Reaching retirement is an important milestone, and part of the journey often involves managing your retirement savings. If you’ve recently changed jobs or retired, you may be faced with the decision of what to do with your old 401(k) plan. It can be daunting or exhilarating. It can be similar to the past years or an opportunity to unlock your funds, take control, and invest in a different way. This article will explore various options available to individuals with old 401(k) plans and provide insights to help you make an informed decision.

1. Evaluate Your Current 401(k) Plan:

Before making any decisions, it’s crucial to assess your existing 401(k) plan. Consider the plan’s investment options, fees, and overall performance. If you’re satisfied with the plan and it meets your retirement goals, leaving your funds in the current 401(k) may be a viable option. This decision allows you to maintain the tax advantages and convenience of managing your retirement savings in one place.

2. Roll Over to Your New Employer’s 401(k) Plan:

If you’ve started a new job that offers a 401(k) plan, you may have the opportunity to roll over your old 401(k) funds into the new plan. Assess the new plan’s investment options, fees, employer contributions, and other features to determine if it aligns with your retirement objectives. Rolling over funds into a new 401(k) plan can simplify your retirement savings strategy and keep your investments consolidated.

3. Consider an Individual Retirement Account (IRA):

Rolling over your old 401(k) into an Individual Retirement Account (IRA) is a popular choice that offers greater flexibility and control over your investments. IRAs provide a wider range of investment options compared to most employer-sponsored plans. A self-directed IRA provides true diversity and control, and the most asset options available including alternatives such as real estate, notes, private placements, and precious metals to name a few. Self directing your investments is more work but you are using your expertise and knowledge and investing in what you know and understand.  You can choose between a traditional IRA or a Roth IRA based on your tax preferences. While a traditional IRA offers tax-deferred growth, a Roth IRA allows for tax-free withdrawals during retirement.

4. Weigh the Benefits of a Roth Conversion:

If you’re considering rolling over your old 401(k) into a traditional IRA, it’s worth exploring the benefits of a Roth conversion. By converting your funds to a Roth IRA, you’ll pay taxes on the converted amount upfront, but future qualified withdrawals will be tax-free. This strategy can be advantageous if you anticipate being in a higher tax bracket during retirement or if you desire tax-free income in the future.

5. Evaluate Tax Implications and Penalties:

When deciding what to do with your old 401(k) plan, it’s crucial to consider potential tax implications and penalties. If you withdraw funds from the 401(k) before reaching the age of 59½, you may incur early withdrawal penalties and be subject to income taxes. However, rolling over your funds into another qualified retirement account can help you avoid these penalties and maintain the tax-advantaged status of your savings.

6. Conclusion

Navigating the complexities of retirement planning and managing your old 401(k) plan can be challenging. Carl Fischer,founder of CamaPlan a self -directed Ira company, “you should consider personalized guidance based on your specific circumstances and analyze the pros and cons of each option, considering factors such as your age, retirement goals, risk tolerance, and tax situation.”

Deciding what to do with your old 401(k) plan is an important step in securing your financial future. Evaluating your options, including leaving your funds in the existing plan, rolling over to a new employer’s plan, or transferring to an IRA, requires careful consideration. Take into account your investment preferences, fees, tax implications, and long-term retirement goals when making your decision.

The post What Should You Do With Your Old 401(k) Plan? appeared first on Self-Directed IRA by CamaPlan.

The first stock exchange was established in 1602. The real estate industry as we know it has its roots in property rights established in the 1800’s. But at least as early as 600 BC, humans have used gold as currency. 

Rare, beautiful, and malleable, every society has treated gold as a valuable asset — even isolated societies that couldn’t possibly have gotten the idea from anyone else. 

And yet a 2019 survey by the Fed revealed that a mere 10% of American households had any kind of exposure to this most ancient and durable of asset classes — gold and other precious metals. 

This fact continues to astound Simon Popple, founder of Brookville Capital, recognized expert in the gold market, and author of the beginner-friendly book Investing in a Recession: Time to Think About Gold. 

“It’s an asset class that very few people — and I mean very, underlined in bold — have got any exposure to,” Popple told Michael Duncan of the Road to Financial Freedom Podcast, “which is amazing.”

Checkmate For Real Estate and Stocks

Uninspired by school, in his youth Popple might have been mistaken for a lesser intellect were it not for chess. Behind a chessboard, he revealed a preternatural knack for strategic and intuitive thinking. 

“People I used to beat at chess went on to Oxford and Cambridge and top universities,” he said, “but I was just never passionate about conventional education.”

Popple’s career began relatively conventionally — if impressively — in corporate finance and real estate, eventually rising in his 30s to become the youngest director ever of one of the world’s largest private real estate firms.

But then, accustomed to looking several moves into the future on the chessboard, Popple decided to do some math … and was startled by what he discovered with respect to the investment vehicles his employers championed.

“I was slightly horrified about how inflation can impact your long-term savings, pension, whatever it is,” he said. 

Shocking his peers, he abandoned his prestigious real estate career and focused full-time on precious metals. “I really wanted, uh, an asset class which was less exposed to, um, interest rates,” Popple said. “In these sort of, um, challenging times, uh, you know, gold is, uh, it’s, you know, it’s proven, it’s been around thousands of years.”

