Are You Using a Self Directed Roth IRA? (Individual Retirement Account)

I was downtown the other night and I bumped into an old friend. He couldn’t stop talking about the property he had just sold. My friend had bought the property using his self directed Roth IRA and he was grateful that I had pointed him in that direction. I resolved there and then to write some information here for you. From here on whenever I mention a Roth IRA you can take it to mean A Self Directed Roth Individual Retirement Account. Now hang on, Here we go.

What Is A Roth IRA
The Roth IRA was created in 1998 and named after it’s main sponsor Senator William Roth. The main feature of the Roth IRA is the fact that the money you put into it is not tax deductible, while the money you withdraw in retirement is not taxed, it never gets taxed again. This means you have the power of compound interest working for you over and over again. Can you see the potential for tax free profit here? Your ROI is based on your understanding of real estate and not on the yo yo effect of the stock market.

The limit you can pay in contributions into a Roth IRA is $5000.00 per year, until you are aged 50years or over and then it goes up to $6000.00.

Normally you can pay into a self directed Roth IRA if you have earnings of less than $10,000.00 and you file separately if you are married, and you lived with your spouse at any time during the year.
If you are married and filing jointly or you are a qualified widow(er,) if you earn less than $169,000.00
You can pay into a self directed Roth IRA if you are head of the household, or single, or married filing separately and you did not live with your spouse for any part of the year, and you earned less than $116,000.00.

You can contribute to your self directed Roth IRA no matter how old you are. Let me tell you a story. I have a friend who believes in self directed Roth IRAs so much he taught his 21 year old daughter and his sixteen year old son how to invest in them. His daughter has just bought a house and his sons Roth IRA now has mortgage payments going into it from some bare land he bought and sold. That is one family that’s going to be well looked after in their retirement.

Your management trust will make it real easy to invest in a Roth IRA. Just open an account with them and fund it through a cash contribution, a money transfer or a rollover. Find a property you would like to purchase, your management trust will guide you so you follow the rules and they will take you by the hand and lead you through the paperwork. Your management trust will simplify matters for you. Just make sure all payments and expenses go through your Roth IRA.

Prohibited Transactions
Below are some prohibited transactions with a Roth IRA.
You can not buy property for your personal use with IRA funds (either now or in the future)
You can not buy property from your family or relations, including inlaws.
You can not borrow from your Roth IRA
You can not sell property to your Roth IRA
You can not use your Roth IRA as security for a loan

If you engage in a prohibited transaction with your Roth IRA your account stops being an IRA on the first day of that year. And the account is then treated as though it distributed its assets to you at fair market value. You will then probably have a taxable gain that will be included in your income.

You Can Have Qualified Distributions or Payments
A qualified payment is one that meets the following stipulations
(1)It’s made after the five year period that you set the Roth IRA up.
(2)The payment is:
Made on or after you reach fifty nine and a half years of age.
Made to a beneficiary or to your estate after your death.
Made because you are disabled.
Made to buy, build or rebuild a first home(up to a maximum amount of $10,000.00)

Your Self Directed Roth IRA is protected under federal bankruptcy laws and normally protected from creditors in the event of bankruptcy.

It really is quite simple when you delve into it. Having said that, there is a simpler more TURNKEY approach. Just go down to the resource box at the bottom of this article, click on the url and go to my website. You will find more information on IRAs and real estate investments there.

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