will need to be able to make the loan payments from its cash flow, its annual IRA contributions (within the 2016 limits – $5,500 or $6,500 if 50 or over), or some combination of the two. Simply put, you need to have more money coming into your IRA than is going out. This also means you need to have sufficient liquidity in your IRA for other real estate related...

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Synergy: Holding Real Estate in Your IRA, Part 1 of 4

For many years now, people have been using non-directly owned real estate in their IRAs and other retirement plans. These intangibles are investments like REITs and real estate mutual funds. Most people didn’t know they could use the retirement plans to purchase directly owned real estate such as raw land, commercial buildings, condos, residential properties, empty lots, trust deeds, or real estate contracts. In general, the Internal Revenue Code (IRC) section 408 does not prohibit the holding of real estate in an IRA, provided the transaction is not prohibited under IRC Section 4975. Code section 4975 covers what transactions are prohibited between an IRA or retirement plan and a “disqualified person”. Generally, “disqualified persons” are defined to be the account holder, other fiduciaries, certain family members, and businesses under the account holder’s control. In essence, the prohibited transaction rules prohibit an IRA or qualified retirement plan from owning a piece of property which will be purchased from or use personally by the account holder, family members, or businesses under the account holder’s control. Simply put, the property must be used for investment purposes only and cannot be used personally while maintained in the IRA. In addition, properties that are individually owned outside of the IRA cannot be transferred or purchased by one’s individual IRA. Remember, the IRS will not let you use your IRA to purchase your home or...

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10 Steps to Retirement Freedom

Everyone thinks retirement is a long way off, but it’s not. People in their 50s know “the years have run like rabbits”, to misquote a line of poetry from W. H. Auden. Get married, have children, buy a house and before you know it, it’s time to think seriously about your retirement lifestyle. Retirement, of course, is a topic that has been on your mind since you first began your working life. The most important asset you have is time and its positive effect on accumulating wealth. There is never a better time than right now to assess your situation. As a financial professional, I can help you determine the retirement lifestyle you want to have, and also help you calculate your capacity to achieve it. Step 1: Study Your Monthly and Annual Expenses The first thing to do is to look closely at how you’re spending your money. If you’re not exactly sure, my advice is to keep a log for two months and jot down every expenditure, no matter how small. You may be surprised to see how much you spend every month on such things as coffee, lunch, cable services, etc. While these expenses may provide a pleasant quality of life, they may also be draining your ability to have a more enjoyable lifestyle in retirement. Step 2: Consider Cutting Back and Saving the Difference Since...

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Have You Checked Your Estate Plan Lately?

Hopefully you already have an estate plan, and if not, you should make this an immediate priority. Though it may be uncomfortable to think about, legal instructions must be clearly stated to direct your personal and financial affairs in case of death or your inability to care for yourself. An estate plan helps you control how your property will be managed when you are no longer able to do so yourself.   When to Review Without question, the best time to review your estate plan is immediately after a major life event, as listed below. Major changes to your life or lifestyle must be mirrored in your legal documentation. Too often we hear about families that live through the heartache of legal confusion and lost intentions. You can make it so much easier for your loved ones, both family and friends, when your wishes are clearly described. In addition to reviewing your estate plan after a major life event occurs, you should also make it a regular practice to review your documentation each year, refreshing some of the details affected by changing economic and tax related issues. While a quick review may be sufficient once a year, a more thorough review every five years is a wise protocol.   Review Your Estate Plan Now If… Your marital status changes, or the marital status of any of your children or...

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