Gradually becoming a leader in the field, Popple was eventually invited to write for various prestigious financial publications. Today he’s a regular contributor to and source for IG Index, Stock Head, and other prestigious financial brands. 

Cut It In Half, and What Do You Get?

Popple is clearly fascinated by the unique qualities of his favored asset class. “It’s probably the only asset I can think of that is universally valuable,” he said. “You can cut a gold bar in half and you still have the same amount of gold. Whereas if you cut a diamond in half, you have a dramatic impact on its value.”

Compare that to real estate. Cut a house in half, and you reduce its value considerably. “I think you’d probably find the owner would be quite cross as well,” Popple said.

Gold and real estate are both real assets, making them good hedges against inflation. But Popple recognizes another advantage of gold over real estate. 

“If you’ve got a property in one city and you’ve got exactly the same property in a different city, they’re worth different amounts of money,” Popple said. “They probably cost you the same to build, but they’re worth very different amounts of money because the land is worth different amounts of money.”

“What I like about gold is it’s portable,” he said. “If for some reason I decide I want to go and live somewhere else, I can’t take my property with me, but I can take my gold.”

An Entire Team of Wide Receivers

Don’t make a mistake — Popple still likes real estate. He doesn’t see the need for it as an “either-or” prospect. It’s just one more asset to include in your portfolio, one that can perform a different function than other assets because of its unique qualities.

Popple compares a diversified portfolio to a football team. Each teammate performs a different role — takes different actions with different levels of risk and reward — but you can’t have an entire team of linebackers or wide receivers and be successful. (Popple is British, so he has to specify that this is “American football.”)

That being said, gold doesn’t have to be boring and inert. Popple emphasizes that as investors acquire experience, the gold industry can fill many roles in their portfolio — from safe and simple physical gold or the GLD index; to the real estate required to mine, refine, or store gold; to speculative high-risk-high-return mining operations.

“I picked a company called Chalice Gold years ago that went from 15 cents to over $10,” Popple said. “Super high risk, but phenomenal returns when you get it right.”

Listen to the full podcast with Simon Popple

The post The Secret Life of the World’s Oldest Asset: What You <em>Don’t </em>Know About Gold Could Make You Wealthy appeared first on Self-Directed IRA by CamaPlan.

David Pupo did not set out to become a coach and mentor to real estate investors. Junior or novice investors simply noticed his runaway success — over 300 transactions and a big portfolio of rental properties, accumulated using his signature “Triple Offer Method,”  — and asked him for advice. 

He started charging for his time when he realized that these early students were asking a lot of him, but it wasn’t entirely about the money. Pupo had enough money.

“One of the biggest [reasons students pay me] is accountability,” Pupo, founder of tripleoffer.com, told Michael Duncan of The Road To Financial Freedom.  “If you want to pay for my time to teach you something, you gotta hold yourself accountable.”

Unfortunately, from his perch as a teacher and mentor, Pupo had to watch many students never get their investment careers off the launch pad, despite having everything it took to succeed in the business. The culprit — fear of failure.

“What holds a lot of people back is thinking that they’re gonna get it right the first time,” Pupo said. “I don’t know where that got instilled in our society where somebody had to be perfect … but somehow it’s there. And it’s very sad, because you’re seeing a lot of people that are very talented, but they’re afraid.”

Pupo has certainly made his share of mistakes — from mismanaging a property to trusting the wrong partner. And he still managed to come out of it financially free at a young age. 

“I’m a big basketball person,” he said. “You didn’t just wake up and go ten for ten from the free throw line. That’s a skillset. You have to develop it.”

The ADHD Investor

Out of college, Pupo found himself working sixty hours a week as a recruiter for defense contractors in his home base of Orlando. Burnt out at the end of the day, he became a self-described “couch potato,” until his soon-to-be-wife urged him to make a change.

Raised in Florida in a family of wall-to-wall real estate professionals, Pupo had had front-row seats for the housing crash of the Great Recession of 2008. Desperate for an exit ramp from his soul-killing day job, he became an obsessive listener of the Bigger Pockets podcast. He networked with real estate investors.

Their accomplishments floored him. “Sometimes they’d be making like $20-30,000 on deals and they would only have to put in a few hours of work,” Pupo said. 

In 2016, having saved up three months’ worth of expenses, he quit his day job and devoted himself full-time to real estate.

It wasn’t easy going at first. “One of my biggest hurdles, in the beginning, is that I do suffer from ADHD,” Pupo said, “and real estate, I realized, was ‘Alice In Wonderland.’ You go into this hole and you open out and there’s a whole different world that you never knew.”

Eventually, though, Pupo found his footing. “I think the realization was when you cash your first check, or you get that first wire hit,” he said. “You’re working in fog right now. You’re spinning, you’re putting a lot of hustle into something, and then suddenly … when you cash a check, something happens in your head … and your mind is showing you ‘This can work.’”

Three Offers are Better Than One

Pupo didn’t invent the Triple Offer Method, but it has become his secret weapon. It’s a strategy whereby you present a motivated seller with not one offer, but three offers, each one structured differently.

The point isn’t even the fact that you’re more likely to get a “Yes” with more offers on the table. The Triple Offer Method also elicits valuable information from the seller as to why they want to sell, and what it will take to close the deal. 

