Self-Directed IRA Investing

There is an upcoming event in Walnut Creek, California, sponsored by Real Worth Network and Kathy Fettke, where you can learn more about the unique and exciting 2010 Roth IRA conversion opportunity. Click here to register and look for “live events” on the right.

WALNUT CREEK:
Wednesday, February 17th, 2010
Registration: 11:30 AM
Live Event: 12-2 PM

Real Wealth Network Offices
1875 Olympic Blvd
Walnut Creek, CA 94596

$20 pre-registered
$30 at the door
Free for First Timers

By now you are probably aware of the new rule permitting conversion from a traditional IRA to a Roth IRA, regardless of your income or tax-filing status. This ruling, effective January 1st, 2010, also allows you to spread the tax impact of the conversion over three years-skipping 2010 altogether and splitting the tax between the 2011 and 2012 tax years. This combination of incentives is encouraging a lot of IRA owners to convert to Roth IRAs.

Some other important things to know about Roth IRA conversions:

1) You don’t have to have earned income (e.g., you can be retired) to convert a traditional IRA to a Roth IRA;

2) You can convert any number of traditional IRA(s) to any number of Roth IRA(s). In fact, tactically, you might be better off doing so if you have a diversified portfolio because, if post conversion, one of your converted Roths declines in value (after you had incurred a tax liability from the conversion at a higher value) you can “undo” the conversion (called a “recharacterization”), as if it never happened, up until October 15th of the year following conversion without tax or penalty. If all of your conversions are to a single Roth IRA you cannot pick and choose which asset(s) you are recharacterizing. Also, if you later decide to combine separate Roths (e.g., because they all appreciated after conversion and thus there is no longer a benefit in converting) you can combine them into one Roth at that time;

3) If you want to withdraw funds from a Roth IRA that was created as a result of a conversion, you need to know that there are ordering rules for the distributions that could result in taxes and possible penalties. First, if you take a withdrawal post conversion before turning age 59.5, you will not pay tax on withdrawals from this amount , but you will pay a 10% penalty if the withdrawal occurs within five years of the conversion (also each conversion has its own five-year waiting period). If you are over 59.5, this penalty does not apply. Also, if you are under 59.5, you will pay taxes and the 10% penalty on any withdrawals of earnings on the amounts contributed or converted to the Roth IRA. When making withdrawals, contributed amounts, converted amounts, and then earnings are considered, in that order, against the amount taken, to determine whether taxes or penalties are due.

If you have any questions about this new opportunity you may write to “takecontrol@pensco.com”.

Join us for Advanced Education in Las Vegas, 10/20th
Register here: http://pensco102009.eventbrite.com/

Sample topics of what you’ll learn:
√ Trends, opportunities, regulations regarding IRAs
√ Review of complex investing scenarios and approaches
√ Security laws and rules related to IRA investing
√ Rules, regulations and strategies of using LLCs with IRAs
√ Maximizing Roth IRAs
√ How to use social networking tools to generate more leads and sales
You’ll learn important rules, regulations and underutilized strategies from industry experts. Enjoy excellent networking opportunities too!

Seating is limited. Register today, Register here: http://pensco102009.eventbrite.com/

While today’s residential market is flooded with foreclosed properties, the resulting devaluations in many parts of the country are creating unique opportunities for long-term investment buyers. With many consumers increasingly concerned about liquidity as a result of the reeling economy, investors are turning to their retirement accounts to take advantage of an incredible buyer’s market. Since the credit market is effectively in neutral, investors are scooping up properties in some areas for less than 50% of appraised value, with all cash purchases with their self-directed IRAs.

For example, on July 6, I heard from a real estate broker in Florida that he was able to purchase a 2,800 square ft. home on a golf course in a gated community (and needing no repair) for $100,000. It was listed by the bank that foreclosed on it at its appraised value of $200,000, and it sold two years ago for $440,000!

Although we may not yet have reached the bottom of the market for residential real estate, and the window of opportunity will likely stay open until the third or fourth quarter of 2010, the opportunities today have the dual potential for significant appreciation in the five to 10 year time frame and the production of positive cash flow during the holding period at today’s prices.

Experienced real estate investors, brokers and realtors are taking action now, recognizing that more foreclosures will follow early next year as adjustable rate mortgages (ARM mortgages) sold in 2007 kick in with a vengeance in the first quarter of next year.

At PENSCO Trust, we have seen a 26% increase in IRA real estate purchases (to $26 million) between the first and second quarters of this year. Most of this increase was associated with foreclosures in the residential market, however, we have also seen quite a few real estate syndicators buying up unimproved land (undeveloped lots), with the idea of conditioning it through entitlement in time for the next upswing in the real estate development sector. In some cases, they are buying at 10 cents on the dollar. These deals are not for the faint of heart and may require a longer holding period, so they are not suitable for anyone with liquidity needs.

Another avenue self-directed IRA investors are pursuing is to provide credit to others for the purpose of buying real estate. With traditional credit markets almost nonexistent, borrowers are getting needed funds from IRA investors looking to increase their investment yield on their retirement accounts. Such investors may offer the down payment, first mortgage or second mortgage or even become a co-tenant on a purchase when the buyer does not have the necessary funds.

For example, one investor may locate a great investment property, but not have sufficient funds to buy the property. By combining forces and funds with an IRA investor, who may participate through an equity investment or an extension of credit, they can acquire the property.

It is important when investing in real estate with a self-directed IRA, that you choose a competent IRA custodian with a strong track record. Good custodians will help you to understand the rules and the process, easing your entry to self-direction.

In addition, it is very important that your custodian is geared to execute in a timely and accurate manner, as real estate transactions can close very quickly and earnest money deposits frequently have to be made from your IRA on the same day to secure the best opportunities. PENSCO Trust is proud of the fact that we generally get all real estate transactions funded on the same day they are authorized by our clients, and, in almost all cases, within 48 hours.

Certainly, investing today is more challenging than in a bull market, but some things are certain. Real estate values are down in most areas of the country, building has almost come to a screeching halt and demand will eventually catch up to supply, at which time prices will rise. How long that takes is anyone’s guess, but some like those odds better than investing in the stock market. Choose your own poison, but eventually you have to take action to keep your wealth growing.

*This article was featured in the August 2009 SJREI Journal*