Using Retirement Accounts to Buy Notes and Real Estate

Tired of dismal stock returns and lack of control over your retirement funds? Many investors are accessing tax advantaged retirement funds to realize the security and returns offered through real estate and note investments. Through the power of self-directed retirement accounts, you can legally access IRA, 401(k), SEP or other retirement funds for alternatives to the traditional stocks, bonds, and mutual funds.

Investing with Your Retirement Account

While self-directed retirement accounts have been around for several decades, they are now catching the attention of investors and financial planners alike through educational materials and articles published by mainstream publications.

The Wall Street Journal has run several articles on notes and real estate in retirement accounts including “Using IRAs to Buy Mortgages Boosts Benefits” Section B6, December 15, 2004. Additionally, plan administrators are increasing education to include accredited instruction on the power of self-directed retirement accounts for real estate agents, accountants, and financial planners.

Harnessing the Power of Tax-Deferral to Invest

It makes financial sense to harness the opportunity for legal tax deferral offered through Individual Retirement Accounts (IRAs) and Qualified Plans (401(k), Profit Sharing, etc.). Consider some of the benefits:

• Contributions might be tax deductible or made with pre-tax dollars allowing you to save money AND receive an annual income tax benefit
• Earnings and gains accumulate tax deferred or even tax free in the case of a Roth type IRA
• Plans can be opened with as little as $500 or less with the option of contributing up to $46,000 annually under certain plans
• Initiate a tax free transfer or direct rollover of funds in an existing IRA or 401K account to a self-directed account
• The self-employed or business owner can take advantage of allowable contributions for both the employer and employee
• The power of self-direction enables higher yielding investments including investment real estate, rental homes, options, notes, tax liens, factoring, discounted receivables, LLCs, and the list goes on
• Participate in larger investments by partnering self-directed retirement funds with others
• Utilize the power of leveraging real estate within a self-directed retirement account (certain restrictions apply)

Still looking for motivation? Investing just $160 per month at a 10% monthly compound yield will grow to $1,011,852.73 in 40 years. Even better, investing $450 per month at the same yield will grow to almost 3 millions dollars ($2,845,835.81) in those 40 years. Managed correctly, this investment could be made with pre-tax dollars with earnings tax deferred until distribution or withdrawal.

The average investor may wonder how they will ever achieve a 10% return in a low interest rate market where the prime rate is 5.0% and banks are paying investors around 3% on certificates of deposit (CDs). Fortunately, note investors know how to tap into double and sometimes even triple digit returns. For an example of a high yielding small balance note targeted by private investors read Real Deal #140 – Retirement Account Purchases Texas Note, Real Deal #148 – Seller Financing for IRA Investments, or Real Deal #149 – Seller Financing, Second Liens, and the 80-10-10.