Harness the Power of Your 401k/IRA Assets to Purchase Commercial Real Estate/Investment Property

By: Richard K. Newman

Few investors/entrepreneurs realize that they have the ability to self-direct their IRAs and 401k plans into real estate and other assets. Most believe that there are only two options available to them if they want or need to access capital from their plan/s, namely, either borrowing from the account or withdrawing some portion of the assets. Borrowing involves repaying the principal and interest and a withdrawal may be subject to a pre-distribution tax and penalties. There is another way…

The Employee Retirement Income Security Act (ERISA), which created the IRA in 1974, places surprisingly few restrictions on how retirement money can be invested. Except for life insurance or collectibles—such as artwork or coins—IRA funds can be placed in just about anything. Tens of thousands of investors have switched their retirement savings to self-directed accounts since the stock market correction of 2000 and 2001. By some estimates, 3% of the $3.5 trillion held in IRAs is now in alternative investments—and the number is growing.

A Retirement Account Facilitator can help you create the legal structure that allows for checkbook control of the funds. They will form a new self-directed IRA, and roll over existing 401(k)/IRA funds into the newly formed plan. The Facilitator, unlike the Custodian, doesn’t hold the funds, but usually contracts with a Custodian to hold the funds as part of the services provided. Custodians have become expert at structuring self-directed accounts and streamlining the once onerous paperwork.

Here is how it works… A qualified facilitator of Self Directed Retirement Plans will form the new Corporation which will own the business asset/s. The new retirement account invests directly into the new business by purchasing as much as 95% of its stock, providing the necessary capital to fund the down payment or even purchase the property. The new retirement account actually purchases the stock of a company you control, much as if your IRA were to purchase shares in a publicly traded company. Here are the benefits… you do not re-pay a loan which adds to overhead and you will not incur tax liabilities and penalties. Profits will flow into your retirement account and will be sheltered proportionate to how much stock it owns in the corporation and ultimately, any gain from the sale of the property will be tax deferred in the same way.

Very Important! When the cash requirement of an acquisition exceeds the buyers available capital and consequently multiple investors are required to invest in a single project, one self directed 401(k) plan may be sponsored to accommodate multiple roll-overs; this feature may be very useful/attractive to family members or outside investors who wish to provide financial assistance or take
advantage of an investment opportunity.

Custodians don’t offer investment advice—that’s the self-directed part. No outsider can guarantee the soundness of your investment strategy and that can be as terrifying as it is liberating. As always, talking with a good financial advisor who is knowledgeable in your area of interest is important. Unless you have both time and capital to spare, you should be cautious before putting your entire nest egg into a new business; however, investors with a strong do-it-yourself streak and a compelling alternative investment strategy may want to consider joining the growing ranks of people who have decided to invest their retirement funds in themselves.

KW Commercial, The Daniel Perich Group is partnering with Commercial Capital Network. Call us to discuss your options.

 

Source http://innfinancing.com/401k-ira-finance-strategy/