Friday, April 3, 2020

Tax Strategies IRA Secrets

https://carolinahardmoney.com/tax-strategies-ira-secrets-2/

Carolina Capital is a hard money lender serving the needs of the “Real Estate Investor” and the "Small Builder" borrower who is striving to build wealth and generate income for themselves and their families. We offer “hard money rehab loans” and "Ground up Construction Loans" for investors only in NC, SC, GA, VA and TN (some areas of FL, as well). 

As part of our business practices, we also serve as consultants for investors guiding them to network with other investors and educating them in locating and structuring transactions. Rarely, if ever, will you find a hard money lender willing to invest in your success like Carolina Capital Management.





Bill Fairman (00:04):
Hi, welcome to the show. This time we are going to talk about
tax strategies. By the way, I'm Bill Fairman. This is Wendy Sweet we are really
smart people in our own mind. So as you know we are lenders and the government
has put in place a lot of tax benefits for owning property. They do not give
you any benefits for lending money. Not much. So I always say if you are going
to own property, own it with cash and if you are going to lend money, do it
through a taxed deferred or tax exempt account, an IRA, traditional IRA or a
tax deferred, right? A Roth IRAs are tax-free and you have to be taxed on when
you put the money in. But any money that is earned is tax-free. Yeah. So the
other thing I like about the Roth IRA, and remember I am not a tax advisor or
an attorney, check with your own.
Bill Fairman (01:16):
I just know a lot of really smart tax people and I stayed
at the Holiday Inn Express. That is right. That said, one of the benefits of a
Roth IRA is that you can hand it down to your heirs and it will live for the
infamy. Hang on, let me get really studious here. It will actually live for the
life of the person that has the IRA and then you hand it down to your heirs. It
will last as long as the actuarial life of the person you hand it down to. So
if you are a grandparent or great-grandparent and you ran it down to, grandkid
or a great grandkid, that thing can last several generations. Now once you pass
away, you can no longer anymore. You can not put any more money in it, but it
can certainly continue to earn money.
Wendy Sweet (02:15):
You cannot put anymore money in it when you are dead, you
mean the heirs cannot put anymore money in it.
Bill Fairman (02:19):
In other words, no one can put any further contributions
in it. But it can continue to earn, but the amount that is in there can
continue to earn. All right, here is another benefit. Your beneficiary, as long
as the account has been open and active for five years, can start drawing from
it tax-free at any age.
Wendy Sweet (02:38):
College here you come.
Bill Fairman (02:39):
You do not have to wait until you are retired of drawing
off of this. But that is a nice legacy to leave something.
Wendy Sweet (02:45):
It really is.
Bill Fairman (02:45):
So if you are thinking about investing in a fund that is,
let us say it derives most, I would say the vast majority of its income is
derived from interest income. So payments on a loan, you want to do that in
your IRA because again, there is no tax benefits to earning money through
interest payments. So if you do that and there is, plenty of them.
Bill Fairman (03:17):
The other benefit to a fund that allows you to compound
over time. Let us say for example, you make a loan in your IRA and you get
monthly payments. What happens to those monthly payments that your IRA is
receiving?
Wendy Sweet (03:30):
They sit there doing nothing.
Wendy Sweet (03:32):
Unless?
Bill Fairman (03:33):
Until.
Wendy Sweet (03:34):
You are making them earn again, right?
Bill Fairman (03:37):
Until you get enough money to make another loan with that
money is sitting there idle in your account. And if you are in a fund that
allows you to compound or take that in, that earning that monthly payment that
you are receiving, this will allow you to roll it over and continue to increase
the balance, take advantage of not only the compound effect, but now that money
is constantly working. The other thing with an individual loan based investment
versus in a fund that makes loans is a, and that we have already discussed this
before, you are diversified because you are, but your money is spread out over
many loans.
Bill Fairman (04:16):
The individual loan, that is a chunk of change in the one
asset and if that thing goes South for any reason, does not mean you are going
to lose money, but you are certainly not going to make any until you figure out
the disposition. Right.
Wendy Sweet (04:28):
Talk about a little bit about the, the UBIT tax that might
be due depending on what type of fund it is, whether it is an equity fund, a
debt fund, or if it is leveraged.
Bill Fairman (04:38):
Alright, so we are going to get kind of in the weeds here.
There is a tech that you are required to pay for. If you make your IRA a
business, they will tax you on the profit. If your IRA has leverage, they will
tax you on the profit. So what do I mean by by leverage or or operating a
business? If you are flipping a couple of homes a year and you are doing it
with your IRA, and that is not really a business, right?
Bill Fairman (05:11):
But if you start flipping five, six, seven a year, the IRS
may think that you are running a business. That is a lot of work. Yes it is.
And they will tax you on it because you are not supposed to be operating a
business in your IRA. You can invest in a business, right? But you cannot have
ownership Management responsibilities. So let's say in that business,
leveraging your account and what do we mean by that? Let us assume you have a
$20,000 balance in your IRA and you want to buy $100,000 house. You could use
leverage to do that. You could get a loan from, there are companies out there
that will loan to your IRA, they are loaning to your IRA. Your IRA is
considered an entity, illegal entity. And it has to be what is called
non-recourse because the IRA cannot benefit you personally and also means you
cannot be held personally responsible for a loan made to your IRA. So they call
it a non-recourse.
Wendy Sweet (06:18):
Which is why a lot of banks do not do that because it is
non-recourse.
Bill Fairman (06:21):
They want to be able to make that person personally
responsible for the loan. So that being said, the IRS too many IRAs in there,
the IRA does not like you being able to take your $20,000 IRA.
Wendy Sweet (06:36):
The IRS does not like you to be able to, so I just said,
