Inspirational Story from Forrest Moore, Senior Consultant at Guidant

One of the best things about being an Account Manager at Guidant Financial is helping people achieve their dreams. One of the Great American Dreams is the dream of business ownership. People dream of the financial independence and freedom from authority that business ownership can bring. For one of my recent clients his dream was not so much a dream for the future as it was a dream of returning to the past. This client had successfully run a Dry Cleaners for nearly 25 years before he decided to cash in. He described the 5 years after selling his dry cleaners, himself being in his late 40’s and early 50’s, as him mid-life crisis! So, now in his mid-50’s, his biggest dream is to return to the past and buy a new Dry Cleaners. Through Guidant’s Audeo program he can now use the money he had saved so diligently for 25 years while running his Dry Cleaners to buy his new dream business, a Dry Cleaners.

Client Example Concerning Prohibited Transations from Guidant Consultant Ryan Bateman

I was helping a client set up his Self-Directed IRA last week and came across some common issues. The client was looking to purchase a vacation rental condo that happens to be next to a condo he currently owns. When the client mentioned he would rent the condo out to family members once in a while, I had to remind the client that doing so would be considered what IRS calls that a "prohibited transaction" and that it was not an option. Under IRS rules the client and his wife, and their immediate family members (parents, grandparents, kids and grandkids) can not use or benefit from this rental property in any way. The client said it might only be for one night and he would charge them rent, but unfortunately it was still not a legal option.

After deciding that he would purchase the condo and refrain from letting it out to any family members, he decided to proceed with the investment. Because this client used all retirement funds to purchase the condo (no leverage), he was very happy to learn all that the rental income coming back to his real estate IRA would stay tax-deferred. His goal was to keep this condo for 10 years and then sell it for a profit. That income would also return to his IRA/LLC tax deferred, without incurring any capital gains.

Message from Scott Hurley, Senior Consultant, on Business vs. Passive Investment Activity in an IRA

Self-directed IRAs provide countless investment opportunities for investors, but don’t get fooled into thinking all investments make sense for IRAs. More and more you hear about people buying or starting businesses with an IRA, but does business activity even make sense in an IRA? Investments like tax liens, rental properties, notes, raw land, securities, mutual funds, commercial properties, etc. are all “passive” investments and, as a result, get a tax-deferred treatment inside an IRA. Although an IRA is a “tax deferred” account, you can still pay taxes if the investment is not passive, but business activity. In fact, a “non-passive” investment inside an IRA can trigger taxes as high as 35% as a result of the trust tax associated with Unrelated Business Taxible Income (UBTI). In addition to tax consequences, business ownership in an IRA is very restrictive because of the rules that govern IRAs.

Companies like Guidant Financial Group that provide self-directed IRA products, use a very different retirement vehicle for business activity or business ownership. These structures utilize a self directed 401k, rather than an IRA which is much more favorable from a tax perspective and give the 401k owner much more legal freedom to run their business.

Lease Options plus Soaring Foreclosures Equal Win-Win for Buyers and Sellers

According to RealtyTrac, foreclosures jumped 30 percent from last quarter. While this usually makes properties more affordable for buyers, today’s scarcity of credit makes home ownership difficult for those with limited assets.

According to David Nilssen, president and CEO of Guidant Financial Group (Bellevue, Wash.), this situation presents a golden opportunity for both buyers and sellers via an often overlooked strategy of the real estate market: the “lease option” (a.k.a. “lease to purchase option”). It also presents a unique possibility for homeowners facing foreclosure to remain in their homes.

Nilssen, who helms one of the country’s leading providers of self-directed IRAs and real estate IRAs, reports that many clients have discovered that lease options can help them avoid losses on moribund properties while generating income and lending a hand to potential home buyers as well as homeowners facing foreclosure.

To read more about lease options, click here.