Land Investment for Retirement accounts
I just read this and think it is worth reading especially with the up and down stock market.
Investing in Land with a Self Directed Retirement Account
Published on Wednesday, March 4, 2009, 2:52 PM by Lou Jewell ALC
No one wants to talk about it. But did you know that you can invest in Land, improved and unimproved with a “Self Directed Retirement Plan”?
Traditional IRAs, SEP IRAs, Roth IRAs, 401(k)s, 403(b)s, Coverdell Education Savings (ESA) a.k.a. Educational IRAs, Qualified Annuities, Profit Sharing Plans, Money Purchase Plans, Government Eligible Deferred Compensation Plans, and Keoghs are ALL qualified plans that can be converted into “Self-Directed Retirement Plans”.
See the Internal Revenue Service’s website (www.IRS.gov), Publication 590. On pages 40-41 you will see what investments are not allowed through these plans. Land is not included and therefore qualifies, as do other types of real estate investments.
The traditional investment community has control of more than 97 percent of all retirement accounts, and they have been making a great living off of your hard earned money by recommending investments in stocks and mutual funds. Most investment and financial magazines and TV and radio investment shows are filled with advertisements for brokerage firms and mutual funds. I would bet that your stock broker or financial advisor has not advised you on how to invest in real estate through your IRA or 401K plan, or other qualified plan.
It is my opinion that this option is “under the radar” because investment firms do not make money on Land transactions. Why? They are not licensed real estate agents.
As stated on the IRS website “…..because of “administrative burdens,” many IRA trustees do not allow IRA owners to invest IRA funds in Real Estate. IRA law does not prohibit investing in Real Estate but trustees are not required to offer Real Estate as an option.” No commissions for real estate sales may have a say here described as “administrative burdens”.
An Individual Retirement Account is a personal savings plan that allows you to set aside funds for your retirement. Investments made within these plans grow in either a tax-deferred or tax-free environment.
The IRS allows your IRA to earn tax-free or tax-deferred income with NO limitations on how much you receive---you can earn thousands of dollars with no tax consequences. A “Self-Directed IRA” will allow you to choose your own investment strategies to earn significantly more for your retirement.
The term ‘self-directed’ does not actually have any legal connotation. It does not imply a different type of IRA, or a separate set of IRS rules. ‘Self-directed’ is simply an accepted industry term indicating that the IRA custodian is allowing the IRA owner greater control over his or her investment decisions. When an IRA account is self-directed, the IRA owner makes all investment decisions and instructs the custodian to act. You must have a custodian as a third-party administrator.
Be careful who you choose as your custodian. Most of these “professionals” are part of the same old 97 percent controlling crowd previously mentioned. Our recommendation is that you find one that charges an administration fee and believes in Land Investments.
Our recommendation is to stay away from investing your IRA money into an S corporation. S corporations only allow individuals (not entities) and certain permitted trusts to be investors. So if your IRA (an entity) is the investor, the S Corp would lose its status and its tax rate would change to a potentially less favorable one. Roth accounts can be used but take time to accumulate larger funds portfolios.
When purchasing Land with funds coming from an IRA, remember that the IRA itself must purchase the Land and hold the grant deed. All property taxes for that Land must also be paid from the IRA. The self-directed IRA should be opened first with cash or funds rolled over from other IRAs, 401ks, retirement plans, and then the Land should be purchased. Large tax penalties can occur if these transactions are not done properly. Proper care in deciding when to sell or lease the Land is also important. Land, especially pre-developed Land, is a long-term investment and often needs to be held for a minimum of five to seven years to produce the highest returns.
You can leverage a Land purchase with as little at 15 percent down and amortize 20 years with the Farm Credit. We in the industry refer to Farm Credit as “The Land Bank”. Farm Credit offices are located throughout the United Sates with different names (www.farmcredit.com/index.html). Farm Credit has the most consistent programs for Land Investors. Because of your increased buying power when you use leverage, the profits you make from the ability to use leverage can greatly outweigh the tax associated.
In addition to IRS Publication 590, I would also recommend that you check out (www.iraaa.org/index.aspx). The IRAAA™ is a nonprofit, education-oriented alliance of financial planning, real estate, legal, banking, investment, and accounting professionals interested in further developing the niche industry of Self-Directed IRA & 401(k) investing. The organization’s promise is “to provide affordable, unbiased and comprehensive education on the topic of investing with a Self-Directed IRA or Solo 401(k)”.
Also, make sure that you Google “Self-Directed Retirement Accounts” and other associated words. And do your homework. This article’s mission is to stimulate your creative juices and is only part of this untold story. After all you be in control of your own destiny and have the benefits of being a Land Owner…and that offers you the greatest freedom that there is.
In closing I invite you to review the results that the traditional investment community has had control of over 97% percent of retirement accounts, and “they” have been making a great living off your money. Look at the mess we are in. Ask yourself why would “they” want to let you know about alternatives that “they” would not be able to charge for?
As a result of my counsel, my Land Investors have not lost a single dime and will not in the future. Land is the oldest and most stable investment there is.
I am an Accredited Land Consultant (ALC) of the Realtors® Land Institute, and you can search for an “Accredited Land Consultant” in your region at (www.rliland.com). ALCs are the professionals you can trust to help you evaluate the investment potential and the “Highest and Best Use” for future development and utilization. They are ready to help you find that piece of dirt that will provide for you and your family for years to come. Land has always provided, and it always will.
Lou Jewell ALC - Accredited Land Consultant