“We remove ourselves from just pushing one offer on a seller,” Pupo said. “I want to be able to understand what is [the] real motivation of a seller. So what we do is we provide three offers. Sometimes, heck, I’ll even go four, but ‘Quadruple Offer’ doesn’t sound as cool, right?”

So what would a “triple offer” look like? It might be:

• A low “all-cash” offer.
• A middle-of-the-road offer with financing.
• A high offer with the stipulation of seller-financing.

Pupo sees seller financing becoming a bigger deal now that banks are crashing and credit markets tighten even more.

“We are now seeing, literally, banks collapse on themselves,” Pupo said. “Why not be able to use the seller as the bank as opposed to [going] to Silicon Valley Bank?”

Listen to the full podcast with David Pupo

The post Conquering Fear and Taking The Leap — David Pupo and the “Triple Offer Method” appeared first on Self-Directed IRA by CamaPlan.

Real estate is everywhere. Lots of people go into it. Lots of people understand it. After all, many of us will own a home at one point, and even more of us will rent one. It’s kind of easy to understand that business, because we’re all customers of that business.

Other people embrace a more complicated calling. For Grant Norwood, it was oil and gas.

“Growing up in Texas, it’s all around you,” Norwood, CEO of Norwood Energy Corp, “so there was always that kinda curiosity. How does it all work? What does it do? Is it just so we can fill up our cars?”

I Wouldn’t Have Hired Me

Norwood knew lots of people with jobs in the oil and gas industry … but he wanted more. He wanted to run the show. So he took an unconventional approach to building his career — a series of entry-level jobs in different departments of different oil companies, never more than six-months to a year, learning the business in the trenches from all sides.

“I was completely forward with them,” Norwood, who prefers a minimum of ten years’ commitment from his own employees, said. “I wouldn’t have hired me.”

But the years in grunt-level positions paid off. Now Norwood Energy Corp fills a lucrative niche in the oil business — recognizing opportunity hotspots in undiscovered areas of the country where they can operate significantly below what it costs the Exxons and the Chevrons of the world to operate.

The Power of Small

That’s not the only advantage Norwood has over the big players in the industry. He prides himself in turning the “smallness” of his operation to his advantage.

“In those [larger] companies, even the executives … they don’t have total control,” Norwood said. “I don’t think these big companies care about the guys on the floor. I don’t even think they know each other.”

“It’s like ‘Telephone’ when you’re in grade school,” he said. “‘Sally’s wearing blue pants’ by the time ‘Billy’s got a blue hat,’ you know? By the time you pass it around and everybody regurgitates it, it’s not the same.”

“So just being private, being smaller … I know everybody, everybody’s birthdate, kind of car they drive, how many kids they have, all that stuff. So we’re all really close and then everybody’s opinion matters.”

It’s In Everything

I said above that we all understand real estate because we’re all customers of real estate … but in a very real sense, we’re all also customers of oil. Even if we don’t fully understand the business, even when we don’t realize it.

“It takes oil and gas to make plastics, disposables, medicines, fabrications,” Norwood said. “Everything we have … if it’s not directly oil, it’s created by it … Your fertilizers, all your food, all that stuff. It really does not matter. You can’t find something that it’s not in the supply chain or the supply itself, especially plastics, handheld TVs, all the technology, all that stuff.”

Norwood doesn’t anticipate that changing any time soon. He knows how much oil it takes to produce solar panels and windmills, and he thinks we’re still a long way from them being viable replacement sources of energy.

“I​it’s okay with me,” He said, “‘cause all the oil it takes to build that windmill is a net loss of energy. So that makes my demand go up.”

A Finite Supply

Still, he recognizes the need for his industry to evolve into alternative energy sources, for one simple reason — make no mistake, at some point the oil will run out.

“I honestly hope they crack the code,” Norwood said. “If we’re honest with ourselves and the reserves that are actually producible, we’ve got about sixty years’ worth of recoverable oil at the rate we’re going.”

“Our kids might be okay, but their kids won’t,” he said. “We won’t have the energy we need, and nobody wants to be plunged back into the dark ages … How will we get our medicines? How will the machines that we give us, our procedures, and all the luxuries we enjoy today?”

Like Buying Bitcoin 10 Years Ago

For the time being, though, the gravy train is rolling. How well? 

“You know, if you start looking at 10X+, there’s just more at risk,” Norwood said. “And if you’re fine with the risk, jump right in. But if you’re happy with like 3X-8X in a fair amount of time, then that’s your starting point.”

“I’m actually wanting to put out a training course on how to navigate those waters,” he said, “‘cause a good oil deal … It is like buying Bitcoin ten years ago. A bad oil deal … it’s like buying Bitcoin a few months ago.”   

Listen to the full podcast with Grant Norwood

The post Black Gold — Making 3X-8X on the One Resource Found in <em>Everything</em> appeared first on Self-Directed IRA by CamaPlan.

After almost 25 years working for Silicon Valley startups, had about 150 reasons to want to get out of the rat race — the 150 or so days the various startups he worked for had him in cars and on planes, almost half a year on the road pitching software solutions in person. 

If he needed more reasons, there were another three to consider.

“I have two daughters who I absolutely adore,” Matthews, founder of Clark Street Capital, told Michael Duncan of The Road to Financial Freedom. “And a wife who I adore. It turns out the three of them actually like me as well.”

