FreedomGrowth.com

If you haven’t already, you need to visit the website http://www.freedomgrowth.com. David Coe and his wife provide excellent investments and great advice to those wishing to invest in real estate in their IRAs, Roths, and 401Ks. If you’ve heard about real estate investing in retirement programs but were a little apprehensive, this is a great place to start.

David and his team of investors make available “turn-key” investments at returns that put the stock market to shame. Safe and secure, fully insured investment properties become available through David. He is very knowledgeable and personable, so please call him to find out what he can do for you.

David has also helmed his local FIBI (For Investors, By Investors) group, and is committed to educating people on the value of real estate. A true team player, David’s motto is “There Is no ‘I’ in Real Estate.” Call 888-843-0256 just to find out what a great resource he can be.

Oh, and tell him Mike sent you.

Good Debt / Bad Debt / SUPER DEBT

If you’ve read any Robert Kiyosaki (“Rich Dad/Poor Dad”), or if you’ve looked up GOOD DEBT / BAD DEBT on the internet, you know that debt on depreciating items, such as cars, computers, pleasure craft, is BAD debt.  That’s debt that costs you money, earns no income, and provides no tax deduction.  When you see advisers say “Get out of debt!” that’s the debt they’re talking about.

Then there’s good debt.  Good debt may cost you money, but it earns more than it costs, AND it provides tax savings to boot.  You NEVER want to get out of good debt.  Never ever ever.  This is known as LEVERAGE, or as Robert Kiyosaki defines it Other People’s Money (OPM)!  The math is a little too convoluted to work out here, but suffice it to say that if you can work with OPM and make money, it’s better than having to tie up ALL your money in projects.

But there’s even better debt than good debt:  It’s called SUPER DEBT!  This is debt that doesn’t cost you money, it earns you money, you get a tax break on it, AND, get this, it’s MONEY YOU PAY YOURSELF!

Wait! There’s debt you can pay yourself AND tax deduct it?

Yep, there sure is.  There are at least two vehicles that allow you to do this, and both are readily available to EVERYONE.  There’s nothing secret about either, but as with most information that’s really helpful, it just isn’t very widely known.
I will write more about SUPER DEBT in the future.
Mike

You Must Be in Business for Yourself

In my book, “Live Tax Free Forever (through Your Solo 401K)”, I compare our tax code to a party.  Imagine that your own son or daughter has been invited to a friend’s birthday party.  You drop the pride of your life off at the friend’s house, then two hours later you arrive to pick your little one up.

“How was the party?” you ask, expecting your child to be brimming with excitement.

Almost pouting, your little one says “Ok, I guess.”

“You guess?  What happened?”

“All the other kids got to sit at the big table with cake and ice cream and they sat me on a hard chair with a baloney sandwich and a glass of milk.”

So the question is, “Would you send your child back there ever again?”

But, you see, if you are a W-2 employee, that’s exactly what’s happening to you.  If all you are is a W-2 employee, you are sitting on the hard chair of life.  If you’re in business for yourself, you’re sitting at the party table, and if you’re a real estate investor, it’s YOUR party.

You see, real estate investors get more tax breaks than any other profession in the US.  Maybe that’s why more people have become millionaires in real estate than in any other endeavor in our country.

If you haven’t already, you must start investigating real estate.  You don’t need a lot of money to get started, you don’t need ANY money to get started.  You need a mentor, you need support, you need education.

Most regions have a real estate investment group.  Google your area for one.  If you’re serious, you’ll join and get exposure to people who are actively doing it.  Do it now.

The Roth that’s Tax Free

There is one Roth that’s tax free.  Almost totally tax free.  That Roth is the Roth provisions in your solo 401K.   If you’re serious about investing in real estate in your retirement plan, your Roth IRA can and will incur something called Unrelated Business Income Tax (UBIT).  In a previous post I gave an example of this little known tax and how it impacts your return.

The Roth 401K rarely incurs this tax.  In my previous example, I showed where a $41,000 deal got reduced to $28,000 by UBIT.  Had that deal been done in the Roth 401K, the deal would still be worth the entire $41,200.

