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Generation X Savers: Are They Prepared Enough for Their Upcoming Retirement Years?

Generation X Savers: Are They Prepared Enough for Their Upcoming Retirement Years?

Reasons why Gen Xers are concerned about their retirement readiness

It seems many members of Generation X, born between 1965 and 1980, might be considering a delayed retirement—or working in some capacity through their retirement years. With the oldest Gen Xers turning 60 next year, this generation’s shared experiences over the past 20 years—and what may lie ahead—are contributing factors to a general underfunding of and concern about their retirement plans.

Between lingering student debt (their own or their children’s), mortgage payments, credit card debt, the dot-com bubble burst, stock market downturns following the 9/11 attacks and the Great Recession in 2008-2009, and the financial fallout of the COVID-19 pandemic, there are enough factors to cause concern. Add the potential to become caregivers for aging parents or needing to support grown children, the cost of health care in our senior years, and other life issues, it’s no wonder many Gen Xers are concerned about their retirement savings (or lack thereof)—in spite of this cohort doing fairly well financially.

 

Recent surveys and statistics about Gen X retirement readiness

A Wealth Watch survey from New York Life surveyed 2,230 adults. The survey reported that 70% of Generation X think they will retire “later than expected” “or not at all

The 2024 Annual Retirement Study* from Allianz Life Insurance Company of North America, done earlier this year, sheds light on how Generation X consumers foresee their retirement—and the threats to retirement savings and security.

Participants’ top concerns were:

The survey also revealed that less than half of Gen Xers have a plan for how to take income in retirement (44%), and 45% are worried about how to best take distributions from their retirement plan. Over half (55%) wish they would have saved more money for retirement, citing expenses for day-to-day necessities, credit card debt, and housing debt as barriers to saving more for retirement. Forty-eight percent worry they will live too frugally and not enjoy retirement as much. In addition. 58% of the Gen X respondents do not have a written financial plan.

NOTE: As we often recommend to our clients with self-directed IRAs, consult your trusted advisors—not only about the alternative assets in your portfolio but your retirement income projection and strategy.

In the 2024 Transamerica Retirement Survey of Workers, which reached 5,730 workers, the median Gen X household has $93,000 in retirement savings and as a result, In the 2024 BlackRock Read on Retirement report, only 60% of Gen Xers feel “on track” for retirement, the lowest share of any generation and 60% worry they will outlive their retirement savings.

 

About those retirement plans…

The Allianz survey responses showed that:

That 82% figure is right behind millennials, who appear to be somewhat more prepared and confident about their retirement.

Among millennials, now ages 28-43, 83% reported making retirement plan contributions, and 77% reported they feel confident about being able to financially support all the things they want to do in life. This is despite the oldest of them entering the workforce during post-9/11 economic uncertainty and younger millennials dealing with the post-COVID economy.

 

About self-directed IRAs and retirement savings strategy

Saving for retirement takes discipline, no question. It also means having a goal and a long-term plan for retirement. How much income will you need? What will your budget include? How much do you have to contribute to your retirement account to meet your goals? And—good news for Gen X taxpayers who are over age 50—don’t forget that you can make catchup contributions to your IRA.

One strategy we share—in our webinars, white papers, and when investors contact our office—is including alternative assets within a self-directed IRA.

A SDIRA enables you to boost retirement savings by investing in a broad array of alternative assets—nontraditional investments that are prohibited in traditional retirement plans. Why settle for stock market volatility when you can build a more diverse portfolio with real estate, precious metals, private equity funding, royalties, gas & mineral rights, and so many more alternatives?

Self-direction is a strategy that offers many more ways to build retirement savings. It also expects—as “self-directed” investors—that account holders to do all their own research about investments and make their own investment decisions. Next Generation executes the transactions, administers the paperwork and filing for the account, and retains asset custody for our clients.

Need more information? Contact us today.

