Time magazine recently published an article that discussed how much money an American needs to retire; the number was staggering. The pundits cited in the article suggested the average long-term worker needs to have accumulated 11- 18 times their annual salary by age 65. While siphoning off a nominal percentage of your monthly income into your 401(k) plan does help in terms of keeping you from spending the extra money, the return on your investment will likely not be much more effective than a traditional bank’s savings account. Even if you diversify your stock, bond and mutual fund options, one would be hard-pressed to be able to rely solely on their 401(k) as a nest egg to sustain them throughout their twilight years.
Historically, long-term real estate investments have offered a healthy hedge against the ups and downs of traditional stock and bond portfolios that you would find in your 401(k), but many people don’t have the capital on hand to personally purchase real estate. Did you know that you can purchase real estate investment property with IRA plan funds if you have a self-directed IRA? Your IRA real estate investment can even be approved for a non-recourse loan. Sure, it takes a lot of faith and a good deal of educational reading, but it can be done with the help of third-party custodian and administrator. Nexus Direct IRA, LLC is the only company in the upper Midwest that offers the opportunity to participate in totally self-directed IRAs.
A top expert in self-directed IRAs, company President Todd Grill has a passion for this field and wants to provide both the education and the means to put his clients’ futures into their own hands. Through his frequent educational seminars and distribution of educational materials, he discusses the value of alternative investment opportunities on the road to wealth accumulation. But, he laments that education alone is not a catalyst for change.
“My goal, and that of Nexus Direct IRA, is to help people seize control and responsibility for their own retirement,” said Grill. “It is a potentially scary thought to question a financial adviser and choose alternative options, such as real estate, as part of your retirement savings plans, but where there is greater risk, there is potential for greater reward. For those familiar with the real estate market, why not put your knowledge to good use? I believe you will have a greater chance of retiring successfully with some percentage of alternative investments inside your retirement portfolio.”
Nexus Direct IRA, LLC, specializes in self-directed tax-free and tax-deferred retirement plans such as individual retirement accounts (IRAs) that allow clients to create lasting wealth by investing in areas such as real estate, gold and private placements where they have knowledge and expertise. Nexus Direct IRA provides third-party administration and record keeping for selfdirected retirement plans as a passive custodian meaning that it has no conflicts of interest as it does not sell investments nor offer investment advice. *
A Minneapolis native, Grill spent nearly 30 years working as a top-earning RE/MAX Real Estate Agent, and helped create both a mortgage company and a title company before joining the world of self-directed IRAs. About 14 years ago, Grill wanted to purchase additional investment real estate for himself as part of his retirement portfolio. The problem was that he was tapped out of personal money and the only “other” money he had saved was in his 401(k) retirement plan. He wanted to redirect the money to purchase real estate instead of stocks, bonds and mutual funds, but did not know if it was even legal and if so, how to go about accessing the funds to complete the transaction.
“I’m a big rules person,” noted Grill. “I like to find out the rules to know how to play the game – in this case, I needed to know how I could use the money I already had saved in my retirement account to buy investments that had the potential to net more for me in the long run – and then use the rules to my advantage.”
After months of fruitless research including meetings with countless advisors and CPAs, Grill was no closer to purchasing investment properties than when he started. “The Internet was not quite as robust back when I was trying to research this topic and my searches were coming up empty,” recalled Grill. He was told time and again it couldn’t be done, but he didn’t earn his moniker “Red Tiger” for nothing. He was relentless in his pursuit of an answer that would allow him to access his own retirement funds to purchase real estate.
During a National REALTOR® conference in San Francisco in 2002, he finally found the answer he was looking for. He met a third party administrator (TPA) that would allow him to open up an IRA account that could be used to purchase alternative investments. He learned that not only was purchasing real estate a legal use of IRA funds, but that it had been an allowable investment since 1974, when the first IRA was established.
“The problem I ran into with all of my research is that most IRA administrators earn a commission on selling specific sets of stocks, bonds and mutual funds, whereas the purchase of real property does not benefit the administrator,” explained Grill. “This is why most administrators do not offer services to use funds in this way. And, most clients don’t even know to ask.”
By the end of 2002, Grill had immersed himself in the field to the point that he spent six straight weeks convincing the national company he had opened up his IRA with to allow him to open a franchise in Minnesota. Within a few years, he had become a top franchisee for the company and began to petition to buy out his franchise. In 2011, the company agreed and by January 2012, Grill launched his own independent company, Nexus Direct IRA, LLC.
“I have to admit, when I first started doing this, I was unaware of all of the rules. I actually read through most of the 44,000 pages of the IRS tax code that were available at the time to make educated decisions about my purchases,” noted Grill. “It is this knowledge and experience that we now impart to our clients via our website, seminars and consulting.”
What Exactly Is a Self- Directed IRA?
In laymen’s terms, a self-directed IRA puts all of the investment decision-making power into the IRA holder’s hands, allowing the account holder to invest in noncash assets, not just savings accounts and CDs that financial institutions offer. Unlike pension funds such as 401(k)s, IRA owners are not permitted to be the trustees or custodians of the assets of their IRAs.
Consequently, the government allows certain financial institutions to handle the accounting and reporting of IRAs. The companies legally permitted to hold IRA assets are: banks, custodial nominated administrators such as Nexus Direct IRA LLC, savings and loans and credit unions, or non-bank custodians which are separately licensed by the IRS (e.g., broker/dealers, mutual fund companies and insurance companies).
Self-directed IRAs may invest in a wide variety of investments such as: real estate, promissory notes, initial private offerings, stock warrants and options, and gold and silver, as well as many other options. The only things that limit what an IRA may invest in is whether the IRA holder can find a custodian or trustee that is willing and able to administer the reporting of that investment and who will hold custody of it as well as whether the investment is legal under the IRA rules.
While there is a wide range of investment opportunities, there are also strict regulations on those investments, especially when it comes to real estate. First of all, the property must be for investment purposes only. Secondly, the IRA holder, spouse, parents, children and grandchildren may not reside in the property or self-improve the property. The cash inside an IRA may be used to purchase the property. Vesting must be in the name of the IRA. Any loans to an IRA must be non-recourse loans. All rental income and expenses must flow through the IRA. Finally, the IRA holder cannot purchase existing real estate with their IRA.
Just like a 401(k), assets held within an IRA are meant to be used as retirement funds. Therefore, a penalty may be applied should the funds be withdrawn early, per IRS rules.
As the singular source for creating self-directing IRAs for the purpose of purchasing alternative investments in the Upper Midwest, Nexus Direct IRA, LLC, provides a unique service that allows its clients to remain in complete control of their financial future.
* An IRA owner considering an IRA investment in a private placement or closely held corporation should consult with his or her attorney, tax adviser or CPA before making such investments.