Happy Advicegiving

November 22, 2018 — 29 Comments

The Thanksgiving and Christmas holidays are, by far, my favorite time of the year. There is cheer in the air and an overall feeling of generosity. Being in the financial field for the past 21 years I have also learned that this is the time of the year when advice is handed out most freely.

So take this as a word of caution for this “Advicegiving Season.”

Most of this advice is well intentioned however often unsolicited. It typically happens when the large meal of the day is finished, politics has been exhausted and the football games are winding down. Now enter the “rich uncle”, you know the one, everybody has one. (And they aren’t always rich) I can say everybody has one regardless of your economic situation or even knowing you. The rich uncle or relative is the guy that likes to tell you all of his huge successes throughout the year, whether they are real or not.

It almost always starts with a philanthropic tone of, “you should get into _________.” It starts this way so that everyone in the room feels like, wow! He is looking out for me or I am getting an inside tip. Then this person drones on and on about how well it has done. If it were to stop there I probably wouldn’t be even mentioning this non-event. Unfortunately, it doesn’t always stop there.

As I mentioned being in the financial field; Now I get to hear about all of these huge successes in the weeks following each of the holidays. It has happened repeatedly for the past 21 years. Which is both great and unfortunate?

It’s great to hear about these ideas/investments because I love to hear new ideas. Great because there are things out there that genuinely successful people do that I want to know about and be involved. Trust me, I certainly don’t claim to know it all and I also spend a great deal of time each year researching and learning anyways.

The unfortunate part is when it derails a financial plan that was totally on the right track. Unfortunately many of these proclaimed investment ideas aren’t always entirely true or even understood. Never does the afore mentioned rich uncle take the time to understand if his idea, be it good or bad, is appropriate for the season of life of the recipient or fits in to their overall goals.

So this holiday season take the advice and be gracious. However, I would caution you to think through who is giving the advice. Have they been successful? Are they in a different phase of life than you? Are their values in line with yours? Most importantly make sure that you overlay this advice with your well-coordinated plan to ensure that it fits into your families’ hopes and dreams.

Best of luck this Advicegiving season! I would encourage you to stick with throwing the football with the kids after lunch.

 

Do you have that Uncle? Let us know, maybe it would be even be fun to tag them on twitter or facebook as you respond:) 

 

Happy Holidays!

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The recent increases in the real estate market has sent more and more first time real estate investors to Drive Planning. One of the common questions that we receive is centered around purchasing real estate (either to flip or rental/buy and hold) inside of a Qualified Retirement Plan, such as an Individual Retirement Account (IRA) or other types of plans.

This is most common for those who do not have funds which are outside of their Retirement Plan. So, a better question is, Where else can I get funding for my real estate deal? There are numerous sources for funds if you know where to look, regardless of credit!

Real Estate - Retirement Plan

Let’s Take a Look at The Problem

For the remainder of this blog I want to focus on why purchasing real estate inside of an IRA is a poor idea.

An IRA is a tax shelter. Tax on the income is either deferred (Traditional IRA) or eliminated entirely (Roth IRA).

Rental real estate is an example of a type of real estate investment that can be a tax shelter on its own. Rental real estate often generates losses for tax purposes even when there is positive cash flow. This is because of the depreciation deduction that can be taken on the investment.

With proper tax and accounting, rental losses can be used to offset other income which effectively shelters that other income from income tax. This can result in significant tax savings.

If an IRA has rental losses, the IRA is generally not paying tax so there is no tax to shelter.

If an individual has rental losses, there is an opportunity to shelter other income, including W-2 or business income, from income tax. This results in not paying tax on that other income and those tax savings mean cash in your pocket.

Lastly, in retirement any proceeds from real estate inside of an IRA (Traditional) comes out as ordinary income!

In addition, these problems also come along with Real Estate purchased within an IRA/Qualified Plan:

  • Lose 1031 Tax Free Exchanges
  • Lose “Step Up in Basis” at Death
  • No Capital Gains Tax Rates
  • Potential Increase in Tax Rates
  • Lose enjoyment/use of funds prior to age 59 1/2 (Proposed/Potentially to be age 70 1/2 in the future)

The Bottom Line

Our team at Drive Planning has over 250 years of experience with situations like we’ve described above; therefore we believe that the tax savings are too significant so the property should be purchased outside of a qualified plan. Let us help you to find the money.

We would love to assist you with any financial decision and making sure that you are coordinating it into your overall financial plan.

Tax planning and advice should be reviewed by your personal tax advisor. The staff at Drive Tax and Accounting and Tom Wheelwright, CPA contributed to this article.

Does your network frequently discuss business opportunities or personal growth? If you answered No, the information below is likely for you!

 

Network Quote

 

Recently, in a group setting, I made the statement above which brought several people up to me afterwards wanting to discuss this idea further. Later the image above was posted on twitter which triggered 3 text messages expressing interest and support for this message.

I’ve believed this for a long time but these responses suggested that more and more people believed this also. For years I’ve had clients mention this to me; That they just didn’t know people who liked to talk business or ones that knew about investment opportunities.

Have you ever heard the old adage, The Rich Get Richer? Of course, but maybe it isn’t solely about the fact that they have more money invested thus making money. In fact, I believe that its derived from this idea that who you know makes a significant difference in your wealth building. 

Robert Kiyosaki says, “your income will mirror your five closest friends.” So all of this information leads me to believe that we should pay close attention to our circles, conversations and information that we seek.

I’d like to provide you with a few ideas that will give you an opportunity to begin developing a network that will help you to increase your knowledge and the value of your circles. When you Join as a Member of Drive Planning you gain access to investment deals, people and opportunities that you may not normally find. In addition to tapping into our network of advisors, information, knowledge and successful people you may also want to consider these ideas below.

However, if you want to fast track your knowledge, network and opportunities consider joining Drive Planning and our customized approach for you. Contact me directly or reach out to memberservices@driveplanning.com for more information. If you’re ready to get started on a new path click here to begin!

 

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