Looking Ahead to 2025: Upcoming Changes to IRAs and 401(k)s That May Affect Your Retirement

The changes to IRAs that will be implemented in 2025 apply to Traditional, Roth, and SIMPLE IRAs and 401(k) plans. These include self-directed IRAs and self-directed solo(k)s. Some were passed as part of the SECURE Act 2.0 and are now being phased in. Here are some issues to be aware of, plan for, or to discuss with your trusted advisor.


Upcoming changes to IRAs

• SIMPLE IRAs: catch-up contributions for people aged 60 to 63
Starting in 2025, the catch-up contribution limit for people between 60 and 63 years old and who participate in a SIMPLE IRA plan will increase to $5,250. To qualify for this higher contribution limit, you must turn 60 and/or be no older than 63 within the 2025 calendar year.

• New inherited IRA 10-year rule
Prior to 2020, beneficiaries could take advantage of the “stretch IRA” when they inherited an IRA from someone who passed away. That meant they could take distributions from the inherited IRA over the course of their lifetime (stretching the distribution time horizon) and prolonging tax-deferred growth of the assets within the account.
However, the new rule is that non-spouse beneficiaries who inherited an IRA on or after January 1, 2020 must withdraw all funds in the IRA within ten years. They have until December 31 of the tenth full calendar year following the death of the individual from whom they inherited the IRA.

o If the original account owner had reached RMD age at the time of his/her passing, beneficiaries must continue taking annual distributions.
o If the decedent had not yet reached RMD age, the beneficiaries must still spend down the assets within 10 years but may take the withdrawals at any time within that period.

Exceptions to the 10-year rule are surviving spouses, disabled or chronically ill persons, children under age 21, and a beneficiary who is no more than 10 years younger than the decedent (perhaps a sibling or other relative within that 10-year age range). Anyone who falls into these categories may withdraw funds from the inherited IRA over their lifetime (the stretch) beginning in the year following the decedent’s death. Surviving spouses can transfer the inherited funds into their own IRA and do not have to start withdrawing those funds until they must begin taking required minimum distributions (RMDs).

• Inherited IRA RMD penalties
For beneficiaries who did not take RMDs from their inherited IRAs in 2021 through 2024, the IRS is now implementing its final rule regarding this. Starting in 2025, a 25% penalty will be assessed for those who do not take their RMD on accounts they inherited in 2020 and later.
The 25% amount is less than previous RMD penalties (which were 50% of the amount that should have been withdrawn!). It is possible to reduce the penalty to 10% if the RMD is “timely corrected” within two years. We strongly recommend you consult your trusted tax advisor for guidance on this matter.
Note that the SECURE Act of 2019 increased the RMD age to 72 and then SECURE 2.0 upped the age to 73 for individuals who reach that age in 2023 and later. The changes around inherited IRAs and RMD age confused many people, so the Internal Revenue Service had waived penalties for certain IRAs inherited in 2020 and later.

Upcoming changes to 401(k) plans
• Larger catch-up contributions to 401(k)s for older participants
Like the new limits for SIMPLE IRAs, active 401(k) plan participants who will be between 60 and 63 years old in 2025 can make a bigger catch-up contribution of up to $11,250, effective for the 2025 tax year.

• Automatic enrollment
All 401(k) plans that were in place on or after December 29, 2022 will be required to implement auto enrollment for all qualified employees (some exceptions apply).
o The initial automatic enrollment contribution amount must be at least 3% but not more than 10%.
o That amount is increased by 1% in each subsequent year until it reaches at least 10%, but not more than 15%.
NOTE: The automatic enrollment rule does not mean mandatory participation is required, as employees can change the contribution rate or opt out entirely.

