Real Opportunity Purchase Real Estate With Your IRA THE KINGDOM TRUST CO.
inside part 1 Introduction Poor performance and a volatile stock market leave some investors wanting to take more control over their investment portfolios. part 2 The Real Alternative The most common alternative asset investment is real estate and all of the many variations that stem from real property ownership. part 3 Real Investments Real estate investment opportunities are as vast as one s creativity allows, but some stand out among the rest. part 4 The Advantages Explore the reasons why owning real estate in a self-directed IRA is a wise investment for the future. part 5 The Kingdom Process Opening a MyRA self-directed IRA to invest in real estate is a simple, stress-free process. part 6 Common Questions A list of questions many investors have about self-directed IRAs. 2
part 1 Introduction Stocks, bonds and mutual funds. These have been the core investments inside the individual retirement accounts (IRAs) of Americans since the 1970s. However, recent volatility in the stock market, as well as meager returns, have led some investors to look elsewhere to build a retirement fund. When it comes to securing their financial futures, more and more savvy investors are turning away from Wall Street and looking to Main Street. Whether it s a rental property, gold bullion or a stake in a private startup business, the alternative asset investment is moving to the forefront of wealth-building tools. And the vehicle carrying the alternative-asset investment is the self-directed IRA. A self-directed IRA is like any other IRA except that the account owner plays a much bigger role in choosing the investments. The IRA owner seizes the opportunity to take control over his or her financial future by choosing the investments that will be purchased by the IRA. The self in self-directed means that it s your decision, your direction, your investment and your opportunity. I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years. Warren Buffett 3
part 2 The Real Alternative Achieving true diversity When an investor hears his or her investment or financial advisor use the term diversify, it usually means his or her advisor is going to recommend an assortment of traditional stocks, bonds and mutual funds. To a more informed investor, true diversity also includes alternative assets that are unrelated to the stock market. The top alternative asset As more and more people turn from Wall Street to Main Street, alternative asset investing will continue to grow by leaps and bounds. And real estate will continue to be the bedrock of alternative asset investing. Historically, real estate has been a stable investment that consistently appreciates in value. Many successful Americans have used real estate to grow wealth wealth that withstands the test of time and rocky financial markets. Why haven t I heard of this before? The self-directed IRA is the most undereducated investment option in the market today. Most people hear about IRAs from their tax, investment or financial advisor. Even though you have been able to invest in alternative investments since the IRA s inception in 1974, most of those advisors promote traditional investments because those are the investments with which they are most comfortable. Kingdom Trust is committed to educating and developing an understanding of self-directed IRAs and alternative investing. 4
part 3 Real Investments Real estate options There are many creative ways to purchase property in your self-directed IRA. Here s a list of some of the more common investments: Undeveloped land Single-family homes Condominiums Apartments Townhomes Vacation rentals Commercial property Mobile homes Farmland Timberland Office buildings Retail business space Non-traditional options There are many ways real estate can be a viable investment in addition to an IRA owning property. Such examples include Tax liens Real estate notes Second mortgages Promissory notes Capitalizing on real estate In order to maximize a self-directed IRA real estate investment, it is important to understand the specific regulations that apply. Consult with your financial or tax advisor prior to making the investment, or contact Kingdom Trust for answers to your real estate investing questions. 5
part 4 The Advantages Benefits of tax-advantaged investing Seasoned investors understand the advantages of investing in an IRA whether it s a Traditional or a Roth. Traditional IRAs benefit from tax-deffered growth, whereas Roth IRAs benefit from tax-free growth. A Kingdom Trust Company representative can help you understand more of the differences between all types of IRAs. Higher earning potential IRAs that only invest in traditional assets (publicly traded stocks, bonds and mutual funds) are subject to stock market fluctuations. Investors using their IRAs for alternative investments such as real estate have greater control because they have a broader range of investment options from which to choose and aren t as affected by dramatic fluctuations on Wall Street.* Passion and expertise A self-directed IRA allows individuals to invest in assets they are passionate about or have experience with, such as real estate. Because of the higher level of interest in the projects, they become better informed investors. For shrewd investors, [self-directed IRAs] can be a boon, allowing them to diversify their portfolios far beyond everyday holdings while deferring income taxes for years. Wall Street Journal March 2012 *Kingdom Trust Company is registered and regulated as a non-depository trust company by the state of South Dakota. Kingdom Trust Company serves as a custodian, meaning it holds documentation and is responsible for the safekeeping of assets being administered. Furthermore, as a custodian, Kingdom Trust Company does not guarantee a financial gain on any investment under its administration. 6
