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20 Nov Turbocharge Your IRA for Tax-Free Growth

IRAs can be sexy.  Yes, I said it.  SEXY.  Most investors I speak with, however, think IRAs are about as sexy as life insurance (maybe even less so).  IRAs can seem like dull, slow-moving, “have to” investment plans for people closer to retirement age, or for those trying to build money for retirement.  Even the name“retirement account” leads you to believe that it’s something that can only be used when you retire.

This couldn’t be further from the truth.

To quote my good friend (and one of the most knowledgeable IRA investors on the planet), attorney Jeff Watson:

“We no longer call it Individual Retirement Accounts and now refer to IRA’s as Individual REVENUE Accounts because there are so many unique opportunities to build your wealth using an IRA at ANY age.”

Did you get that last part?  “At ANY age.”  Why watch your wealth build slowly year-over-year, only to have access to it when you’re 59-1/2?  This is what most investors do simply because they don’t know any other way.  The truth is that IRAs can be used to build wealth NOW and quickly – particularly if you’re using a self-directed IRA in a tax-free manner.  That’s right: tax-free.

So what is self-directed investing?

In self-directed investing, the investor finds his or her own investments, does the due diligence and, if satisfied, moves forward with acquiring the investment.  But if you’re like most investors who’ve always used a financial advisor/banker/broker/mutual fund company to manage your money, you’ve probably never heard of self-directed investing.  That’s because these paid professionals are limited to a menu of traditional investments such as stocks, bonds and mutual funds.  They can’t balance your portfolio with non-traditional assets such as real estate, private equities, precious metals and promissory notes available to self-directed investors.  And they are not compensated nor have any incentive to do so.

Only a self-directed IRA gives you the opportunity to invest in both traditional and non-traditional investments so you can truly diversify your portfolio and control your financial future.

And it’s simple to get started. Here’s how:

      • Step 1: Find a reputable company that specializes in self-directed IRA investments (Inspire Capital is NOT a self-directed IRA custodian).  You can Google hundreds of these companies, or we can recommend some of our favorites.
      • Step 2: Open up a self-directed account by filling out some forms (account type, personal info, etc.) just as you would open any other bank account.  There’s usually little to no cost.
      • Step 3: Ask your existing money manager to move all or a portion of your IRA over to the newly opened self-directed IRA account.  (Turbocharge Tip: If your IRA is not a ROTH IRA, consider converting it to a ROTH IRA and pay the respective taxes now so you can enjoy a lifetime of tax-free growth. Contact us for more info.)
      • You are now ready to self-direct your investments.

As mentioned, one powerful way to turbocharge your self-directed investing stems from setting up your investments in a tax-free or tax-sheltered manner from the start.  A self-directed ROTH IRA is the most powerful financial vehicle in this regard because it is comprised of post-tax dollars and allows you to earn tax-free returns on future investments.  Here are a few inspiring ideas to get you thinking about how to invest your self-directed IRA:

      • Purchase real estate and earn a tax-free stream of income generated by rent payments – or sell the property and realize the tax-free gain.
      • Purchase an option on real estate or any other asset and generate significant tax-free returns upon the buy-out of your option.
      • Become a private lender on real estate, thereby acting as “the bank” in the transaction, and collect tax-free interest on the loan.
      • Invest in a mortgage pool fund (e.g. Inspire Capital) that delivers attractive, passive, risk-adjusted returns secured by real estate.
      • Purchase a tax lien and earn the interest on the lien, or ultimately own the property through foreclosure.
      • Purchase precious metals such as U.S. Treasury minted gold, silver or platinum coins and sell them for tax-free gains.
      • Purchase shares in a private or public company and earn tax-free dividends or profit on the sale of the company or shares.
      • Purchase almost anything you can dream up (e.g. items on eBay, a race horse, a restaurant, a car, etc.) with very few IRS exceptions!

Despite the multitude of investment opportunities available through self-directed accounts, most investors either do not know they exist, or they are dissuaded by misconceptions about IRA investing.  Here are the top three misconceptions.

1) I don’t have enough money in my self-directed IRA to get started investing;
2) I can only contribute a limited amount of money to my IRA every year;
3) I make too much money to contribute to a ROTH IRA.

The fact is there are MANY ways to (quickly) place a significant amount of money into your traditional or ROTH IRA and/or earn attractive returns with small investments of self-directed IRA funds.  It doesn’t matter if you’re an accredited or non-accredited investor, an experienced IRA investor or a “newbie”.  It’s easy to contribute to your self-directed IRA (if you know how), and even easier to invest.

But the key is to get started.  Most investors, particularly those far from retirement, simply don’t understand or realize how truly sexy an IRA can be.  And every day they wait to start is a day they’re missing out on compounded tax-free earnings.  So what are you waiting for?  I encourage you to take that first step TODAY, set up a self-directed IRA, and begin turbocharging your investing future.

If you’d like help or want to discuss how best to use this information in your investments, please feel free to contact us at 626.788.9700 or click here.