If you’re going to establish a Roth IRA to self direct it, consider this:

 

401K

1. NO Unrelated Debt Financed Income  (UDFI) imposed on leveraged transactions.
2. Unrelated Business Income Tax reduced or eliminated due to no UDFI.
3. Transactions 30% – 50% more profitable due to elimination of UDFI.
4. Participant Loans Available to Owner (can borrow retirement plan funds).
5. Interest on Participant Loan may be tax deductible (if for business purposes).
6. Owner is Trustee (no custodian).
7. No Custodial Fees.
8. Roth Provisions Available.
9. No income tax due ever. (if using Roth Provisions).
10. No Income Ceilings or Limits for establishing or contributing to a 401K.

 

IRAs (Roth or Traditional)

1. UDFI imposed on ALL leveraged transactions.
2. Unrelated Business Income Tax incurred at trust tax rates (35% above $10,000).
3. UBIT reduces returns when property is leveraged.
4. No borrowing by participant.
5. Loans Unavailable so the deduction is unavailable.
6. Third party custodian required.
7. Custodial fees incurred, typically by transaction or assets under management.
8. Roth and Traditional must be established separately.
9. No income tax due if using Roth IRA.
10. Different income limits prevent establishing or contributing to a Roth.

You can see that the advantages of the Roth 401K are HUGE compared to the Roth IRA.  Contrary to what the banks, brokers, and IRA custodians tell you, establishing one is very easy.  Follow this blog to find out how.

Hey everyone! I just received my proof c

Hey everyone! I just received my proof copy of “Live Tax Free Forever” I have to finish the index, then it will be ready for publication.

Roth IRAs Are Not Tax Free

If you’re investing in stocks, bonds, mutual funds, ETFs, or almost anything that Wall Street has to offer, you’ll never run into this obscure tax.  If, however, you want to buy and sell real estate in your Roth (or traditional) IRA, you’ll discover a really egregious tax.  It’s based on trust tax rates, and it’s call UNRELATED BUSINESS INCOME TAX or UBIT.

For many real estate investors, they will be borrowing money from private lenders.  In this example, our Roth IRA investor finds a house that normally would sell for $200,000.  He can buy it at $120,000 and needs to put $15,000 into its rehab.  His lender will take a first mortgage on the property for $87,000 at 10% APR.

Purchase price             $120,000

Rehab                           $15,000

Acquisition cost           $135,000

Roth Equity                   $48,000

Total Leverage                $87,000

If our investor sells the house for $180,000, he will have made $45,000 on his transaction.  If the process took four months, he will owe his lender $2,900, leaving him with $42,100 in profit.

Now the bad news.

The IRS is going to make him calculate something called UNRELATED DEBT FINANCED INCOME (UDFI).  He must take the amount of the leverage ($87,000) and divide it by the total acquisition cost of the project ($135,000):  87,000/135,000.

87000/135000 = 72.5%  That means that 72.5% of his $41,200 is taxable.  It’s not the tax he pays, it’s just the amount of profit that becomes taxable at trust tax rates.

Without going into all the calculations for trust tax, our investor’s Roth must pay $13,699.50 in UBIT.  $13,699.50! His $41,200 profit is now reduced to $28,400.    $13,699.50 is gone.

If he had performed the same transaction within a Solo 401K, his UBIT would be $0.  Yep.  Zero, nada, zip, zilch.  Instead of $28,400 he would have $41,200 for the same transaction.  That makes the Solo 401K 48% more profitable.

Where would you rather be?

Eliminate Hidden Fees

Your self-directed IRA doesn’t really have hidden fees.  Your custodian must disclose all fees when you sign your contract.  Most custodians charge two types of fees:  transaction fees and fees based on assets under management.  If you’re performing a lot of trades, these fees can add up quickly, cutting into your returns.

I call them hidden fees because the companies that allow for self direction, that is, they allow for real estate trades, lending money, or any other “non-traditional” alternative investment, aren’t telling you about the Solo 401K.  In the individual, self-directed Solo 401K you become the trustee.  The custodian is eliminated.  His fees are eliminated!  Your deals become more profitable.

And more profit is the key.

If you are currently self directing your IRA and you would like to eliminate an expense that could amount to 2 – 3% of your profit over time, consider a Solo 401K.

Keep reading to see how a Solo 401K can make your trades 30 – 50% more profitable.