*A Book Review*
IRA Wealth: Revolutionary IRA Strategies
For Real Estate Investment
By Patrick W. Rice With Jennifer Dirks
by Michael C. Gray
December 12, 2005
Usually, when we think of an individual retirement account (IRA), we think of having an account at a bank or a brokerage company. But the investments we are permitted to have in an IRA go far beyond bank accounts, certificates of deposit, stocks, bonds and mutual funds.
IRAs seem attractive for holding investments, because the tax on any gains and income is generally deferred until the funds are withdrawn from the IRA. The downside is that any income withdrawn from the IRA will be taxable as ordinary income. Dispositions of investments that would normally be eligible for long-term capital gains rates would be converted to ordinary income if held in an IRA.
Roth IRAs can solve this problem. If you meet certain requirements, withdrawals from Roth accounts are tax-free. This makes Roth accounts the best choice for holding appreciating investments. In the past, the income limits have been an issue for Roth accounts. For taxpayers who file as single persons, the Roth contribution is totally phased out when modified adjusted gross income exceeds $110,000. For married taxpayers filing joint returns, the Roth contribution is totally phased out when modified adjusted gross income exceeds $160,000. Starting in 2006, Roth contributions will be possible for 401(k) plans. This creates the ability to later roll those 401(k) Roths to regular Roth accounts.
In this book, Patrick Rice and Jennifer Dirks open our minds to the possibilities of alternative real estate based investments to hold in IRAs or Roth accounts. These alternative investments can be used to increase returns with acceptable risk. In order to make the alternative investments, you need to find a plan administrator that is willing to accept the investments (for a higher fee than you would pay to a bank, broker or mutual fund.) You also have to take an active role in seeking and investigating the alternative investments. Some people are afraid or too busy to study and investigate investments.
The authors lead the reader through a sequence of investments from low to high risk. The investments include notes secured by first trust deeds, junior trust deed notes, real estate (including tenancy in common/undivided interests), and limited partnership/limited liability company shares.
They emphasize the importance of assembling an advisory team to help you navigate the rules and to help locate investments. The advisory team should include a real estate broker, a tax advisor, a real estate attorney, a financial planner and a plan administrator.
The authors point out the IRA or Roth can sometimes be subject to income taxes, called the unrelated business tax, when the account receives income from real estate acquired using borrowed funds. Since they are emphasizing making long-term investments, they don't discuss whether the unrelated business tax may apply when there is a high volume of short-term "flip" transactions in an IRA or Roth.
When the interest paid by banks and for bonds is low and the stock market seems like an "iffy" place to park your retirement funds, it's worthwhile studying this book to consider your alternatives.
Buy it on Amazon: IRA Wealth: Revolutionary IRA Strategies for Real Estate Investment.
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