In today’s lesson, Jim Ingersoll lets us in on how to invest in Self Directed IRAs.
Find out more about the types of accounts you can utilize within retirement plans and how to create passive income with it.
Mike: Welcome back to the FlipNerd.com REI Classroom where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.
Jim: Hi, everybody. I’m Jim Ingersoll. Welcome back to the REI Classroom. I’ve really got a great topic today for you and it’s a topic that is a little unique because a lot of investors don’t understand it, they don’t know it exists. It’s like I’m going to give you some financial secrets. So I’m going to go into the vault today and I’m going to open up this vault and give you some awesome information.
I hope you’ve got a pen and you’re ready to take some notes because I’m going to share with you some secrets about self-directed IRAs. And how an IRA relates back to a real estate investor is pretty cool so I hope you’re ready to go on this topic.
Mike: This REI Classroom real estate lesson is sponsored by UglyOpportunities.com.
Jim: Most people think that you can only invest your retirement accounts into stocks, bonds and mutual funds, but the truth is that is a big myth because the truth is you can invest it into real estate, you can actually invest it into oil and gas if you want, or even silver and gold.
But nobody ever knows that because the financial planners out there get paid for selling stocks, bonds and mutual funds so they don’t tell you about these little secrets, like self-directed IRAs. Now a self-directed IRA means that you, as the account owner, have the complete control of your investment. So you can direct it if you want towards stocks. You can invest it if you want towards silver and gold or you can go towards real estate and that’s what the REI Classroom is all about.
So what’s really cool is there are five, six or maybe seven different types of accounts that can be self-directed. You might want to write these down as I start to give these to you. First of all is the best gift our government has ever given us in our lifetime and that is the Roth IRA. That’s because the profit in a Roth IRA, the investment goes tax-free forever. Now think of it as a tax-free checkbook that goes on forever. You can actually leave it to your kids. It can go an entire another generation.
Now, a traditional IRA is another one, but I want to talk you a little bit about what’s called an HSA, this is the third one, health savings account. This is big for all of us that are self-employed in real estate, or maybe even those of you that are self-employed in other things like maybe a realtor or something like that because healthcare has become a big deal in America and many of us have these high-deductible plans called HSAs. That means you’re going to have a reasonable amount to pay every month, but your deductible is either six, or 10 or $12,000 a year.
What people don’t realize is that you can invest that HSA into real estate. So what I did last year is I took my HSA and my HSA account bought a rental property. Okay. Pretty cool idea and it makes about $500 a month. That’s $6000 a year, which equals my deductible. So my rental property is paying for my deductible on my health insurance, a pretty cool way to do it.
Another one you really want to look at is the ESA. That’s for educational savings. Now, that’s a great way to go out there and set up your kids for private school or your grandkids later on if you have grandkids for college. And you can invest all of those funds into real estate deals. Now, you might be saying, “What kind of investment can I do in real estate with a self-directed IRA, a self-directed HSA or a self-directed ESA?”
I’m glad you’re asking a question because they’re tax-advantaged accounts and you can do all of the same time the transaction you’re already doing. If you’re a wholesaler, why do you want to drop that into a schedule on your taxes and, say, pay a 28% tax bracket plus 15% for self-employment tax? Why do you want to give away 40% of your wholesale fee to the IRS? What you can do is take some of those wholesale deals, drop them into a retirement account, say a Roth IRA, and you get to keep the extra 45% because I told you a Roth IRA is tax-free forever.
Just as an example to get your mind thinking a little differently, you can do the same with an HSA or an ESI or a solo 401(k), by the way. The same is true about a fix and flip, you can do a fix and flip in your IRA. You can also drop some rental property in your IRA. You can invest it in notes in your IRAs and you can be a private lender, which is really the best position to be. The private lender, by the way, is the best paying position at the real estate table. It does better per hour than the realtor, the contractor or the investor.
And if you can start investing, you can do some hard money lending right out of your tax-advantaged accounts or a lot of different things. So I hope that got you thinking about the power of self-directed IRAs. Less than 2% of all investment accounts like retirement accounts are in self-directed IRAs. That gives you a 98% opportunity to go out there and teach people how to roll a 401(k) into a self-directed IRA and that IRA becomes your private lender.
See how you just sort of turned on a faucet for private capital? I hope you got that and I hope you really enjoyed the session on REI classroom. I’m Jim Ingersoll and I hope you have a great day.
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