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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!

 

Follow me on twitter, LinkedIn and Facebook to continue the conversation.

 

 

 

Labor Day, Eh

September 3, 2018 — Leave a comment

Everyone enjoys Labor Day but how did it get started and why? We probably should take a few minutes out of our picnic today and thank our Canadian friends.

 

Happy Labor Day eh?

 

Although political rhetoric and in-fighting is at an all time high; the fact remains that The United States of America is the greatest country in the history of the world. Our country was founded on the idea of self-reliance and the ingenuity of individuals who work. They work in order to add value for themselves, their families, community and country. However, like many things we, Americans, sometimes borrow ideas from other countries and before long they’re believed to be our own creations or an inherent American idea.

So, did you know that this day which is set aside to recognize the economic and social impact of those who work in our country was originally a Canadian idea?

Many argue that Labor Day was first proposed by Peter J. McGuire of the American Federation of Labor in May of 1882, after witnessing the annual Labor Festival in Toronto, Canada.  In 1894, President Grover Cleveland signed into law this day as a National Holiday. Since that date we have set aside the 1st Monday in September to recognize the economic and social contributions of workers in our country.

As we celebrate the day with picnics, barbecues, and parades with friends and neighbors; let us not forget the reason that we celebrate. Today we celebrate the ingenuity, diligence and the hard work of those who get up each day to add value to society. So, regardless of whether Labor Day was our original idea or not; thanks eh, to all of you who work each day.

So, how are you celebrating Labor Day? Share with me on Facebook, twitter or LinkedIn

                                                              

Read more detail regarding Labor Day and its history