Year-end retirement plan contribution and distribution reminders
• 401(k) plans – The deadline to contribute is December 31, 2024.
• Roth and Traditional IRAs – You always have until the tax filing deadline to make the prior year’s contributions. Therefore, you have until April 15, 2025 to make 2024 contributions. Remember, if you have multiple IRAs, the contribution limit is an aggregate across all accounts. For example, if you own a Traditional and a Roth IRA and your contribution limit is $8000 (including a catch-up amount due to your age), that $8000 is the maximum amount allowed for both accounts combined, not for each.
• Excess contributions – Did you know you pay tax on excess amounts in your account? If you exceed the 2024 IRA contribution limit, you can withdraw excess contributions from your account by the due date of your tax return (including extensions) to avoid paying a 6% tax each year on the excess amounts left in your account.
• Required minimum distributions – Failure to take your RMD on time triggers an excise tax. Your tax professional or financial planner can help you calculate the RMD separately for each IRA that you own other than any Roth IRAs (Roth IRAs are exempt from these distributions until after the death of the owner). You are allowed to withdraw the total amount from one or more of your non-Roth IRAs.


Contact Next Generation with questions about your self-directed IRA

At Next Generation, we provide full account administration and asset custody services for all types of self-directed plans—Traditional, Roth, SIMPLE and SEP IRAs as well as 401(k)s, health savings accounts (HSAs) and education savings accounts (ESAs). While we do not offer investment advice, we do offer lots of client education about the many types of alternative assets allowed in SDIRAs and other plans. Need more information? Contact us today.

Maximizing Investment Flexibility by Switching Your Self-Directed IRA Custodian

When it comes to investment possibilities, a self-directed IRA (SDIRA) provides unparalleled flexibility. The many SDIRA investment options enable savvy investors to include a broad array of alternative assets within their retirement portfolio.

If you are considering opening your investment horizons to alternative assets in your retirement plan—and build a more diverse portfolio with a hedge against stock market volatility—consider switching your retirement plan to a self-directed IRA custodian.

 

IRA flexibility—SDIRA investment options are many

With a SDIRA, you aren’t limited to stocks, bonds, and mutual funds. By opening a new self-directed IRA, you can build retirement wealth with assets you already know and understand, with the same tax advantages as regular plans. You can include nontraditional investments you may already be investing in outside of your existing retirement plan.

That IRA flexibility shows up when account owners include real estate, precious metals, private equity funding, secured or unsecured loads, commodities, and many more alternative assets within their plans. You can create a more creative portfolio and take advantage of investment opportunities more nimbly.

Traditional and Roth IRAs may be self-directed (as can health savings accounts and education savings accounts), so contributions either grow tax-deferred (Traditional) or tax-free (Roth).

 

Time to switch IRA firms?

Switching your custodian to one that specializes in self-directed IRAs means partnering with a professional financial firm that has expertise in alternative asset investing. The custodian holds the assets on behalf of the account and executes investment transactions based on the account owner’s instructions. So, just as you would research your self-directed investments, be sure to do your research on SDIRA custodians as well.

When making the switch, be sure the new custodian also has the experience and processes in place that ensure clients are investing within IRS guidelines regarding SDIRAs. Check on their level of customer service, too. At Next Generation Trust Company, we are a boutique custodial firm that works closely with our clients to always keep that “trust” that is in our name—and a major factor in our client relationships. With 20 years of experience in the field and advanced training and certifications among our team members, we stand ready to share our industry knowledge about alternative asset investing.

And, as a full-service administrator of SDIRAs and other plans, we make sure mandatory reports and filings are handled timely and accurately.

 

If you’re seeking more IRA flexibility and want to know more about how to switch to an SDIRA custodian, contact Next Generation at NewAccounts@NextGenerationTrust.com. If you’re comfortable moving ahead with a new self-directed IRA, check out our starter kits with step-by-step instructions to make an IRA rollover, transfer funds between like IRAs, or contribute new funds.

The Benefits of Personalized Service When You Work with a Boutique Custodial Firm

In the realm of financial institutions as in any industry, the public has a choice of going with “the big guys” or boutique firms. This applies to boutique self-directed IRA firms as well—including Next Generation Trust Company. As a boutique IRA custodian and administrator specializing in self-directed IRAs (SDIRAs), we pride ourselves on the high-touch level of service we deliver to our clients every day.

Personalized SDIRA service

With Next Generation’s personalized SDIRA service, you are never just a number; you are a relationship that truly matters to our small staff of professionals. Our position as a boutique custodian of self-directed IRAs means our clients enjoy several key benefits.

