SELF-DIRECTED REAL ESTATE IRAs

The Internal Revenue Service now allows you to invest Self-Directed Individual Retirement Arrangements (IRA) into real estate.   Self-Direction gives you the power to place retirement funds into a tangible investment that you control.

Advantages

• Control of when, where, and how your money is invested
• Diversification of retirement funds
• Increase contributions to qualified plans
• Potential greater returns compared to the stock market

What is the difference between 401K (Employer plan), 401K Rollover and Self-Directed Real Estate IRA?

401K (Employer) Plan - Employer plans are controlled and directed by the employer and/or plan administrator.   If you have a 401K with your current employer, check with your plan administrator to determine if real estate purchases are allowed.

401K Rollover - The rollover of 401K funds will occur when you have retired or left your place of employment.   In order to use the 401K funds, you must roll them over to a Self-Directed Real Estate IRA.

Self-Directed Real Estate IRA - The Self-Directed Real Estate IRA allows you to place retirement funds into real estate.   If your current custodian does not allow the purchase of real estate, then you simply choose an administrator that does allow the purchase of real estate in your IRA.   Southern Financial Services can be the plan administrator and/or the Self-Directed Real Estate IRA Custodian.   Self directed plans allow you to direct and control the investments.

Six IRS Rules that must be followed for Self-Directed Real Estate IRA's

1. You may not personally own the property purchased by your plan.
2. You must ensure that your intended purchase is not a prohibited transaction.   A prohibited transaction involves the improper use of your IRA or Qualified Plan holdings by you or any disqualified person.   A disqualified person is any member of your immediate family (except siblings), employers, certain partners, fiduciaries, and other categories specified in the IRS Code.
3. It must be for investment purposes only.
4. Neither you, your spouse, nor your family members, other than siblings, may have owned the property prior to its purchase by your plan.
5. Neither you nor your family members (other than siblings) may live in or lease the property while it is in your plan.
6. Your business may not lease or be located in or on any part of the property while it is in your plan.

Important Facts to Remember when investing in Real Estate with IRA Funds

Title:   When purchasing real estate for your IRA, it is imperative that it be properly titled.   Specifically, it must read: "John Smith Self-Directed Real Estate IRA, LLC, Southern Financial Services, Custodian, FBO John Smith."

Funding:   When purchasing an investment (or any portion of an investment) for your IRA, funds must come directly from your IRA.

Expenses/income:   Any expense associated with your IRA investment must originate in your IRA account and any income must be remitted to your IRA account.

Signatures: Southern Financial Services, serving as custodian on behalf of your IRA, must sign documents pertaining to your IRA investments.

HOW TO PURCHASE INVESTMENT REAL ESTATE THROUGH A SELF-DIRECTED REAL ESTATE IRA

1. Open a Self-Directed Real Estate IRA through a plan administrator.   Southern Financial Services will set up a single member LLC to hold the real estate.
2. Direct your plan administrator to purchase a specific, qualified property.
3. Once purchased, all expenses and debt services payments are paid through your plan. If you prefer you can hire a management company to receive the rents and pay the bills.

HOW TO SELL INVESTMENT REAL ESTATE THROUGH A SELF-DIRECTED REAL ESTATE IRA

• Direct plan administrator to complete the transaction to sell property.
• Proceeds from sales are placed back into your plan.
• The administrator can be directed to distribute the property to you, in part, or in whole as a distribution from the plan.   This option is a favorite for investors who wish to personally use property in the plan, such as a retirement home, once they reach age 59 ½.