WEALTH BUILDING & LEGACY INHERITED IRAS
way he liked. But the other thing Sam received, and Sam was the right Sam in- herited to withdraw those assets – totally tax free – at any time he wanted. When an IRA is inherited, the benefi- ciary can (with very few exceptions) freely withdraw from that account at any time, even if that beneficiary isn’t yet 59½ (the age required to make withdrawals from non-inherited IRA’s). The withdrawals are subject to the same taxation rules that gov- erned the original IRA, meaning that since Frank’s IRA was a Roth, Sam’s withdrawals would forever be totally tax-free. But Sam didn’t immediately withdraw the money. He did something much, much smarter: He initiated some small but high- ly creative real estate investments. A DEMONSTRATION OFWHY EVEN SMALL INHERITED ROTH IRA’S ARE PROFOUNDLYVALUABLE Remember, Sam didn’t inherit a lot of money in the Roth IRA Frank left him. It only had a couple thousand dollars. However, the account itself was more than enough for Frank to establish a substan- tive legacy for his son because Sam had one big advantage: a strong knowledge of creative real estate investing. Sam transferred his inherited Roth IRA to a self-directed IRA custodian so he would have the freedom to invest his inheritance in any way he wanted. He then set out to find an investment com- patible with his capital base. What Sam found was an opportuni- ty to place an option to purchase on a particular parcel of real estate. He used his IRA funds to purchase that option for his IRA, which gave his IRA the right to purchase that property at a set price at any time in the next two years. But Sam didn’t choose this parcel blindly. With a combination of re- search into his local county’s economic development plans along with hobnob- bing with local developers, he realized
that a particular part of town that was currently under-developed would quite certainly become a hotbed of activity very soon. That’s exactly what happened. A year after Sam’s IRA optioned that property, the local newspaper reported that sev- eral major retailers and businesses were eyeing the area for new locations. Sure enough, Sam received an offer to pur- chase his option on that property, and in the process made a cool profit of over $85,000 because of booming demand for real estate in the area. A LIFETIME OF TAX-FREE INVESTMENT PROFITS Having built his inherited Roth IRA into a value of $85,000 from a far more modest starting point, Sam could now afford to begin more directly benefiting from the IRA left to him by his father Frank. Sam – now 50 years old – was about to experience one of the bittersweet mo- ments of life: the marriage of his oldest daughter. That wedding, even though relatively small, would cost Sam $25,000. Sam was able to withdraw the $25,000 from his inherited Roth IRA and fund his daughter’s dream wedding. He also had the distinct pleasure of telling his daughter that the money came from money left behind by her grandfather, thereby making the day even more spe- cial to both Sam and his daughter. Furthermore, Sam didn’t have to pay income tax on that withdrawal of $25,000. If he had, his effective tax rate of 40 percent would have brought a bill from Uncle Sam for about $10,000. But since the IRA left was a tax-free
receive your assets when you’re gone, is a complex and frequently expensive prop- osition. The inherited Roth IRA makes it far simpler and practically free of cost. When Frank originally established his IRA, he completed a document known as a “beneficiary designation.” With this document, Frank stipulated Sam as the re- cipient of the account in the event of Frank’s passing. Doing so ensured that Samwould be able to easily inherit the account rather than forcing it through the delay, expense and complication of probate. When Frank passed away a few years later, Sam inherited two very important things: 1 The assets of Frank’s IRA 2 The tax benefits of Frank’s IRA. Sam would now be able to use his freshly inherited IRA to invest any predetermined price on or before a predetermined time. These options have real value and may be bought and sold independently of the purchase item in most cases unless the option excludes this. TRADITIONAL IRA: A tax-favored retirement account that provides a tax deduction for contributions and tax-free compounding of profits. Income taxes are due when withdrawals are made. PURCHASE OPTION: A legally binding agreement that allows a buyer the option to purchase something at a ROTH IRA: A tax-favored retirement account that accepts after-tax contributions and provides tax-free compounding of profits and tax-free withdrawals during retirement.
The Best Legacy-Building Tool for Real Estate Investors INHERITED ROTH IRAS MAKE FINANCIAL LEGACY SIMPLE.
by Bryan Ellis
I
from that account, unlike if he were us- ing an account that he had set up himself for his own use. Sam could begin taking withdrawals any time he wanted, and every single withdrawal would be 100 percent tax-free! Frank had given Sam an inheritance of truly immeasurable value. BREAKING DOWN THE PROCESS Estate planning, the process of making sure that your preferred beneficiaries
which was inherited by his son Sam. It was a small account holding only a couple thousand dollars, so while Sam appreciated it, it wasn’t going to be life-changing. But after a bit of research, Sam realized something: He now had a way to invest in practically anything he wanted – real estate, stocks, precious metals, crypto- currencies, or anything else – and he’d never have to pay taxes on the profits he made in that account. What’s more, he wouldn’t have to wait until he was 59½ to begin withdrawing
f you leave nothing else for your loved ones, be sure that they
inherit a Roth IRA from you. Even if the account has a tiny balance, leaving behind a Roth IRA provides a legacy benefit of overwhelming value: a lifetime of tax-free investment profits. In short, an inherited IRA is worth far more than its dollar value. Let me explain using a real-life example: When Frank passed away a few years ago, he left behind a small Roth IRA
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Bryan Ellis is the CEO of Self-Directed In- vestor Society and one of America’s lead- ing independent experts on self-directed retirement accounts. For more information about using inherited Roth IRA’s to build your financial legacy, see https:/ SelfDirected.org/legacy.
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