What You Missed
By Rob Earhart
The Entrust Group by Scott R. Maurer, Education and Marketing Director:
Mr. Maurer began his talk with a welcome to “Self Direction” in IRAs. Explaining that Stock Brokerages and Banks operate IRA’s but only allow limited controls within certain portfolios, while Entrust acts only as a trustee allowing you to invest in anything that is not specifically prohibited by the IRS rules. Normally that includes “collectibles” and Insurance products.
What is Entrust? Founded in early 80’s in California. Mr. Jack Callahan applied for and received the franchise for the Tampa Bay and Atlanta areas. Monty Smith, who used to speak at our meetings is now in Atlanta expanding the Georgia office. Entrust of Tampa Bay has its offices in Largo, but covers a larger area.
Scott began describing the different types of IRA’s explaining that the government encourages a type of behavior and wants people to save for retirement, at least to supplement the Social Security System. There are Traditional, Roth, small business SEPs. which allow more money to be invested each year, special Health Savings Accounts, Education accounts, 401(k), profit sharing, etc.
Contributions have to come from earned income, W2’s, schedule C’s, but not rents and royalties. There are some limits: for the Traditional and Roth IRA’s, $5,000 (or $6,000 if over 50), and $49,000 for the SEP’s, for the Education IRA 2,000 for each child, and for
Health Savings, $3,000, 401(k) 16,500 + 5,500 for over 50 + 25% employer match up to $49,000 + 5,400 over 50. Make sure to speak with an accountant to see which one would work best for your application.
IRA, SEP, etc. are tax deferred investments, allowing you to deduct from your taxes, but for early withdrawal there is a 10% penalty under 55, and at 70 ½ you must take some money out or be penalized. While the fund is tax deferred, you must still pay taxes on the money taken out, but normally at a lower rate.
For the Roth IRA, while you cannot deduct the money from your taxes, it still continues to grow tax deferred, but once over 59 ½ and you have owned it for 5 years, the money comes out tax free.
As a truly self directed account Entrust will not review any investments. You must instruct the trustee to make an investment limited only by the IRS rules. You do the directing good or bad. Remember money cannot be invested in Life insurance or collectibles
There are some prohibited transactions. No “self dealing”, and you cannot deal with certain individuals. No sons or daughters or their spouses, no fathers, mothers, or their spouses, but you can lend to sisters and brothers. The owner cannot buy a house to live in, or it will be treated as a distribution and taxed and penalized.
Prohibited transactions are described and examples explained Section 4975 of IRS code.
Must have a custodian or trustee
One cannot borrow from an IRA
You cannot pledge your IRA for any loans
You can use other people’s IRAs to get properties, partnering with your own, or not.
Scott went through some case studies such as: Purchasing raw land, Option Contracts, equity participation, rental homes, and rehabs.
On rental properties, you can hire a property manager and have all monies (income and expense) forwarded to the IRA. Another way is to have Entrust pay expenses and receive the income. They then become a defacto property manager. You cannot pay for materials or repairs and then get money from the IRA or it could be construed as a distribution and may be taxed and penalized.
The IRA can be a member of an LLC and the manager of the LLC can write checks. See an attorney about setting it up. For the next year you can convert to Roth without penalties and spread the taxes over 2 years.
You can partner with your IRA as a 50-50 partner. The IRA is protected from creditors in Florida, but your 50% personal investment could be liable to creditors. All accounts at Entrust are protected by FDIC to $250,000.
Scott indicated that the website has more case studies, and if you open an account before September 30th they will waive the application fee for SREIA members.
Check into your retirement accounts and see if you can increase your participation in Real Estate while the prices are low and retire comfortably in your later years.