DEFENDING YOUR RETIREMENT NEST EGG
The Attack Has Begun
Your IRA is under attack as I am writing this blog.
The right to choose your investments will be taken away if the current bills in the U.S. House of Representatives become law. The bills seek to pull money from Main Street and direct it to Wall Street.
You may be thinking something like “they wouldn’t do that.” Or “why haven’t I heard about this before?”
Consider who stands to gain the most if your money has to remain with Wall Street. Who owns the news broadcasting stations?
This might seem a bit extreme and far-fetched. So let’s take a short look at a couple of events in history.
LAWS HAVE UNINTENDED CONSEQUENCES
1986 Tax Reform Act sought to reduce income tax rates. It also led to the Savings and Loan crisis within two years. Many S&Ls went bankrupt. How? The Act reduced maximum tax rates and capped passive losses. Real estate lost value because tax benefits were greatly reduced for high income earners.
Prior to the Act, properties that had a negative cash flow could be used to offset income and have a positive after-tax cash flow. Without this benefit demand for investment properties dropped significantly and the properties lost their value. Many properties were foreclosed and sold through the Resolution Trust Co.
The 2006-2008 housing market bubble and subsequent crash were caused by loose lending standards. While the intent was to make housing affordable to everyone, it resulted in many people purchasing homes that they could not afford. Many of these buyers could not balance their personal budgets and consequently did not continue making their mortgage payments.
I REALLY DON’T LIKE POLITICS
I was never one who enjoyed politics. I also learned that it is necessary to know what is going on. Sure, I voted, but have become acutely aware that simply voting is not enough. It’s kind of like a dog being backed into a corner. At some point you may have to be very aggressive to defend yourself. It’s about survival and defending your rights.
One of the attorneys that I highly respect is Jeff Watson. He worked to reduce damage caused by the Dodd-Frank Act when it comes to seller financing of property. He said, “Politics is like Thanksgiving dinner. You are either sitting around the table discussing the feast you are about to enjoy, or you are on the table about to be carved up.” You can learn more about Jeff at his website, https://www.watsoninvested.com.
The need to defend your rights and concerns lies at all levels of government, from local to national.
In 2019 members of the Florida state legislature tried to pass a bill that would have limited the ability of private investors to make loans for investment property. Many of these loans are from IRAs. There are many house rehabbers who use private money loans to obtain short-term financing for acquisition and repairs.
The American Association of Private Lenders got involved and notified their membership. Word spread to various real estate investor groups. A significant number of their members contacted state legislators. After the bills were defeated AAPL credited the various real estate investor groups with helping to stop the attempted infringement on the rights of individuals to choose how they wanted to invest their own hard-earned money.
Last week our local county commissioners voted to allow property taxes to be increased significantly. This was after a year of many people losing their jobs and experiencing losses due to Covid-19. I, along with a few dozen others, spoke out against the increase. Only two of the seven commissioners agreed with us. There was not enough support to convince two more council members to change their minds.
Voting is not enough. Sometimes you have to get involved.
THE ATTACK ON YOUR IRAs
At first glance you might not think that you will be affected. Maybe you don’t have an IRA account. Or maybe you don’t think it’s large enough to matter. But take a closer look.
Keep in mind that there are many types of retirement and IRA accounts. Only a limited number of custodians allow you to truly self-direct your account and choose your investments. I’m not talking about a selection of stocks or mutual funds. The best custodians allow you to purchase real estate, make loans, buy precious metals and even invest in crypto-currency. I’m not promoting all of these, but the IRS says that you can invest in anything you want with a few exceptions. These are listed in IRS Publication 590.
John Hyre, an IRA tax attorney, provides a very good description of the bill and what you can do at this website. https://www.handsoffmyira.com
The bills limit investment choices in Self-Directed IRA accounts. You would no longer be able to invest in private placement memorandums (PPMs). This includes all syndications where you must be either an accredited or sophisticated investor.
IRAs must exit some investments within two years. If your IRA is invested in a syndication it must exit the investment within two years. Even if the syndication has not sold the property.
It stops Roth conversions. You will no longer be able to convert from a Traditional IRA to a Roth IRA.
You must take forced distributions when total account balances exceed $10 million. And start with taking the distributions from any Roth accounts.
WHY SHOULD I CARE IF I DON’T HAVE AN IRA?
It’s not just about your IRA. Or your other retirement accounts that could be next.
Self-directed retirement accounts are being used to grow your local economy. Many IRA owners like to put their money into investments that support their local economy. Such as real estate rehab loans and small business start-ups. Some choose real estate partnerships and syndications. This is where custodians are seeing account holders obtain some of the best returns.
Most of our real estate acquisitions have been facilitated with someone’s self-directed retirement account. This includes purchasing houses with funds from someone’s IRA, lending to purchase mobile homes, and apartments purchased with a syndication that included IRA funds.
Limiting investment choices within retirement accounts will have a negative impact on your local economy and some of the businesses that you enjoy.
Don’t expect the attack to stop with IRAs. There are other self-directed accounts that could be next. Such as 401(k)s and HSAs.
WHAT DO I NEED TO DO NOW?
Visit HandsOffMyIRA https://www.handsoffmyira.com to learn more. Contact US Representatives. John Hyre provides information on who to contact and what to say. He even has a sample letter to modify.
GOING FORWARD
Regardless of what happens with the attack on IRAs described above, it is essential to remain vigilant to protect your assets and freedom of choice. Be aware of communications from local investor groups and take action when it is needed.
Consider the source of information. Everyone has their own interest at heart and is biased in some way. There are people who do not want you to know the whole truth. Many do not have the financial intelligence that you do. Do you wonder why most of the people in the United States are not saving enough for retirement?
And stay in touch with your elected officials. Let them know your concerns. It is up to you to fight for and protect the choices that are important to you.
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Mike is a retired aerospace engineer with a passion for real estate investing and teaching financial literacy. He lives with his wife in Daytona Beach, Florida.