promissory notes, and many other alternatives to traditional publicly traded investments. Choosing your investments is a strategic way to use your knowledge to your advantage, meanwhile growing your profits tax-free. The IRA owns the investments, the same way that your IRA would own stocks, and profits return to the account, without Uncle Sam’s fingers in the cookie jar. Imagine the impact of realizing the full benefit of your investments, by paying no taxes on the profits. In fact, imagine the potential of varied, self-directed investments, and how that could increase your wealth. I’ve seen countless situations where investors have chosen not to do an investment that may have created enormous growth inside of a self-directed account. Let’s say you have the opportunity to purchase a property, subject to the existing financing. Often in these cases, there is little to no equity in the deal and little to no cash flow after the maintenance and repair costs are considered. Many investors would walk away from this type of deal; however, this is an incredible opportunity for a Self-Directed Roth IRA. How so? One possibility is to hold that property for a long period and allow it to go up in value and for the loan to be repaid. In the end, your Roth IRA would own a property, free and clear, meaning that future cash flow and appreciation are accumulating tax-free inside of the account. By the time you enter retirement, you will see the benefit of tax-free distributions from this Roth IRA. However, Self-Directed accounts are not exclusively about long- term goals. In fact, you can start growing tax-free profits inside of
accounts specifically designed for health or educational expenses and immediately take distributions. H. Quincy Long, my brother and the Founder of Quest Trust Company, did an investment with his Self-Directed Roth IRA and his daughter’s Coverdell Education Savings Account, where each account owned a percentage of a property. Quincy bought the property at a great price and it had a decent cash flow. The renter paid their payments each month directly into Quincy’s Roth IRA and my niece’s Coverdell ESA. This investment enabled Quincy to pay for his daughter’s education tax- free by taking distributions to pay for her tuition, books, a laptop and other essentials. Quincy’s daughter graduated college and the same renters are still residing in the property. Now the ESA can pass on to Quincy’s granddaughter and her educational expenses can be paid tax- free – talk about generational wealth! Another potential strategy is to consider a Health Savings Account. With health care costs on the rise, many Americans fear the possibility of unexpected and unmanageable medical costs. A Health Savings Account allows for tax-free distributions for health expenses. HSAs allow for a diverse range of health expenses to be paid for tax-free, including necessary medications, surgeries, and braces for your kids, Real estate investors can leverage their skills to do investments within these accounts and start building a nest egg for themselves and their families. For this reason, HSAs are one of my favorite accounts. One of my all-time favorite investments involved partnering my HSA with my Traditional IRA. First, funds from my previous employer 401(k) were rolled over into my
Self-Directed Traditional IRA. Combining my new Self- Directed Traditional IRA with an existing Self-Directed Health Savings Account, I invested both accounts into an equity participation loan. By partnering my small HSA alongside my Traditional IRA, I created additional funds which would later be used for important health expenses. At the outset of this particular investment, I had only around $6,000
in my HSA. However, at
the completion of the loan six years later,
my HSA was well over $40,000. My profits returned to my Traditional IRA and HSA, and I paid absolutely no taxes on these earnings. I like to think of HSAs as the best of both worlds, because I also received a tax deduction on the contribution that I had made into my account, reducing my personal taxes too. This is the part where the story earns the title of my favorite investment – I was then able to take a tax-free distribution to buy an airplane engine. You may be
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