Summary: If you haven’t heard part one of this show, go listen to episode 43 over on TheRealEstatePowerHour.com Can you make money tax-free? Now, we’re moving on to protecting your wealth. There are two choices. We can pay ourselves or we can pay taxes. What does it take to pay yourself? First, open a self-directed IRA and put money into it. You can do this by either contributing from earned income, transferring from another IRA, or by doing a rollover. If you have a 401k or similar plan, you can roll it over into your self-directed IRA. Then you need to use that money to make investments. There are three ways you make money. The first is in a taxable environment. This is how you normally make money. With an IRA, you have two other options. You can take $5,000 and subtract that from your taxable income. You get a deduction. When you make investments, you don’t pay taxes on the income within the IRA. As long as the money stays in the IRA, you don’t pay taxes on that. When you start to withdraw money, that’s when you pay taxes on it. Here’s the way to make tax-free money The other way is to use a Roth IRA. Instead of making a contribution and taking a tax deduction, put money in after taxes. If you do that, you don’t pay taxes on the growth OR when you withdraw it. You paid your taxes on the original $5,000, so you don’t pay taxes on the back side. This can save you huge amounts when you go to withdraw it, which you can do as long as you’re 59 ½ and the account has been open for 5 years or more. If your IRA grows to $1,083,000 and you make 10% a year, you can withdraw $108,300 a year without affecting the principle. If you did this with a traditional IRA, that means you’d pay taxes on the money which lowers the spendable amount to about $81,000. If you do the same thing with a Roth IRA, you get to spend all $108,300 and not pay taxes. You don’t pay federal, state, local, Social Security, or even capital gains taxes. Don’t believe me? Let’s check with the IRS. Take a look at Publication 590 and what it says about distributions from a Roth IRA. When you take title to real estate in the name of your IRA, you’re protecting future earnings from taxes. How to access money early You can borrow money from the IRA by the way. You can borrow up to $50,000 a year from your IRA. You have to pay interest on it. The great thing is that you’re paying interest to your IRA, so you’re paying yourself. How to create wealth for your children using this strategy All a person needs to open an IRA is earned income. So, take some of their income from working at McDonalds, mowing lawns, etc. and put it into a Roth IRA. Some people say, “My kids are useless. I can’t get them to do anything to earn money.” Here’s a strategy. I pay my kids for their likenesses that I use in my presentations. That money can then go into a Roth. Now, imagine this. If you have a baby and open up a Roth IRA for them at age 1 with $5,000 and no one touches it again (including no more contributions) until they’re 65, they’ll have over $2 million. In a traditional IRA, a large chunk of that in taxes when they withdraw it. With a Roth, it’s all tax free. What’s really exciting about this When you die, the assets of the Roth IRA roll over to your spouse. That means that once the husband dies, the wife will have the same income and won’t need to depend on anyone. What happens when she dies, on average, ten years later? The money goes to your heirs. Since they inherited it, the money remains tax-free, but the minimum age for distribution goes away. On average, they’ll live another 55 years. All this money is growing for a total of over 100 years. You’re able to give the life you’ve only dreamed of to your descendents. Everyone should have this type of account. Now for some questions What are the fees? You have a set up fee for as little as $50. Annual fees are about $400 on a $100,000 IRA. If you pay fees outside the IRA, you can deduct them. So,