Your safe investing is our priority – we check all your paperwork carefully to ensure everything is in order when you open a new account and verify your investment to avoid an obvious prohibited transaction. Once we have satisfied our internal reviews, we will then execute a transaction on your behalf.

No hoops to jump through – we make opening and funding an SDIRA more streamlined with our online starter kits and informational forms that are always available on our website.

White glove service – the Next Generation team is accessible during normal business hours by phone (no auto attendant) or email to answer your questions about your self-directed investments. In addition:

Expertise in self-directed IRAs – many of our team members hold specialized SDIP (self-directed industry professional) certifications and some also hold CISP (certified IRA services professional) designations. Our expertise is also notable when clients want to make certain IRA rollovers or transfer their IRA from one custodian to Next Generation to receive better service.

Ongoing client education – Next Generation offers complimentary educational sessions and webinars for investors who want to learn more about the alternative assets allowed in SDIRAs. You can schedule your info session here and find our on-demand webinars here. We also post white papers about various topics related to investing in general and self-directed IRAs in particular.

Time to switch IRA providers?
If you’re not receiving the level of service you expect from your current IRA provider, it might be time to transfer your self-directed IRA to Next Generation for better service. As a boutique IRA firm with a focus on our clients’ best interests (and IRS regulations), you’ll get personalized service from a team of professionals who take our relationship with you very seriously. Need more information? Contact us today.

Jaime Raskulinecz Shares Insights Into Investing in a Real Estate Syndication Through a Self-Directed IRA

CEO of Next Generation and Forbes Finance Council thought leader explains the alternative asset and how it can be used to build retirement wealth

ROSELAND, NJ, September 28, 2024 /24-7PressRelease/ — Jaime Raskulinecz, CEO of Next Generation Trust Company, recently published an article in her Forbes Finance Council column about how to include a real estate syndication within a self-directed IRA.

The article details how self-directed investors can include this alternative asset within their retirement plans to build tax-advantaged retirement wealth and passive income. Real estate as an investment category is among the most popular alternative assets in self-directed IRAs. In addition to many types of investment property, account owners can include real estate syndications and lease options.

“Real estate syndications are a partnership between a group of investors who—as fractional participants in the investment—pool their resources to invest in various types of real estate assets. In the case of our clients, the self-directed IRA is the investor,” explained Raskulinecz. Her firm provides full account administration and asset custody for self-directed IRAs and other plans; she is an official member of Forbes Finance Council.

The article discusses the two general types of real estate syndications (equity syndication and debt syndication), syndication structure, and how the retirement plan earns tax-advantaged passive income with the potential for favorable long-term gains.

Like any self-directed investment, Raskulinecz and her team strongly recommend that investors conduct thorough due diligence before sending investment instructions and that they are comfortable making their own investment decisions.

“With a real estate syndication, it’s important to understand the business plan and fees involved, and to research the sponsor and the particular real estate market in which the syndicate is investing,” she noted.

• Read the full article about investing in real estate syndications at https://shorturl.at/t2YwV.
• All of Raskulinecz’s Forbes Finance Council content is at https://shorturl.at/JRAgV.
• More information about self-direction as a retirement wealth-building strategy and about Next Generation is at www.NextGenerationTrust.com.

About Next Generation

Founded on the philosophy that every person should have control over their retirement plans, Next Generation educates consumers and professionals about self-directed retirement plans and nontraditional investments, a strategy at one time reserved only for the very wealthy. Next Generation Services provides comprehensive account administration and transaction support, and its sister company, Next Generation Trust Company, acts as custodian for all accounts. The neutral third-party professionals at Next Generation expertly guide clients and their trusted advisors as part of their white glove, personalized service for a seamless transaction experience from start to finish. For more information, visit www.NextGenerationTrust.com, or contact Next Generation at 888.857.8058 or NewAccounts@NextGenerationTrust.com.