The Purple Bible

A chance encounter with — you guessed it — the “Purple Bible,” Rich Dad, Poor Dad by Robert Kiyosaki, changed everything for him. Matthews was determined to go into real estate … despite the fact that he had barely a clue of what he was doing.

“I had all the classic excuses,” he said. “‘I don’t know where to find the deals.’ ‘The world economically is cratering.’ And I was the one that didn’t have enough courage in myself to be able to hunker down and find the deals.”

But Matthews eventually found the courage. He began flipping houses in New England … and discovered a passion he had almost forgotten he had. 

“I had an affinity for real estate,” Matthew said. “My dad was a master carpenter, although he never did it as a vocation … Some of my earliest memories are handing him a hammer at a porch that we were building for a friend of his.”

A chip off the old block, Matthews found that he loved taking worse-for-wear New England houses for a song, making them beautiful again, and selling them to a happy family for a profit.

“I joke that I don’t drink, I don’t do drugs, so I guess flipping is my cocaine, right?” he said. “So that’s my vice.”

From Flipping to Building a Portfolio

But there was a problem — once the flips were sold, he was back to square one, looking for the next flip. He was working just as hard, no closer to freeing up time to spend with his wife and daughter.

Matthews began to think bigger — buying and renovating C-class apartment complexes from negligent landlords. This time, when he renovated the property, the plan wasn’t to sell it to a family, but rather rent the units to families. Instead of being left with cash profit at the end of the deal, instead he had an appreciating, cash-flowing asset.

Best of all, it still had the appeal of doing good in the community — in this case, doing such a good job with renovation and tenant services that a long-standing tenant who was going to vacate instead decides to renew their lease. 

“One of the things that really fires me up is when somebody lets us know that they wanna stay for another year,” Matthews said. “It’s awesome. That has to be a good feeling. It’s a high five in our office.”

Short-Term Pain, Long-Term Pleasure

Sometimes it’s a sales job — at which point, Matthews finds himself unexpectedly drawing on his background as a Silicon Valley software salesman.

“A resident who has lived in a C-minus class building,” Matthew said, “[the landlords] disrespect and don’t serve their residents … and the pain of that is, is palpable. And so when you come into that kind of situation, you’re looking to reset the relationship.” 

“What I’m looking to do is say, ‘Yes, I understand and I hear you, and you’re right that this was a painful process.”

“However, if you just stick with us for the next 60 to 90 days, you’re gonna see the pleasure part of this, which is we’re gonna make everything brand spanking new. We’re gonna fix everything. And you know, in very short order, you’re gonna be really happy where you live and we’re actually gonna return your phone call.”

Winning The Game

In 2018, Matthews and his wife quit their jobs to do real estate full-time. Their current goal is 1,000 units by 2025 … but in saying sayonara to Silicon Valley, Matthews has already achieved his most important goal.

“I get to go to every softball game and every swim meet,” Matthews said, “and every choral concert and every play. And I actually get to go out with my wife every once in a while and have a dinner date and catch up and see how things are going.”

“I got 150 nights back with my kids and my wife,” he said, “and that was the ultimate freedom.” 

Listen to the full podcast with Ed Mathews

The post Buying Back 150 Days a Year With His Loved Ones appeared first on Self-Directed IRA by CamaPlan.

by Maggie Polisano, Co-Founder, CamaPlan| Mar 3, 2023|

By most studies, Americans aren’t saving enough for retirement. The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 was created to try and reverse that trend. In 2022, President Biden signed into law SECURE 2.0, which added on to the 2019 law.

Some provisions of SECURE 2.0 went into effect as of January 1 2023. Others are still to take effect in the coming years. Here’s how the rules have changed … and how it might affect your retirement account strategy.

Higher Threshold for Required Minimum Distributions (RMD)

The law requires you to start taking required minimum distributions (RMDs) from certain retirement accounts once you attain a certain age. Under the previous law, that age was 72. As of 2023, that age is now 73. In 2033, it will increase to 75.

“This effectively allows Americans to delay withdrawing from their retirement accounts,” said Maggie Polisano, founder of self-directed IRA custodial service CamaPlan. “They can allow their assets to grow, tax-deferred, for longer periods of time.”

“But just because people can delay distributions, that doesn’t necessarily mean they should,” Polisano said. “Waiting longer can mean bigger distributions, which can mean more taxes. You can reduce that tax burden by taking distributions earlier.”

More “Catch-Up” Contributions

Current law allows Americans over the age of 50 to make additional contributions over and above their maximum standard contributions to workplace retirement accounts. SECURE 2.0 provides for a new “catch-up contribution” for employees in their early 60s.

Specifically, employees who meet the age requirement can contribute an extra $10,000 per year to their 401(k) or 403(b). That $10k cap is indexed to inflation, so we expect it to increase over time.

Automatic 401(k) Enrollment

Under the current law, employers can choose whether or not to automatically enroll new employees in their 401(k) plan. Starting in 2025, most employers will be required to enroll new employees in the company 401(k) plan, with automatic contributions ranging from 3-10% of gross income. Employees can still voluntarily opt out of the plan. Smaller and newer companies are exempt from this rule.

