Baby Boomers Retirement Planning 3 (a series) by Bill Roberts 

Now that you have taken care of your estate in the event of death or catastrophic event (Part 2), we need to think about what to do in the event that you live forever. After all that is the other extreme. If we prepare for that also, we will have covered the entire spectrum of possible outcomes.

Not to say that you will actually live forever, but if you out-live your retirement plan, it'll have the same effect: still alive and no money to live on.

The next step is to roll-over your IRAs and old 401(k)s into a self-directed Roth IRA. Yes, you will have to pay tax on the contributions which you have previously made. Right now we are in a very favorable tax paying environment. Taxes haven't been this low in a long time and they are destined to increase significantly in the not too distant future.

What we want you to do is pay the low tax now and then accumulate and compound your wealth tax free in a Roth IRA. This will save you significantly when you start withdrawing your money.
If you don't qualify for a Roth you still need to roll-over your retirement plans into a self-directed IRA.

With a self-directed IRA you may elect to invest your retirement funds in any investment of your choice (with minor exceptions for self-dealing and of benefit to closely related and associated individuals). In particular you may direct your funds to be invested in real estate.

The mechanism of the real estate investments or other investments is for the IRA to own a special LLC. The lLLC will have special language in its operating and membership agreements to protect your profits from being taxed or disallowed for inclusion in the IRA by the IRS.

The LLC will be able to invest in whatever you choose except as previously noted, sell those investments and retain the entire proceeds without concern for taxes or doing section 1031 tax deferred exchanges. Business profits of your investments will be taxed however, but the remaining monies can be included in the IRA after the tax is paid. Again to accumulate and compound tax-free.

What if this isn't enough money to meet your retirement goals which we determined in the first article?

More Money? 

If you need to put more money aside to accomplish your goal then we must utilize our "c" corp. A retirement plan for the corporation can be funded with significantly more money each year than an IRA can. These plans include a Simplified Employee Pension Plan, Simple, or Defined Benefit Plan. Each of these plans has different characteristics and which one you choose will be the result of very close evaluation of your circumstances.

As an example let us suppose that you invest in real estate as a business. Gone is capital gains treatment and in its place is regular income treatment. Let us say that you "realize" a profit on the operation and subsequent sale of an apartment building to the tune of $250,000.00 this year. You own the property either directly or indirectly inside your corporation. The corporation reports the income on its tax return. It also reports its expenses on that tax return. In addition to your salary, medical benefits, normal business expenses, you also may deduct the company's contribution to your retirement plan, even if it represents all the remaining income for the year. The corporation does not have to report any income in that case. It only needs to be a "real" business.

What do I mean by having the corporation own the property indirectly? The property can be owned by a single entity owner LLC. Most commercial lenders require this arrangement. The corporation can then own all or some of the membership interests in the LLC.

Just to recap where we are in the retirement planning process:

• We determined our "needs" on a monthly basis at retiremen
• We established a Living Trust
• We deeded everything we own to the Trust
• We set up a "c" corporation inside the Trust
• We rolled-over all our eligible retirement plans into a self-directed IRA
• We invested more money into our business activity ("c" corp)
• We established another retirement plan within the "c" corp

So far so good. But we are just getting going. Stay tuned.

If you need assistance with your self-directed IRA or other real estate questions, call Bill Roberts (619) 244-4610.