part 5 The Kingdom Process 1 Open Account 2 Investment Identificaton 3 Transfer of Funds It takes just a few minutes to complete a Kingdom Trust online account application. Call a customer service representative for any assistance. The investor must identify the asset and perform due diligence on the investment. Kingdom Trust does not perform due dilligence or provide tax, legal or investment advice. With the help of Kingdom Trust, you can easily complete the rollover process from your current custodian to your new MyRA account. Kingdom Service 6 Investment Kingdom Trust Company will administer your assets for the duration of the account, keeping timely and acurate records, as well as providing online quarterly statements and annual statements. 5 Administrative Feasibility 4 Investment Direction Kingdom Trust Company will perform the administrative tasks necessary to acquire the investment as directed. Kingdom Trust Company will do an investment assessment to determine administrative feasibility. The client instructs Kingdom Trust as to which asset he or she would like to purchase by using the investment direction form found on our website. 7
part 6 Common Questions 1 2 3 4 5 How can I fund my Individual Retirement Account? Through 2014, you can fund your IRA by making annual contributions, with current limits of up to $5,500 ($6,500 if age 50 or older). You may also roll over funds from another IRA or qualified plan, such as a 401(k). Visit www.irs.gov for current contribution levels. How do I get money out of my account? Money comes out of your account as distributions. Distributions can be taken penalty-free at age 59½ or older. If distributions are taken earlier, there is a 10% penalty assessed. Traditional IRA account owners must begin taking Required Minimum Distributions upon reaching age 70½. For Roth IRAs, the rules state that distributions may not be taken penalty-free from a Roth until the account has aged five years from January 1 of the year in which the first contribution is made and the account owner has reached 59½. Distributions may also be made from an IRA upon the death of the account owner. They can also be made for certain disabilities and for first-time home purchases. Are there any special rules I should be aware of before I get started? Yes, which is why Kingdom Trust strongly recommends that each account owner develop a team of professionals to assist with his or her investing. The team should include an attorney, a tax or accounting professional and an investment advisor. Each member should be familiar with self-directed investing. Are there any special tax considerations I should be aware of? There may be tax considerations if you are using debt financing to acquire an asset or if you are operating a business inside your IRA. If either of these apply, you may be subject to unrelated business income tax (UBIT). Please consult your tax or accounting professional if you suspect you may be subject to UBIT. In what assets may I invest? Be creative. There are actually only a few items in which you may not invest in, such as insurance products, collectibles or Sub-S corporation shares. Otherwise, you can invest in a wide variety of assets. 8
6 7 8 9 10 11 12 13 What happens to my uninvested cash? At Kingdom Trust, uninvested cash is held in an interest-bearing, FDIC-insured money market account. All interest earned on these deposits is paid into the account owner s MyRA IRA account. Are IRAs insured like bank accounts? Individual Retirement Accounts are not insured like bank accounts. However, the uninvested cash is insured (see above) by the FDIC if it is kept in an FDIC-insured account. Kingdom Trust does keep uninvested cash in an FDIC-insured account. If I don t have sufficient funds in my IRA, can I invest with others? Yes. You may partner with others to make investments. Be aware of the prohibited transaction rules as you do. Kingdom Trust highly recommends you seek the counsel of your financial team as you move forward. If I don t have sufficient funds, can I borrow money to make up the difference? Yes. However, technically the IRA is borrowing the funds to purchase the assets. The loan must be a non-recourse loan, one in which the asset purchased serves as the sole source of recovery for the lender should there be a default on the loan. There are companies that specialize in non-recourse lending, and Kingdom Trust can provide a list of such companies. How do I buy real estate in my IRA? It s easy. Buying real estate in your IRA is similar to purchasing real estate personally. Remember that the property must be titled in the name of your IRA. Kingdom Trust will be signing the documents on behalf of your IRA. All expenses related to the purchase and maintenance of the property, including insurance and taxes, must be paid from your IRA. Can I buy real estate that I own personally with my IRA? You cannot sell property you own personally to your IRA. Similarly, you cannot buy property owned by your IRA from the IRA. Can I live in real estate owned by my IRA? Neither you nor any other disqualified person can live in property owned by your IRA. If I buy real estate that needs work, can I do the work myself? You should have the work done by a non-disqualified third party. 9
14 15 16 17 How do I pay for the work performed on real estate owned by my IRA? All of the work must be paid for through your IRA. Payment can be submitted by a nondisqualified third party property manager, if applicable (see below), who would then submit it to Kingdom Trust. Or you may submit an invoice directly to Kingdom Trust for work performed on the property. If I buy rental property, can I manage the property? Technically speaking, you probably can manage the property as long as you do so without compensation. However, this is not recommended. Managing the property provides too many opportunities to inadvertently engage in a prohibited transaction. It is best to have a non-disqualified third party manage the property. Do I have to buy and hold or can I purchase, renovate and sell? Yes. You can buy, renovate and sell. Keep in mind, though, that you may not do any of the renovation work yourself. Does Kingdom Trust perform any due diligence? Because these are self-directed investments, you (the account holder) are responsible for performing your own due diligence. Members of your financial team may help with your due diligence efforts. This publication is intended to provide basic information regarding self-directed individual retirement accounts. It is published with the understanding that this is not a legal or binding contract, but rather an informational tool. Please refer to the Kingdom Trust Company website at for more detailed information. 10
KINGDOM THE TRUST CO. P.O. Box 870 Murray, KY 42071 270.226.1000 toll free 888.753.MyRA (6972) info@kingdomtrustco.com