Additionally, part-time employees can qualify to participate in 401(k) plans more quickly — after logging 500 hours over two consecutive years, instead of the current three consecutive years.

“Lots of people don’t save for retirement because they don’t want to think about it,” Polisano said. “Automatic 401(k) enrollment will make it so fewer of them have to think about it.”

Matching Employer Contributions for Student Loan Debt Repayment

As of 2024, employers will be empowered to make matching contributions to workplace retirement accounts, not only for their employees’ own contributions, but for employees’ student debt repayments.

“People with student debt often fall behind on their retirement savings because they have to pay off the debt,” Polisano said. “Employer contributions that match their debt repayment will help them catch up and incentivize them to retire the debt quicker.”

Ability to Roll Over Excess 529 Plan Balances to Roth IRA

People often worry about overfunding 529 education plans because excess funds are subject to taxation and a 10% penalty. As of 2024, up to $35,000 of qualifying excess 529 balances can be rolled into a Roth IRA.

To qualify, the 529 plan must have existed for 15 years and the Roth IRA must have the same beneficiary as the 529 plan. Roth IRA contribution limits still apply, and contributions to the 529 plan within the last five years are not eligible, nor are the associated earnings.

Roth Employer Plan Changes

As of 2023, employees can, for the first time, direct employer matching funds to a Roth 401(k) instead of a traditional 401(k). Employers can also set up Roth accounts for SIMPLE and SEP retirement plans for the first time.

As of 2024, Roth 401(k)s will no longer be subject to required minimum distributions, just like Roth IRAs.

The “Saver’s Match”

Employees below a certain income currently qualify for a “saver’s credit,” a tax credit for their retirement account contributions.

As of 2027, this credit will be replaced by a “saver’s match” — a matching contribution by the government of up to 50% of the first $2,000 contributed each year.

“Essentially, if you qualify for the saver’s match, the Federal government will contribute $1,000 to your retirement savings each year, provided you contribute at least $2,000 yourself,” Polisano said.

More Penalty Waivers for Early Withdrawals

Most withdrawals from retirement accounts incur a 10% penalty if made before you reach the magic age of 59½. Some exceptions apply, and SECURE 2.0 added three more:

• 2023 – penalties waived if a physician certifies that the beneficiary has a terminal illness that can reasonably be expected to result in death in 84 months or less. Distributions must be repaid within three years to permanently avoid penalties.

• 2024 – “hardship withdrawals” available to victims of domestic abuse equal to the lesser of $10,000 or 50% of the vested balance of the account. The withdrawal must be completed within 12 months of the incident of abuse. It must be completely or partially repaid within three years to permanently avoid penalties.

• 2026 – Up to $2,500 can be withdrawn free of penalties to pay premiums on certain long-term care services.

New Rules for Qualified Charitable Contributions (QCD)

Under the current law, people over the age of 70½ can make tax- and penalty-free distributions of up to $100,000 from a traditional IRA to a qualified 501(c)3 charitable organization. As of 2024, this $100k cap will move with inflation.

Starting this year, there is also a one-time opportunity to direct a QCD of up to $50,000 (also indexed to inflation) to a Charitable Remainder Unit Trust (CRUT), Charitable Remainder Annuity Trust (CRAT) or a Charitable Gift Annuity (CGA).

New Rules for Qualified Longevity Annuity Contracts (QLACs)

“QLACs are an option for retirees to transfer their retirement assets into guaranteed income, completely protected from market swings,” Polisano said. “This change allows anyone with over $200,000 in retirement savings to buy the maximum guaranteed income.”

Previously, retirees were limited to spending 25% of their retirement account value on QLACs, up to a maximum of $145,000. SECURE 2.0 eliminates the percentage limitation and raises the maximum to $200,000.

“Individually, these changes seem small,” Polisano said, “but they add up.”

If you have qualified retirement accounts, have a conversation with your custodian to discuss how to maximize your retirement investment plan in light of the new rules.

The post The SECURE 2.0 Act – New Rules In Place (and Still to Come) for your Retirement Accounts appeared first on Self-Directed IRA by CamaPlan.

by Denise Piazza, One Street Capital | Mar 3, 2023|

Taxes aren’t the most exciting aspect of real estate investing (even coming from a CPA), but they’re important to understand nonetheless. As a real estate investor, it’s much more fun to focus on great returns and upgrading your lifestyle, but you must be sure to not overlook taxes completely. After all, the taxable benefits are the reason I started investing in real estate over ten years ago.  After years of preparing tax returns for high net worth individuals, I realized the common denominator across most of my clients was their investments in real estate. 

As a passive investor in a real estate syndication, your sponsor team will guide you through tax season and help you ensure you’re getting the tax benefits you deserve. The beauty of investing in real estate is that your investments lower your tax obligation rather than increase it, unlike some other investment vehicles, such as stocks and mutual funds.

Any time you’re investing your hard-earned money, you should do your due diligence to gain a working knowledge about how you may be taxed as a result of your investment and explore the best strategies to decrease your tax bill.

Keep reading for an overview of the best tax strategies and to learn how to maximize the tax advantages available to you as a real estate syndication investor.

