Over the past 10-15 years the idea of using a Self-Directed IRA or 401(k) to buy rental property has started to pick up steam with investors, especially as they transition from traditional employment. But one frustration that folks have with the limitation that you cannot personally profit from your IRA’s investments under these arrangements – all income must go back to the IRA or 401(k) under the common Self Directed IRA program. However there is another program that can be used to fund a business of any kind – including a Real Estate Investment business – where it is required that you take a salary and other benefits from the company.

This arrangement, known as 401k Business Financing by some, and as Rollovers as Business Startups by others is becoming increasingly popular as people grow tired of relying on the stock market to grow their retirement savings and at the same time seek to free themselves from the employment game. The program was first passed into law in the 1974 law known as the Employee Retirement Income Security Act (ERISA). Since then the IRS has added additional regulations that have made it even easier to understand the rules and correctly use retirement funds to invest in a business pretax.

The beauty of investing in a business pre-tax is that each dollar invested is up to 39.6% more powerful than any post tax investment. Another way to put that is that a post-tax investment of $1 costs you $1.40 when you account for maximum taxes but you only get to use $1 to grow your business. Pretax money costs you $1 and gives you $1 to spend!

When you invest your retirement plan into a business, be it Microsoft, Apple or your own business the value of your account is directly tied to the value of that business. If Apple’s next iPad breaks sales records, your Apple stock value will grow. If you invest your retirement plan in your own real estate business and you generate lots of income via rental or resale of property, then your retirement plan’s investment in the business will grow in value too.

This law requires that you are a real employee of the business your retirement plan invests in. This is not to say that you cannot hire other employees but rather that you must be a paid employee of the business. You can be your business’s sole employee or not as your business’s needs dictate. You’ll also be required to try to make a profit. If you can meet those requirements, it is likely that you are eligible to invest your retirement plan into a real estate business that you run and take a salary for running.


Share and Enjoy

Posted In: EHR News

About The Author

Joseph Sabeh Jr.

Please let me introduce myself, I am Joseph Sabeh, Jr a full time licensed professional realtor. I have been with Executive Homes Realty for over 13 years and was trained by my late father and Broker, Joseph Sabeh. I recently incorporated the company and we moved the office to 43513 Mission Blvd just last summer. I could not have found a more honorable place to work. After earning my experience selling high end Ralph Lauren suits and studying business management in southern California, I decided to pursue my dream of selling real estate and working with my father. He had already had such an excellent reputation and established a niche market of high end clientele that catered to the very best. I wanted to become the consummate professional just like him and have strived to become just that being just a phone call or email away from getting back to my client’s immediate needs! Known by my clients for my tenacity, perseverance , and excellence in negotia- tion(Certified Negotiation Expert), I have always strived to meet my clients high demands and goals. As a result of my professionalism, I have achieved an extensive portfolio of referrals from past and present clients. I credit my current values from my upbringing of my parents and the credit is due to them without question. Their integrity, pride, and willingness to sacrifice for the better of my life and my sister’s always left a mark on me that one day I will pass on. Their desire to achieve a better life and live it to the fullest is one that some families dream of and I certainly am appreciative of all of the education and etiquette I have learned from them both. I have sold condos up to 3.2 million dollar homes and I am here for any and all of your future real estate needs and wishing you the very best experience in your future real estate endeavors with me.

No Comments

No comments yet.

Leave a comment

RSS feed for comments on this post. TrackBack URL