Could This Be The Missing Piece To Building Your Financial Empire?
Learn How To Expand Your Investment Capital Options With This Simple, Yet “Most Often” Hidden Concept…
We all know someone or have a friend of a friend who got rich by getting in on the ground floor of an investment opportunity. It’s a dream scenario; become an early adopter of a product or service you truly believe in and invest your money. These opportunities don’t come around every day, but when your time comes, you want to be ready!
In the nineties, it became popular to invest in tax liens and other forms of debt. The first investors were able to make substantial gains, but it didn’t take long for entrepreneurs to cash in on the education side of the investment. Soon you could go to any Hilton or Marriott hotel in the country and attend a seminar on “Investing in Debt,” which made this investing much more competitive. In the early 2000s, “House Flipping” became a lucrative investment.
Then, television shows like “Flip or Flop,” “Flip That House” and the countless others came out making every person on your block think they were a real estate expert. These are just two examples of the hundreds, if not thousands of investments that you could have been a part of if you had the foresight, knowledge and financial means to make it happen.
So, let’s say you come across the next “Big Thing,” now what? Unless you’re Scrooge McDuck, you probably don’t have a giant money bin full of gold coins just waiting to be invested. You could borrow money for the investment, but then you’re stuck paying interest and diminishing your returns.
What do you do?
If you have an existing IRA or 401k, you may be sitting on the investment capital you need and not even know it. IRA and 401k money can be rolled over into a self-directed IRA, which can be used to invest in a tax-deferred or tax-free (ROTH) environment. The process for rolling over a 401k is different from transferring or rolling over an existing IRA, so make sure to speak with your CPA and plan administrator to ensure that you are doing this correctly.
A self-directed IRA enables you to invest your retirement account in things other than the stock market. Some examples of suitable self-directed IRA investments include, but are not limited to real estate, tax liens, precious metals and stock in private companies.
How Do You Get Started?
First and foremost, we always recommend that you speak with a CPA or tax professional before opening an account or making any IRA investments. Once you have spoken with a tax professional, you will need to contact your current plan administrator to see if your IRA or 401k is eligible for transfer or rollover. If your IRA or 401k is from a former employer, you shouldn’t have any problems. However, if you are still employed by the company that you have your 401k through, you may not be eligible to roll it over.
Difference Between IRA Custodians and Plan Administrators
Next, you will need to find a self-directed IRA custodian. This will be the company that holds your IRA funds, holds any assets that you purchase on behalf of your IRA and facilitates your investments. There are a lot of companies that are not actually IRA custodians, but plan administrators. Plan administrators are 3rd party companies who facilitate IRA transactions and may or may not give you investment advice, but they do not hold any funds or assets. They typically work with a silent IRA custodian who actually holds the funds and investments. Plan administrators have to abide by the same rules as IRA custodians, but they not regulated by any government agency. This is not to say that plan administrators are inherently bad, but it’s important to do your due diligence and know who is holding your retirement account.
Once you have established your self-directed IRA with a company that you trust you may start investing. Before making any investments, you should always consult a CPA or tax professional. Use caution when making any investments to avoid fraud. Some red flags include investments that promise “Guaranteed” returns and investments that use words like “Act Now.” If a company is pressuring you to send them money on what seems to be a short deadline, you should use extreme caution.
Self-Directed IRAs can be a great way to get in on the ground floor of the next big idea, but you should always be careful and know what you are getting yourself into before you invest. The three most important things to remember when setting up a Self-Directed IRA are to use an IRA custodian that you trust, do your due diligence on all investments and always consult a CPA or tax professional. By following these simple rules, you will minimize your vulnerability and maximize your potential for successful investing.