Archives For Retirement

 

The Covid19 pandemic brought about quite a bit of change for everyone. Changes in how we interact with others, think about our healthcare and more. In addition, to all of that change it also brought about opportunities for you to win big within your retirement plans.

 

The United States Federal Government introduced The Cares Act in response to the economic fallout from Covid19. A majority of the headlines regarding The Cares Act centered around the money for Small Businesses and Citizens in this time of need. There were also some smaller, less talked about nuggets within the bill.

 

In the video above, David Bradford and I discuss one planning tool that everyone should take advantage of right now! Or at least before years end of 2020. We discuss how this bill allows each person the ability to withdraw up to $100,000 from a Qualified Retirement Plan. Qualified Retirement Plans include 401(k)’s, IRA, SEP, SIMPLE Plans, Keogh Plans, 457 Plans, 403(b) plans and others.

 

We discuss how this opportunity allows you to take advantage of our current low tax environment by spreading the tax out over three years beginning in 2021; thus avoiding the higher tax rate most will see during retirement.

 

Take a look at the video and let us know if you have questions about your personal situation. This is an opportunity of a lifetime that you should absolutely take advantage of right now!

 

Protect Your Money!

 

Contact me at todd.burkhalter@driveplanning.com or text: RETIRE to 470-243-1717 for more information.

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.
Avoid these 2 common financial mistakes to live a more stress free life.

 

These two common financial mistakes lead to a greater sense of uncertainty and a more stressful life. The Life You Can Afford to Live is designed to provide you with tools to lead the best life possible. So, naturally we wouldn’t want you to miss two of the most common mistakes that we see people make in their financial life.

 

2 Financial Mistakes

 

Most often when someone speaks with authority on a subject its because they’ve had personal experience within the subject matter. Certainly true in this instance. I am bringing you this message from a point of I’ve been there and didn’t enjoy it and didn’t even get a t-shirt. Fortunately, my experience with this was early in my business life therefore the results weren’t catastrophic. However, the stress and tension that resulted taught me valuable lessons.

 

My goal is to provide you with enough information for you to know when to ask for help. We certainly can’t get to specific in this format but you should be able to glean enough that you know whether to raise your hand or not. Our team stresses these points throughout our process so we are well equipped to answer any questions that may surface.

 

The 2 Common Financial Mistakes to Avoid

 

1. Not Creating Contractual Wealth

Contractual Wealth is when someone else has a legal obligation to you. Contractual wealth also means that you have recourse if they do not fulfill their contractual obligation. This type of wealth provides you with a higher level of certainty and predictability. Certainty and predictability provide you with a more stress-free financial life.

Before sharing examples of Contractual Wealth building tools lets look at its counterpart, Statement Wealth. Statement Wealth is the most common form of saving and investing. Likely due to ease or someone lacking in knowledge of alternate investment options. The premise of Statement Wealth is that you save or invest into vehicles in which you have little control over the outcome as well as any recourse should it not have your desired result. Common examples are 401(k)/IRA Plans, Stock Portfolios, Mutual Funds, ETF Investments and Savings Accounts.

Some examples of Contractual Wealth include:

Secured Bonds – Mortgages – Rental Real Estate – Commercial Real Estate – Annuities – Life Insurance – Reverse Mortgages – Private Lending with Collateral – Asset Care Plans – Business Ownership – Grantor Retained Annuities

 

Click here for a quick 2 minute video explanation of Statement Wealth vs Contractual Wealth

 

2.  Not Creating Tax Free Income

Mark Twain once said, “the only certain things in life are death and taxes”. So true, but one thing Twain failed to mention is that Tax Rates are always changing. You certainly can’t ever count on paying the same tax rate. In an effort to reduce or even eliminate the risk of Higher Tax Rates we want everyone to take a more intentional approach towards creating Tax Free Buckets of money. The ease and allure of Tax deferral is great and we want you to have some funds in that environment, but not solely.

 

Particularly Tax Free money helps you to manage how and where you withdraw money from during retirement. Thus, creating the aforementioned predictability and certainty that reduces stress in the Golden Years.

Some examples of Tax Free Investments include:

Real Estate – Municipal Bonds – Life Insurance – Roth IRA – Roth 401(k) – SLIRPS – Some Captive Strategies

 

Hopefully, this will give you the ability to AVOID these two common financial mistakes. I’ll close with a couple of questions.

Have you addressed these two financial mistakes in your own plans?

Would you like help in avoiding these pitfalls?

 

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