Money Smart Colorado Week Kickoff!

Last night I attended the kickoff dinner for “Money Smart Colorado Week” at the Federal Reserve Bank in Denver.  Money Smart Colorado is an organization that promotes financial literacy across all ages and ethnic groups in Colorado.  New Direction IRA is proud to be one of the partners in this effort and as such will be teaching classes about self directed retirement investing and how it relates to saving money and investing for the future.

The evening was very upbeat mostly because of the collection of passionate people who are the Money Smart organization and made this coming week a reality.  The panel of speakers who presented covered a spectrum of professionals:  educators, library/information science, financial planners organization, and community outreach.   Also represented on the panel was The Jump$tart Coalition for Personal Literacyâ, as stated in their About Us page “an organization of organizations that share an interest in advancing financial literacy among students in pre-kindergarten through college”.

One of the high points of the evening was the key speaker Todd Salzman, retired after 30 years in the US Air Force, now relationship manager for Ent Credit Union.   He is a powerful and engaging speaker.  The title of his talk was “Making Your Financial Flight Plan”.  A great analogy and a great talk aimed at helping people plan for their financial future.  A humorous and thought provoking presentation, I’m sure everyone there would agree.

I’m glad we’re part of the Money Smart Colorado effort and have the opportunity to spread the word on self direction and true diversification of retirement accounts.  New Direction IRA will be providing relevant classes and we are looking forward to being a partner in this exciting endeavor, financial literacy now and in the future!. 

Broker Builds Business Using Self-Directed IRA Accounts

“There are twice as many buyers out there!” exclaimed Realtor® Paul K in Denver Colorado. Paul, after hearing about how he could invest his own IRA in real estate, got to work putting together deals for his and his wife’s IRA.  “If I am to help my clients I will need to do this myself first” is Paul's belief.  After sponsoring a class by New Direction IRA for his investors in January, he feels that the idea is gaining momentum all over the Front Range where there is currently a housing shortage due to displaced former homeowners and low rental housing inventories.  He has a lot of clients who are interested in the “real estate IRA” concept and, because of his knowledge and experience in the process, have come to him when it’s time to make that IRA real estate investment.

It is a smart real estate broker who realizes, like Paul, that for every client that buys or lists a house there is likely a rollover 401k that can be self-directed into real estate and other non-traditional retirement investments.  Opportunities also exist in real estate offices for bridge loans and second deeds of trust for both the brokers and their clients to expedite real estate deals.

Many individuals are tired of their money taking a ride on the stock market roller-coaster and most of them would be interested in self-direction and the world of investment choices available through brokers like Paul and other knowledgeable professionals.  Traditionally most financial advisers have been rooted in securities either through restrictions with the companies they work for or through lack of knowledge about non-security investments.

The IRS states on the FAQ section of their website that “investment in real estate is not prohibited”.  There are rules, of course, such as the real estate must be for investment purposes only and that there be no personal use of the property.  For experienced real estate investors, this and other rules should not present a problem.  The key to investing an IRA in real estate or other non-traditional investments is working with a knowledgeable IRA administrator who provides assistance and education for that first self-directed investment.

We think Paul is on to something.  Dissatisfaction with stock market and the desire to own a tangible asset like real estate will create more clients for a real estate broker like Paul as well as satisfied IRA investors, whether it be on Front Range or anywhere in the country.

Managing Property Owned by your Self Directed IRA

When your IRA owns real estate, one of the questions that frequently comes up is “how do I manage the property”?  Good question.  Since the IRA owns the real estate, the IRA pays all the bills and takes in all the income of the property.  You, as the IRA holder can have no contact with the money, it all must run through the IRA account.  The administrator reacts to your authorization to pay bills but does not “manage” the property.  A tenant who fails to pay rent will not be a red flag to the custodian as they are not the manager.  So how do you handle this and other issues?

I want to manage it myself:  in this case the custodian pays all the bills and takes in the rent.  You pick the tenants and have tenants make the rent check payable to New Direction IRA, you receive the check and forward it to the custodian for deposit.  You make the decisions on what maintenance and improvements are necessary and hire someone to do the work.  Can you do these things yourself?  How much you can do is a gray area in the IRA code.  A discussion on this is probably more suitable in a longer article.  If you are the "hands on" type you may want to consider a new tool New Direction IRA has created called myDirection which allows you to both receive the IRA bills at your home and initiate payment on these expenses on line.  You can monitor expenses AND know immediately if rent payments are being made to cover the IRA expenses.  NOTE: The myDirection website requires a self directed account with New Direction IRA and a log in to be functional for your account.

I want to hire a Manager:  In this case the IRA hires the manager at your direction.  New Direction IRA signs the agreement after you have approved it.  The manager controls all the monies of the property and you cannot have personal access to the money.  A manager can do as much or as little as you direct and does not have to be licensed according to our or the IRS requirements but may not be a close family member according to the IRA requirements.  The manager is paid by the IRA and is required to furnish the custodian with income/expense reports on at least a quarterly basis accounting for the IRA monies. Keep in mind this manager will have 100% control of the monies generated by the property so choose wisely.  The manager must also sign an acknowledgement indicating that he/she understands that the IRA is the owner and that periodic financial reports must come to New Direction IRA in addition to any reports you receive.

One of the primary concerns of your self-directed IRA administrator is to keep your account tax-deferred (or tax-free if a Roth).  To this end, the monies of the IRA must be accounted for and you must not have access to or use the IRAs money.  You nor close family members may not use the property.  There are other rules which your real estate broker or custodian can help you with when your IRA buys real estate.   Real estate is the number one investment held in self-directed IRAs, maybe it’s the right one for yours’.