Individual Retirement Accounts or IRAs are basically trust accounts or savings accounts devised in 1974 to help individuals plan for and save for retirement.
The Individual Retirement Account was revised many times until the 1997 introduction by Delaware legislative Senator William Roth, of the 'Roth IRA'.
With traditional IRAs an individual has a trustee or custodian, who are required by law, and are usually banks and brokers, who basically run the investments leaving the individuals with very little or no control over their investments.
These trustees or custodians also charged enormous fees to the account holder for all the work they do and for all the money they make for themselves.
You see the banks choose what to invest in and give the IRA holder only a portion of the profit keeping the rest of it for themselves.
These investments usually include such things as mutual funds, stocks, CDs, etc...
But there is a much better alternative called Self Directed Individual Retirement Accounts, or self-directed IRAs.
With a self-directed IRA, or self-investing IRAs as they are sometimes called as a way of ownership, the individual account owner is in charge of investing decisions, not the trustee or custodian.
The 'investment advisor' only listens to what the account owner wants and acts on it.
What is better yet is that self-investing IRAs can be used for more investment choices including real estate.
Did you know that although traditional methods of investing average 4%-9%, but that real estate investing pays out 15%-30%+ annually? But there are some rules to using Roth IRAs.
For instance: An individual can use their self-directed (self-investing) IRA for an investment purposes only.
This means that they cannot purchase a home for themselves, their immediate family, or anybody in their linear descent.
The account owner cannot borrow funds from the account.
The account owner cannot use their Roth IRA as security on a loan.
If you are single or married and filing separately (and not living together) your annual adjusted gross income must be $116,000 or less.
Or married filing jointly your annual adjusted gross income must be $169,000 or less.
Let's talk a minute about capital gains taxes.
When you sell real estate you pay what's called capital gains taxes on profits of about 15%.
You might think that's a lot but the average income tax is about 30%.
So for example if you purchase a property for $40,000 and sell it for $60,000, you have a profit of $20,000.
On that $20,000 in individual would pay $3,000 in capital gains taxes.
But if an individual had a Roth IRA and rolled the entire $60,000 back into the IRA for another investment, they would not pay any capital gains taxes.
The individual would have the entire $60,000 to reinvest again, and he or she could do this over and over again.
This is the power of having a self-investing IRA.
I don't know about you, but I know where I'd roll my 401(K) or IRA over to, - a self-directed (self-investing) Roth IRA! That's a no-brainer.
With this information abundantly available at the touch of your fingertips, amazingly enough less than 4% of IRAs today are self-invested.
It may be due to the fact that many people are afraid of directing their own investments, but it really is not that hard.
That is what the investment advisor is for.
An individual only need to seek out and find the right team/company to help them get things underway.
Real estate markets like Detroit, Atlanta, Minneapolis, which have depreciated in value, are the perfect opportunities for these investments.
With declining conventional methods of investing, the use of self-directed (self-investing) IRAs will once again secure future retirements.
By: Colleen K.
Rich