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Real Estate Investors—Time to Get Off the Sidelines as Interest Rates Drop

Real Estate Investors—Time to Get Off the Sidelines as Interest Rates Drop

What goes up must come down and that includes the historically high interest rates that have challenged American borrowers since 2020—real estate investors and home buyers—when mortgage rates doubled. While the Federal Reserve’s interest rate increases helped slow the economy and tame high inflation, many real estate investors have been waiting for more favorable rates to enter the market again.

What does the Fed do?

The Federal Reserve controls the federal funds rate; this rate determines the interest charged in overnight cash reserve transactions between banks. The federal funds rate affects overall borrowing costs (think credit cards, loans, and mortgages) because lenders usually set their rates based on this Fed-determined range.

For real estate investors who’ve been waiting on the sidelines, there’s good news. At its September 18 policy meeting, the Fed lowered the federal funds rate by .5%, bringing it down from the 5.25-5.5% range to 4.75-5%. This is its first rate cut since 2020, when, at the start of the COVID-19 pandemic, the federal funds rate was 0-.25%!

Some sources predict a Fed fund rate close to 3% by the end of 2025. We encourage everyone to follow announcements from Chairman Powell about projections on the federal funds rate going forward, as it will affect investment decisions.

What’s happening with mortgage rates?

Some good news is that mortgage rates have been falling in recent months with the expectation of the Fed lowering interest rates on September 18. Here’s a look at the average 30-year fixed rate, which is heading in the right (lower) direction:

How mortgage rates affect the real estate market

High mortgage rates result in lower buying or investment levels due to the higher borrowing cost. Self-directed IRAs that make real estate investments may also need to finance part of that investment with a non-recourse loan in which—should the IRA default on the loan—the lender’s only recourse is to foreclose upon the real estate used as collateral.

High rates also drive down prices and can tighten inventory in the residential market. Sellers may hesitate to list their home during a high interest-rate environment and homeowners who locked into a very low rate during the pandemic (when they could get financing at 3%) may not be able to afford to buy something else afterward at higher rates.

Conversely, lower borrowing costs bring more buyers into the real estate market and drive up sales prices due to higher demand. This could mean that real estate investors are in a sweet spot right now—with prices not yet rising dramatically, demand not yet overheated, and borrowing rates at a more comfortable level than in the last few years.

Self-directed investors take note!

Real estate investing is sensitive to interest rate changes but with lower rates ahead, more investors can afford to include this asset within their self-directed IRAs thanks to less expensive financing. Real estate investment trusts (REITs) typically do well in a lower-interest rate environment, so investing in these assets (rather than investing in a property directly) may also benefit self-directed investors.

If you are investing in a property, make sure to retain enough cash in the account to cover maintenance and repair expenses, property management fees, and other related costs associated with the asset. All investment income derived from the real estate must flow directly into the IRA, where it will grow with the same tax advantages as in a typical Traditional or Roth IRA. Your self-directed IRA can also partner with another one to make the investment and pool funds to make a direct cash purchase.

As always, you can rely on Next Generation Trust Company to provide the education and information you need to understand investing in alternative assets in a self-directed IRA. We invite you to join our mailing list and get webinar announcements, or contact us today to learn more about self-direction as a retirement wealth-building strategy.

Happy Golden Anniversary to ERISA

ERISA stands for the Employee Retirement Income Security Act of 1974, which became federal law in September 1974. It implements standards for certain employer-sponsored retirement and health plans. Fifty years later, we celebrate its enactment for several important reasons—to us at Next Generation Trust Company and investors nationwide.

ERISA has made it possible for more Americans to save for retirement by:

The legislation was enacted in response to concerns about the future (and security) of workplace retirement plans. It added protections and a federal regulatory framework that governs funding requirements, eligibility rules, and fiduciary standards for plan sponsors. ERISA also created the Pension Benefit Guaranty Corporation (PBGC) which protects private sector defined benefit pension plans.
 