Deciding On Your Entity Election

 Oftentimes, real estate investors ask how setting up their entity will change the amount of deductions they’re allowed to take on their taxes. Allowable deductions don’t change whether you’re investing with your personal name and social security number, whether you have a single-member LLC, or if you have a multi-member LLC or corporation. The tax deductions are the same and include all business-related expenses.

As a real estate investor, it’s wise to avoid electing C-corporations to set up your real estate investing business. With a C-corporation, all your earnings can be taxed more than once. To simplify things as you’re just starting out, we recommend forming a single-member LLC. Most real estate syndications are formed as multi-member LLCs and are taxed as partnerships.

Taxes and Real Estate Syndications

Real estate syndications are typically set up as limited liability companies (LLC) and taxed as a partnership. The lead syndicator, or sponsor, is typically in the role of the general partner and the investors are the limited partners.

The real estate syndication itself is not taxed. It’s a pass-through entity, meaning that the items of income and expenses, as well as the gains and losses that occur at the syndication level are passed on to the limited partners. There will be separately stated items on the K-1 that each syndication member will be liable for and taxed on accordingly.

The items reported on the K-1 and your cash distributions are different. The cash distributions you receive as returns on your investment are not subject to tax, to the extent of your tax basis in the syndication. Simply put, your tax basis is your initial capital investment into the real estate syndication deal, so maybe $50,000, plus any current year contributions and pass-through income, minus any losses and expenses. Expect the tax basis to go up and down every year. As long as you maintain a positive tax basis, any cash distributions are tax-free. Any excess cash distributions you receive will be taxed as dividends.

The lead syndicators have flexibility in how they choose to allocate the various items. The real estate syndication operating agreement can be written to reflect the various allocations, depending on the personal needs of the partners.

Taxes And Rental Real Estate

As a limited partner in a syndication, you’ll be earning passive income, and passive losses are different from earned income, or W-2 income. Passive income is considered the same way as interest dividends and, generally speaking, passive losses can be offset by passive income.

There is a special allowance for rental losses. If your adjusted gross income as a married couple is $150,000 or less, you can take up to $25,000 of these passive losses. However, if your adjusted gross income is higher, you cannot take any rental, passive losses against earned income, unless you’re a real estate professional. Real estate professionals have a special designation that allows them to take more passive losses against their earned income since the majority of their earned income is also from real estate investments.

It’s common for real estate investors to qualify for this designation. There are three parameters that must be met in order to qualify for this designation. The first is that 51% of all the investor’s working time and services must be in real estate-related activity. Also in one calendar year, the investor has to do more than 750 hours in a rental real estate trader business. Third, the real estate professional has to materially participate in their business’s real estate activities. A real estate trader business can include rental property management, syndication deal sourcing, brokering properties, etc.

The Power Of Depreciation And Cost Segregation

Wear and tear on a property over time is expected and you’re allowed to write off the depreciated value of an asset over time. You’re allowed to write off the value of residential rental assets over 27.5 years and commercial properties can be written off for 39 years.

Depreciation affects you, as the investor, because when you earn cash-on-cash returns, the tax on the amount you receive is deferred. This means you aren’t required to pay taxes on the earnings from the asset until it’s sold. You also have the option to elect bonus depreciation, if you choose, which can even further maximize your tax benefit.

Cost segregation amps up the tax advantages even further. In typical real estate syndications, the property is held for around five years. With straight-line depreciation, properties held for many years receive the most benefit. By utilizing cost segregation, you’re able to take into account the various aspects of the property that will depreciate at a quicker rate. For instance, the signage of an apartment complex is expected to deteriorate quicker than the roof. Cost segregation can speed up depreciation benefits, so investors can have further tax advantages even within five years’ time.

Tax Benefits Of Investing In Real Estate Conclusion

By investing in real estate, either actively or passively, you can qualify for significant tax advantages. Unlike the capital gains treatment from your stock portfolio, you can use the deductions earned from real estate investments to offset your other income and ultimately greatly decrease your tax bill each year.

In order to build wealth, it’s not enough to earn income, you also have to know what strategies can best help you maximize the tax benefits available to you. Investing in real estate syndications gives regular people the chance to build wealth quickly and sustainably, while also mitigating risk.

As always, be sure to consult your CPA to assess your personal situation and determine what strategies best fit your needs and financial goals.

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Denise Piazza likes numbers. “My husband and I are both CPAs,” she told Michael Duncan of the Road to Financial Freedom Podcast, “and so that pretty much means our kids have no chance of being cool whatsoever.”

As such, she doesn’t just stop at the growing numbers of units under management at her investment firm, One Street Capital. Nor does she stop at the dollar value of her own personal portfolio. 

She also likes numbers like “50.” As in, “50 Questions to Ask Before Investing in Real Estate,” her recent contribution to the CamaPlan blog.

And numbers like “3.” As in her “3 Pillars of Real Estate Investing.”

We’ll get to that. As for the 50 questions, she learned to ask these questions the hard way.

“We began investing over ten years ago,” Piazza said. “Along the road we had a lot of great experiences and then some not-so-great experiences.” 

“So I wrote the article from the perspective of things I wish I would’ve asked along in my earlier years of passively investing … with the intent to help people do a better job of due diligence before placing their hard-earned money into any sort of investment.”

What to Ask Before You Invest

So what are some of the fifty questions? Piazza was happy to spoil just a few of the top ones.

