Are you getting solid double-digit returns on your tax-sheltered retirement investments?
Do you feel limited by what your IRA fiduciary allows you to invest in?
Will your IRA fiduciary allow you to buy (i.e., invest directly into) real estate with your retirement funds?
Will your IRA fiduciary allow you to do private lending (i.e., loan your money) to other real estate investors and get 10% or more interest on your money with some real estate as collateral?
If you really want your retirement funds to work for you, you should be asking yourself these questions.
Do you know what this law allows you to invest your retirement funds in?
The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for most voluntarily established retirement and health plans in private industry to provide protection for individuals in these plans. This includes IRAs and 401(k) plans.
Although there is no list of approved investments for retirement plans, there are special rules contained in ERISA that apply to retirement plan investments. Under the Code, both participant-directed accounts and IRAs cannot invest in collectibles, such as art, antiques, gems, coins, or alcoholic beverages, and they can invest in certain precious metals only if they meet specific requirements. Note: In my retirement accounts, I do own some gold bullion and pure silver coins. These are allowed by ERISA.
Individual retirement accounts also are not permitted to invest in life insurance.
Finally, certain transactions between a plan and a “disqualified person” are specifically prohibited by law (see below). Similar rules apply to transactions between an IRA and its owner or beneficiary or between an IRA and a disqualified person.
What is a prohibited transaction?
A prohibited transaction is a transaction between a plan and a disqualified person that is prohibited by law.
Prohibited transactions generally include the following transactions:
- a transfer of plan income or assets to, or use of them by or for the benefit of, a disqualified person;
- any act of a fiduciary by which plan income or assets are used for his or her own interest;
- the receipt of consideration by a fiduciary for his or her own account from any party dealing with the plan in a transaction that involves plan income or assets;
- the sale, exchange, or lease of property between a plan and a disqualified person;
- lending money or extending credit between a plan and a disqualified person; and
- furnishing goods, services, or facilities between a plan and a disqualified person.
A disqualified person generally includes the following:
- the beneficiary of the plan;
- a spouse of the beneficiary;
- ancestors of the beneficiary, such as parents and grandparents;
- lineal descendants of the beneficiary, such as children and grandchildren;
- any spouse of a lineal descendant;
- a fiduciary of the plan; and
- any person providing services to the plan.
There are some additional people and entities that are disqualified, but they are in general related to the list above.
So, ERISA basically tells you what you can’t invest in, which it turns out is a very small list.
Therefore, everything else of an investment nature is allowed by law for you to invest your retirement funds into. This includes real estate. The only exclusion in real estate would be something like the house you or any other disqualified person lives in.
Wall Street Firms and the Banks
Why don’t these firms tell you what you are allowed to invest in?
Why do these fiduciaries of IRAs and 401(k)s only tell you about and only allow you to invest in stocks, bonds and mutual funds.
The simple answer is those are the types of investments that they specialize in. They are basically telling you these are the only types of investments that we offer. So, if you want to put your IRA with us, this is all we can offer you.
By the very wording of the ERISA law, any and all IRAs are allowed to be self-directed into any type of investment allowed by ERISA since 1974 when the law was passed.
The banks and Wall Street firms just don’t tell you that.
Today, there are many fiduciary companies around the U.S. that allow you to set up an IRA with them acting as the fiduciary and you call all the shots and invest your funds in anything allowed by law.
So I have basically answered three of the four questions I started with.
The reason you might feel limited by your current IRA fiduciary is that they don’t have the ability to offer you the options to invest in anything other than stocks, bonds and mutual funds. That would also be why you might feel like you can’t invest in real estate or loan out money at whatever rate you can negotiate with another investor.
So, What Return are You getting on Your IRA investments?
I have investors lending their retirement funds to me through their Self-Directed IRA fiduciary on my real estate investments and getting paid a double-digit rate of interest. And remember this is in a tax-deferred or a tax-free (if Roth) account. These private-money loans are documented with promissory notes and facilitated by the Self-Directed IRA fiduciary company.
If you’d like to have a conversation about this type of investment, feel free to email me or set up a call with me or just call me if you already have my phone number. I’d love to hear what you think.
For now, be safe and take care of your family.