The importance of ERISA to investors – and self-directed IRA custodians and administrators

Although pension plans were still more widely offered at that time than they are today, many workers did not have access to an employer-sponsored retirement plan. Thanks to ERISA, Traditional IRAs were introduced in 1974 as a solution for people who were not participating in a workplace plan to save for retirement beyond their bank accounts. Over the years, Roth IRAs became available as well as health savings accounts and education savings accounts (which can all be self-directed to include alternative assets within their portfolios).

Other retirement legislation was implemented along the way to boost Americans’ ability to save for retirement through tax-advantaged plans and to protect those plans. Most recently, the SECURE Act (2019) and SECURE 2.0 (2022) created significant enhancements to retirement security that adapted to an evolving market and build on ERISA’s strong foundation. As a full-service administrator and custodian for self-directed retirement plans, we keep our clients abreast of legislative changes that affect retirement plans, ESAs, and HSAs and will post updates as they become finalized.
 

Self-directed IRAs were always available

We find that many of our clients don’t realize that when IRAs were created, there was always the option to open a self-directed account. This is partly because 50 years ago, large financial institutions—which limited investments to stocks, bonds, and mutual funds—advertised the availability of their IRAs heavily, leaving many taxpayers unaware of the self-directed option. However, we’re happy to report that over the past five decades, investors have become more financially knowledgeable about alternative assets in general, and more are discovering the many options and benefits of including them in a tax-advantaged self-directed IRA.

Thanks to the passage of ERISA, all those self-directed IRAs have become possible, along with the establishment and growth of Next Generation. We are delighted to be celebrating our company’s 20th anniversary this year…and we all wish IRAs a happy 50th anniversary!

Next Generation Trust Shares Insights Into Investing in Real Estate Lease Options Through a Self-Directed IRA

Real Estate Lease Options in Single-Family and Multifamily Properties are a Popular Alternative Asset

ROSELAND, NJ, September 04, 2024 /24-7PressRelease/ — Savvy investors who understand real estate assets can include real estate lease options in a self-directed IRA to build tax-advantaged retirement wealth and passive income.

Jaime Raskulinecz, founder and CEO of Next Generation Trust Company, recently published a blog article on her firm’s website that details how self-directed investors can include these alternative assets within their retirement plans. It explains lease options, how to make these nontraditional investments, how to set up lease option arrangements, and how optioning a property works.

“Unlike a traditional lease on a rental property, a lease option provides certain advantages to the investor,” said Raskulinecz. “It gives the investor more control over the property without officially owning it, provides a path to property ownership, and when transacted through a self-directed IRA, is a tax-advantaged investment.”

Her firm provides full account administration and asset custody for self-directed IRAs and other plans. Real estate and related assets are among the most popular investments in self-directed retirement plans.

The article discusses lease option arrangements and their structure between the property owner and investor, the benefits of optioning a property and “subject to” properties and how to combine these with lease options to generate greater returns to the self-directed IRA.

“As with many alternative assets, real estate lease options provide consistent passive income through monthly rental payments by tenants,” said Raskulinecz. “Another way to generate retirement income is by optioning a property, whereby the investor assigns—or sells—the lease to a third party at a profit. Either way, these are other types of real estate assets that diversify account owners’ retirement portfolios while also building a hedge against stock market volatility.”

Like any self-directed investment, Raskulinecz and her team strongly recommend that investors conduct thorough due diligence before sending investment instructions and that they are comfortable making their own investment decisions. More details about real estate lease investments are in the full article at https://shorturl.at/DO0NO.

More information about self-direction as a retirement wealth-building strategy and about Next Generation is at www.NextGenerationTrust.com.

About Next Generation

Founded on the philosophy that every person should have control over their retirement plans, Next Generation educates consumers and professionals about self-directed retirement plans and nontraditional investments, a strategy at one time reserved only for the very wealthy. Next Generation Services provides comprehensive account administration and transaction support, and its sister company, Next Generation Trust Company, acts as custodian for all accounts. The neutral third-party professionals at Next Generation expertly guide clients and their trusted advisors as part of their white glove, personalized service for a seamless transaction experience from start to finish. For more information, visit www.NextGenerationTrust.com, or contact Next Generation at 888.857.8058 or NewAccounts@NextGenerationTrust.com.

