Invest With Your Pension Plan
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(There are numerous ways to invest in real estate. Even when your source of income or equity lines have worn thin, your active investing can continue, ensuring you do not miss the next great opportunity.)
So, how do you come up with the funds to keep investing? Well, the truth is that you do not have to come up with any money because you already have it, in your pension fund.
The article, “Find New Money (And Look Like A Genius Doing It),” written by Diane Kennedy and published November 15, 2006 in Realty Times, provides the process of how you can use you pension plan to invest in a variety of real estate ventures.
Using your pension plan to invest in real estate is 100 percent legal through the use of a self-directed plan.
“Any time a pension fund allows someone to control his or her own investment decisions it's a self-directed plan. But the term ‘self-directed’ can be misleading, especially when you are limited to investing in a list of stocks or mutual funds provided by your plan’s administrator.”
A true self-directed plan allows you to invest in just about any and everything under the sun as long as it is permissible within IRS guidelines.
The IRS guidelines allow many investments through pension funds, so many in fact, that they do not list what is allowed but rather what is prohibited.
If your potential investment is not on the “black” list you should be in the clear. Some of the prohibited transactions include:
“The sale, exchange or lease of any property between a plan and a disqualified person. Furnishing goods, services or facilities between a plan and a disqualified person. Using any portion of the IRA as security for a loan by a disqualified person, and Use of income or assets of a plan by a disqualified person for his or her own benefit.”
People who are listed as “disqualified” include the actual pension plan owner, its administrator and the plan’s lineal family members such as children, grandchildren, parents and grandparents. All other relatives including siblings, aunts, uncles and cousins are legally bonded within the IRS’ pension plan investing guidelines.
“Until recently there wasn't a lot of choice in truly self-directed plans: you either had some type of tax-deferred IRA (regular, SEP, Spousal, etc.) or a tax-free Roth IRA. Both serve a great purpose, but there are income and contribution limitations, especially for Roth IRAs, and many high-end clients may have been prevented from contributing to a Roth IRA altogether.”
But a couple of years ago, the government introduced the “solo 401(k) plan.” This plan was designed for sole business owners and eventually gave way to the adoption of the Solo Roth 401(k), which combines the tax-free advantages of a Roth IRA with certain tax benefits associated with a traditional 401(k) plan. The two distinct differences of the Solo Roth 401(k) is that it did not have any income limitations and the contribution amounts are significantly higher.
“If you don't have enough money to buy real estate outright with pension funds, don't worry. You can combine one or more smaller funds together to make a single purchase, or you could approach one of a growing number of mortgage brokers and financial institutions that offer loans to self-directed pensions. This is a particularly effective strategy to use with the Solo 401(k) plans, as these plans don't require you to pay tax on the earnings that are derived from loans to the pension plan.”
So, quit using the excuse that you cannot invest in real estate anymore because you have tapped all of your funds. Get off the couch, do some careful research and use you pension plan to make a difference for tomorrow.