“I’d say, ‘Why did you select that market?’” she said. “What do you like about that particular market and attracts you to making an investment there?”

“I’d also ask about some of the key assumptions associated with that real estate deal … What’s the debt structure look like? What does the return structure look like? Is there a preferred return? Meaning … do the limited partners or passive investors get paid a certain amount before the sponsor to the deal makes any money?”

“I’d also ask a lot about the team,” Piazza said. “I think that’s an area that also gets overlooked. My main criteria for the team would be ‘What’s your background?’ You know, do they have a successful business background? How many partners are involved? Are they personally investing in the deal themselves?” 

“And then lastly, what’s their track record in this area and this particular aspect of real estate investing, so you can feel comfortable that you’re placing your hard-earned dollars in with the right team.”

The 3 Pillars of Real Estate Investing

These top questions align perfectly with Piazza’s aforementioned “three pillars” — 1. The market, 2. The deal, and 3. The team.

For the market, she’s looking for landlord-friendliness, population growth, wage growth, and an often-overlooked characteristic — diversification of industry. If a town is dependent on one industry, a decline in that industry could leave everyone out of a job and unable to pay their rent. 

One thing Piazza has learned over the years about market diversification is that cities can surprise you. 

“One of my investments is in Houston, Texas,” she said. “And when people first think about the city of Houston, they assume that it’s all oil-and-gas driven.”

Using tools like niche.com and Neighborhood Scout, however, Piazza was able to verify that the oil-and-gas industry actually accounts for less than 25% of the jobs in Houston — well within her target for industry diversification.

As far as Pillar #2 goes — the deal itself — Piazza looks for assumptions that aren’t too aggressive. In her experience, aggressive assumptions render the ROI projections meaningless.

Recently, a big arena for aggressive assumptions has been loan-to-value ratios. 

“Right now, with where interest rates are, we’ve seen the loan to value on properties and investments that we’ve put our funds into at a smaller proportion,” she said. 

Whereas before she would have considered maximum leverage — 80% loan-to-value or more — now she expects to see loan-to-value ratios of 60-65%.

As far as the team goes, Piazza expects the changing market conditions to weed out the seal sponsors who have heretofore been able to coast on luck.

“With all the compression of the cap rates … and the incredibly high valuations that have been out there in the real estate world,” she said, “it’s been easy for someone to be able to make money on these investments without having to do too much.”

Tax Heaven

As a CPA, Piazza has a soft spot for investments that give her and her investors an edge at tax time.

“What I look for is something with depreciation,” she said. “Depreciation is single-handedly, in my mind, the strongest tax advantage … As an investor, I’m earning cash returns for properties. But the tax is actually deferred on that associated cash because of the fact that I invest in assets that depreciate.”

Listen to the full podcast with Denise Piazza

The post The 3 Pillars of Real Estate Investing … And The Questions a Veteran Investor <em>Wishes</em> She Had Been Asking All Along appeared first on Self-Directed IRA by CamaPlan.

When Legacy Group decided to make a modest entry into the Colombian Coffee business in 2017, they quickly discovered they were thinking too small.

“At first we were looking to pay cash flow,” Josh Ziegelbaum, Director of Investor Relations for the fast-growing alternative investment fund, told Michael Duncan of The Road to Financial Freedom Podcast, “so it was a cash flow oriented agricultural investment when we did the seed funding round back in 2018.”

Fast forward to today. The resulting US-based company, Green Coffee Company, has become the largest producer of Colombian coffee in the world, with over 1,000 employees in the US and Colombia.

“Our initial acquisitions were just 600 acres,” he said. “We’ve grown to be more than ten times that today with over 6,600. And, you know, it’s grown to be a massive growth investment opportunity.”

The End of the 60/40 Portfolio

It’s the kind of opportunity that have attracted more and more investors to Legacy Group, in search of geographic diversity and an alternative to the classic “60/40” portfolio that looks more and more like a dinosaur — especially in light of the recent punishing volatility of the stock market.

Self-directed IRAs, like those in the custody of CamaPlan, don’t make up a huge portion of their investor pie, but Ziegelbaum would like to change that. Retirement funds are perfect for the kind of explosive growth Legacy Group targets, due to their insulation from taxation. 

“The projected return profile on a Series C investment in Green Coffee Company is 64% IRR,” Zielgelbaum said. “We’re an 11 net equity multiple. So what we’re telling our investors and modeling for them in our financial model is on a hundred thousand dollars minimum investment, we’re forecasting a seven-figure exit.” 

That’s fantastic … but it’s even more fantastic if the tax bite isn’t too big.

“If you could do that in a tax-deferred manner or a tax-efficient manner, [it] makes a lot of sense.”

Coffee Vodka

Legacy Group also has a much more hands-off ownership interest in Polygons, a Latin America-based 3D design company that creates characters for Netflix shows and video games. But Green Coffee Company remains the crown jewel in their portfolio — and they’re not even close to being done. The next step — monetizing every part of the coffee plant.

“80% of the coffee cherry is typically discarded,” Ziegelbaum said. “It’s waste. It’s the outside of the cherry and the bean that we know and drink is on the inside.”

The solution — do what you can do with any organic waste product. Ferment it into alcohol and distill it! Plans are in motion for Green Coffee Company to open up distilleries in Colombia to turn that “waste” into coffee-based vodka and coffee-based ethanol fuel additives.  