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Investing in Real Estate Lease Options in a Self-Directed IRA

Real Estate Lease Options in Single-Family and Multifamily Properties are a Popular Alternative Asset

If you’re looking for a way to further diversify your self-directed IRA portfolio, and you are savvy about real estate investment properties, you may want to look at investing in real estate lease options.

Unlike a traditional lease, a lease option a) gives the investor more control over the property without officially owning it, b) provides a path to property ownership, and c) is a tax-advantaged investment when transacted through a self-directed IRA.

What is a lease option?

In general, a lease option (rent with the option to buy) enables a renter to purchase the rented property during or at the conclusion of a rental period. The owner may not offer the property for sale to anyone else during this time frame. When the rental period ends, the renter must buy (exercise the lease option) or forfeit the property. The tenant usually pays a rental premium that goes to the downpayment.

What is a lease option investment—and how does it work with a self-directed IRA?

A lease option investment is between a property owner and an investor—and is gaining popularity as a self-directed real estate investment.

The self-directed IRA (the investor) pays a monthly amount to the property owner, who retains responsibility for the mortgage. The terms are agreed upon in advance by both parties—in this case, the monthly amount and length of time (although other factors such as responsibility for repairs and maintenance or utility payments should be considered). The investor can extend the lease to a different tenant who pays the rent (which covers the monthly rental cost). As a self-directed investment, here’s how it works:

A. The account owner enters an agreement with the property owner that stipulates all relevant terms of the lease option.
B. The self-directed IRA makes monthly payments to the property owner.
C. The account owner finds a third-party tenant for the property.
D. The renter makes monthly payments to the IRA.
E. The retirement account sees positive cash flow when a renter pays more on the lease than the amount agreed-to by the investor and property owner.

NOTE: The tenant may not be a disqualified individual; this will create a prohibited transaction and puts the tax-advantaged status of the self-directed IRA in danger.

Optioning a property

When investors option a property, they make a relatively small upfront investment and decide later if they want to exercise the option and cash out the seller.

• The property is not acquired directly at the start. According to the contract signed between parties, the investor (self-directed IRA) may purchase the property at a set price within a specified time. For example, after the one-year lease period expires, the investor (IRA) may purchase the property for X dollars.
• In the meantime, the investor can lease the property and the self-directed IRA earns tax-advantaged cash flow during the option period.
• The investor may also choose to assign (sell) the option to another party for a profit. For example:
o Sam enters a lease option arrangement with a property owner and puts down a small “option consideration” from his IRA; this is a non-refundable upfront payment made to the landlord to secure the right to purchase the property during the lease term.
o The IRA rents the property from the owner for a certain monthly amount for a year.
o Sam finds a tenant who pays rent to the IRA (at more than what Sam pays the owner).
o At some point, the tenant negotiates with Sam (on behalf of his IRA) to sell/assign her the option. This gives the tenant the ability to purchase the property directly from the original owner, using the option Sam sold to her, and to do so at less than fair market value.
o Sam’s IRA earned positive cash flow every month from the rent and much more from the assignment of the option.

Building retirement wealth through lease option and subject to strategies

These real estate investment strategies can be combined to build more wealth. For example:

• The self-directed IRA purchases a subject to property and
simultaneously gets a lease option tenant. The deposit paid for the deal can be recouped from the lease option deposit—a wash at worst and a gain when the deposit paid by the tenant is more than what the IRA paid out.
• The IRA earns passive income when monthly rental payments coming into the account are higher than the monthly mortgage payments going out
• Selling the property to a tenant buyer at a higher price than the contracted purchase price at the start of the deal.

Another great investing option: a self-directed IRA at Next Generation

Comprehensive account administration, investor education, and excellent client service are three big reasons why self-directed investors have trusted Next Generation for 20 years. If you have a question about rental lease options or other real estate-related investments (or any other alternative asset these plans allow), contact us at 888.857.8058 or NewAccounts@NextGenerationTrust.com. Need more information? Contact us today.