Imagine having the ability to control your retirement dollars with investments you make every day, with an asset base you understand and with tax-deferred or tax-free dollars. There are things every investor must know if they intend to leverage their IRA in order to make intelligent financial decisions and capitalize on building wealth on a tax-deferred or tax-free basis.
1. Unrelated Debt Financed Income Tax.
When you have a debt-financed property in an IRA, you may be subject to UDFI on the profits from the sale of, or income from, the property.
Does this mean that you should not buy real estate that is debt financed in your IRA? Absolutely not! The tax you pay is based on the percentage of the debt financed. If you finance a purchase and sell it right away, your IRA would be taxed on the percent of profit made by the borrowed money.
In a buy and hold situation, the percentage is based on the average outstanding debt over the previous twelve-month period. In addition, your IRA gets all write offs from UDFI for the percentage of debt financed. If the property is debt free for more than twelve months, there is no UDFI. You can also avoid UDFI by having a non-disqualified third party pledge other assets.
2. Non-recourse loans.
If you are trying to leverage property (get a loan) in your IRA, finding a non-recourse loan can be difficult. Any loan that an IRA takes out must be a non-recourse loan or one guaranteed by a non-disqualified person. Disqualified people can not personally guarantee a loan to an IRA.
In a non-recourse loan situation, the property stands a sole collateral. Therefore these types of loans usually have a 60-65% loan to value. There are institutions who’s business is to offer non-recourse loans for a self-directed IRA.Other ways to obtain a non-recourse loan is to use a private lender, utilize owner financing, or borrow from a small community bank that offers portfolio lending. For more information on non-recourse lenders, visit out web site at irainnovations.com
3. Partnering with Your Plan.
You can personally partner with your plan or IRA to make any investment. If you have a small amount of money in your IRA and need more for an acquisition of property, you and anyone else you know, including companies you or anyone else owns can provide the balance you need to complete the transaction.
Become an informed investor and know the rules and regulations regarding your self-directed IRA and how they relate to your financial future. In return, you get the opportunity to take advantage of tools that allow your IRA to continually build wealth on a tax deferred or tax free basis.