you almost did but not quite.
Bill Fairman (06:41):
So they do not like it when you can take a $20,000 IRA and
use leverage to turn it into $100,000 value right away, right? And that is what
you are doing. If you borrow $80,000 and you use your $22,000 IRA is the down
payment, right? They call that leverage. So they are going to hit you with a
pretty high tax, I think it is like 45% but it is 45% of the profit earn. So
there are some good strategies that you can use. And again, you are, really
getting into the weeds here for a short, Oh right.
Bill Fairman (07:17):
Little video for this. But if you do own property in your
IRA, which I already told you should not, you should just make loans. You can,
and the reason for this is the government gives you tax advantages to own
property. And if you are using your IRA to own the property with in a tax, the
further it tax he was up the count. You can not, you are not taking advantage
of the tax advantage that the government gives you. It is like not putting the
whipped cream on the ice cream, and the cherry. If you utilize leverage and
they are going to charge you a tax on the profit, you can at that point, take
the depreciation that they allow you and offset the tax are going to charge you
for the UBIT. Now, there's nothing wrong with paying UBIT.
Bill Fairman (08:08):
do not let people scare you by that. Yes, it can be 40 45%
of the profit. Remember this, it is on the profit. The profit is what? The
cashflow. If you are making $200 a month cashflow, you are paying 45% and you
are also able to depreciate some of that. That is true. You are only talking
about a little bit of money, a little bit of tax, a little teeny bit of tax.
And what happens with the house, House goes up in value over time cause it
appreciate someone else is making your payment. So you are paying this loan
down, right? That is right. Hopefully. Right. And you are paying for a loan
with dollars that are going be worth less down the road. So as the value of the
property, sorry I cannot tell whether you can see my hands or not and I like
talking to my hands and see him. They look great. So the value of the property
is going up somebody else is paying down the payments and they are paying it
for something that is worth less than it was when it started. So leverage can
be good and even if you are paying UBIT, it is going to be a small amount.
Again, I'm not a tax professional. I do not work for the IRS consult with your
own professionals on these. Yes, because I explained too much. But those are
some good tax strategies to use when you are using funds or when you are doing
individual loan.
Wendy Sweet (09:38):
That is right and there is a lot of information out there
that you can pick up on and there's so many other ways that you can learn about
self directed IRAs. There is some great companies out there that we know, like
and trust people that are friends of ours. Quest IRA or Quest Trust Now,
CamaPlan is one, American IRA, IRA services, Rocket dollar, Pretrust Company
has some great things educational wise as well.
Bill Fairman (10:09):
All of them on their website have an educational.
Wendy Sweet (10:12):
so sign up, go to their websites, sign up for their newsletters,
their seminars, the webinars that they do. You can learn so much.
Bill Fairman (10:20):
It is just like Thanks giving at our house. That is, it is
my turn, my turn five siblings. We are all trying to get a word in edgeway.
There is only about 5% of the actual population that has even heard of a self
directed IRA.
Bill Fairman (10:37):
Most people understand that they are IRAs, most people are
familiar with 401ks but most self directed IRAs are not truly self directed
IRAs. If you have an IRA with a managed account and I'm talking to your
brokerage houses, your Vanguards, your Entrees, fidelity, those people are
managing that account and while they call it self directed or giving you a
basket of four or five, maybe six different stocks you can pick from or funds
you can pick from, that is not self directed. Self-directed is truly, you can
invest in anything you want other than art and collectibles. Right. And if you
know real estate more than the stock market, would not you prefer to invest
your money in something that you know versus, something that you do not.
Something that can, it can go away when the stocks drop, they are gone. And
real estate, you at least have collateral, right?
Bill Fairman (11:39):
So Google, self directed IRA custodians, we named off a
few learn about them. They are awesome to have. You can self-direct a Coverdale
account, which is like a college account savings account. Yup. Savings accounts
can be self directed. What else? Education, savings account, which is really
what you were talking about. The Coverdale. It is amazing. If you are self
employed and you have no employees other than your spouse, your spouse counts.
You can have a what is called a self-directed solo 401k and it acts like many
other 401k is except for you can do even more. And if you are over 50, you can
put up to 59 right now up to $59,000 away each year. It is a lot of money.
Regular IRA is going to be limited to 55 and 65,000 depending on how old you
are. That is an awesome benefit. Well, there is some good books out there on
that as well.
Bill Fairman (12:47):
If you would, shoot us some information on yourself, we
will be happy to send out information. As a matter of fact, well, we will put a
link in to the video on some good books on. So look, that is a great idea. Great
idea. All right, so I'm done with some tax strategies. I know there is many
more of it. Again, I only played one on TV, a tax strategy, tax strategist. So
I'm limited with what I can tell you. that is right. So thank you so much for
joining us on the show. Do not forget to subscribe and like us, and if you like
even more videos.
Wendy Sweet (13:26):
Yeah, you can check them out. That might be up there, they
might be over here, It might be down here.
Bill Fairman (13:30):
do not forget our website. CarolinaHardMoney.com
CarolinaHardMoney.com.
Wendy Sweet (13:35):
tell all your friends, thanks so much.
Wendy Sweet (13:38):
Hi. If you really liked this show, what you can do is you
can check out some of our other shows that might or might not pertain to it.
You can check up there, you can check over here. You can check down here, check
it out. Do not be afraid to like us. Right?
Bill Fairman (13:56):
Subscribe.
Wendy Sweet (13:56):
do that too subscribe to our page and hit like, we'd love
to have you do that. Thanks.
 

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