You Sleep Better at Night

But it’s not just about money. Legacy Group is an “impact investment” fund, concerned not just with the bottom line but on doing the right thing — for employees and for the planet.

This includes implementing sustainable farming practices, including reduced water consumption, reduced waste, on-site solar power production, and elimination of plastic consumption.

It also includes what in the US we call “fair employment practices” — practices that are sadly rare across Latin America. 

“We pay wages into bank accounts, which is not traditional in Colombian agriculture,” he said. “People are typically paid cash without benefits. We provide the majority of our employees with health insurance, which does not exist in the industry.” 

“We provide the majority of our employees with pensions, which is historically very low in the industry. We [offer] paid time off if people get hurt … It sounds normal, but I could tell you that unfortunately, in Colombian coffee or agriculture, it’s just not the case. So we’re formalizing employment and really lifting up the communities where we operate.”

To Ziegelbaum, this is good karma, good business, and a good career move. 

​”As I’ve grown over the years professionally, I’ve done so by doing right by people,” he said. 

As for business, “markets will look at how we do these things. How do we run the company? Is it being done in a sustainable manner? Are we taking care of the employees? Are we taking care of the environment? If the answer is no, I would argue that we would get a lower valuation as well.”

Personally? “You could sleep easier at night knowing that you run your business in a sustainable manner,” he said.  ​

Listen to the full podcast with Josh Ziegelbaum

The post Making a Difference <em>and </em>a Profit in Colombian Coffee appeared first on Self-Directed IRA by CamaPlan.

Like so many real estate investors, Patrick Grimes learned a lot of lessons the hard way in 2008 and 2009. Having begun investing in single-family homes in 2006, he found himself at the top of a market that (supposedly) had no top. 

“I was a high paid high tech professional,” he told Michael Duncan of The Road to Financial Freedom. “I got some advice to invest in real estate. So I did … but at that point I wanted to double and triple my money every two to three years.”

“The market was never gonna go down, because this was 2007,” he said. “And then ‘08, ‘09, ‘10 happened … I [had] bought ’em in my own, brought the land in my own name, and I signed on the loan in my own name.”

Since all single-family loans are full-recourse loans, the banks came not just for the affected properties, but for all of Grimes’ assets. He lost everything. It took him years to recover.

“I learned that I was speculating on assets,” he said. “And if the music stopped and I didn’t have a seat, I would lose it all.” Which is exactly what happened.

From Single-Family Homes to Thousands of Units

Today, the situation is much different. As the founder and CEO of Invest On Main Street, he manages a portfolio of thousands of apartment units — all with the benefit of non-recourse loans and economies of scale.

As rising interest rates start to erode cash flow potential from his traditional menu of assets, Grimes’ 15 years of experience puts him in a privileged position to keep offering value to the accredited investors who depend on him for cash flow, legacy wealth, tax advantages, and shelter from the emotion-driven volatility of the public markets.

“Next year we have a diversified income fund in affordable housing,” he said. “Not workforce housing, like our multifamily. This is affordable housing. And in the year when, unfortunately, a lot of the deals are not cash flowing anymore in real estate … Our still our deals are still cash flowing strong cuz we were protected from rising interest rates, but a lot of them weren’t.” 

Because it’s affordable housing, the 400 single-family homes already in the fund, diversified across numerous markets, enjoy government-guaranteed rents and government-guaranteed rent increases. It’s enough for Invest On Main Street to offer the deal with a 12.5% preferred equity position to investors — in an environment when traditional multifamily deals aren’t producing any cash flow at all. 

“We’re Not In China”

Grimes isn’t stopping at real estate either — he also loves the energy market. Invest On Main Street also offers an energy fund, diversified to lower the risk profile of this volatile but always-in-demand asset class that enjoys its own, lesser-known sheath of tax advantages. 

“I believe ‘essential needs’ is the theory there,” Grimes said. “And that’s housing, food, and energy. Those are the things that aren’t gonna go away.” 

“And we’re not [in] China, where the government houses, feeds, and energizes everybody,” he said. “And so that allows for us to get into these assets where the IRS is like, ‘Yes, please invest. We need you to invest. So here’s all these tax advantages.’”

Alternative Investing When You’re Not Super-Rich

His fund attracts passive investors, many of them using qualified retirement funds that they only recently realized were available for placement in alternative investments like real estate and energy funds.

“They’re investing in the only things that they know,” Grimes said, “which are qualified retirement plans, maybe getting a financial planner and maybe trading in stocks. The majority of them don’t have any idea that you can take some of those qualified funds and invest them in alternative assets with self-directed variants of those plans.”

But as Grimes loves to point out, high-earners tend to be 25% invested in alternative assets, the ultra-wealthy 50% in alternative assets. Compare that to only 8% for the middle class.

Grimes is on a mission to change that — even for investors who fall below the accredited threshold that would qualify them to invest in his funds.

“I do know others that structure these deals differently for non-accredited investors,” Grimes said. “So if you’re … they’re not accredited investors, reach out. Either way, I’ll forward you one to other investors that I know that are structuring investments that help individuals like yourself take that leap forward.”

Listen to the full podcast with Patrick Grimes

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