Consolidating all of your savings in a 401k or IRA is a bad idea. In this article by Darla Mercado, she explains why you should have a combination of savings accounts, including taxable and non-taxable retirement accounts. The variety of savings accounts provides flexibility (for when you need it) and options for lowering your tax liability when withdrawing your money when you retire. There is a wealth of knowledge in this article about the types of accounts and tax strategies you should employ in your retirement planning. However, there are two notable omissions that you should consider as part of your strategy: Self-Directed IRAs and private real estate.
Self-Directed IRA’s are a great way to diversify your savings outside of traditional retirement accounts that limit you to investments in stocks and bonds. Self-Directed IRA’s allow you to invest in almost any asset from oil wells and gold, to apartment buildings and small businesses. This provides tremendous flexibility to those who are looking to get more creative with some of their retirement savings. There are some additional rules, but there are plenty of good Self-Directed IRA custodians who will help you stay in compliance.
Private real estate is a popular asset often purchased with Self Directed IRA money. Passive investments in real estate, like apartments or office buildings, can be purchased by a group of individuals who pool their money to collectively purchase an asset. This is often called a syndicate or syndication, and together, the syndicate can purchase a larger asset than the individual, achieving economies of scale. Many apartment complexes, office buildings, commercial strip centers, and other real estate assets are owned by companies who have hundreds of small investors. These companies pass the rental revenue collected from tenants on to the investors like dividends. Private real estate also provides tremendous tax advantages through preferential tax treatment, depreciation, and deferred taxes. Passive investments in real estate are a great way to diversify away from stocks and bonds found in most traditional retirement accounts.
Many investors used Self-Directed IRA’s in combination with private real estate to achieve tremendous tax-advantaged cash-flow in their retirement accounts. For more information and further reading, I recommend Mat Sorensen’s site.
If you have questions about investing in private real estate or how to use a Self-Directed IRA, you can get in contact with us here.