How to Invest in Real Estate Using Your Retirement Account

Rachel Gearhart, Managing Editor, The Oxford Club

Editorial Note: If you’re an Oxford Club Member, you may be familiar with Jaime Raskulinecz, CEO and Founder of Next Generation Trust Company. She’s one of the Club’s Pillar One Advisors and a trusted resource when it comes to real estate investments and retirement planning. Read below for Rachel Gearhart’s exclusive interview with Jaime that was originally featured in The Oxford Insight.

There’s no doubt that The Oxford Club boasts plenty of fascinating Members.

Insight, its weekly Members-only briefing, has profiled the descendant of a masterless samurai, a former executive at a leading tech giant, a thermographer, a former submarine officer, wine connoisseurs…

And – most recently – a woman who is changing how folks think about saving for retirement.

Jaime Raskulinecz, CEO and Founder of Next Generation Trust Company, educates people on how to invest in rental properties using their retirement accounts.

The Club interviewed Jaime, and afterward, its mailbag was brimming with questions.

Below, you’ll find excerpts from my follow-up interview with Jaime. She provides a wealth of information about the ins and outs of investing in real estate using a self-directed IRA.

What exactly do you mean when you say that you can invest in real estate using a retirement account?

Jaime Raskulinecz: When you make a nontraditional investment with your IRA, it has to be done with a custodian that allows for these investments. A traditional brokerage account will not be able to hold these investments.

When you open an IRA with a custodian that allows this, like Next Generation, you will usually transfer or roll over funds from an existing retirement account to use for these nontraditional assets. The purchase is made much like a publicly traded investment is made.

You instruct us that you wish to make the purchase, we ensure all the paperwork is correct and complete, we process the transaction on behalf of your IRA, the property is deeded in the name of your IRA, and we hold the deed for safekeeping. All income and expenses from that asset flow through the IRA so you reap tax-deferred or tax-free returns, depending on the type of IRA you use.

In fact, investments made with a self-directed IRA are not limited to real estate. You can also invest in private equity, notes, hedge funds, precious metals and more. The only asset types not allowed by the IRS are life insurance and collectibles.

Does it work for all types of retirement accounts? IRAs and 401(k)’s? Roth and Traditional?

Jaime Raskulinecz: This can be done in any type of account as long as it is established and held with a self-directed IRA custodian that allows nontraditional investments.

Why should investors consider investing in real estate using his/her retirement accounts? What are the benefits?

Jaime Raskulinecz: If someone is already investing in real estate outside of their retirement plans and is successful doing it, they would probably like to invest in what they know and can control within their retirement plan as well (instead of only stocks, bonds and mutual funds). There are many nonpublicly traded alternative investments that can be made with retirement plans. Some of these investments are mortgages, notes, privately held corporations, and private placements that include startup companies. There are many more; the IRS only disallows collectibles and life insurance.

How does one go about investing in real estate using their retirement account? What are the first steps?

Jaime Raskulinecz: You must first establish an account with a custodian/administrator that allows for these types of investments. Then funds can be transferred or rolled over from an existing retirement account into the newly established account to make the purchase/investment.

Most custodians/administrators will be happy to provide information and help over the phone, but there is a wealth of information and educational resources on our website as well. For Oxford Club Members, there are some whitepapers on various subjects that can be downloaded for free, since we’re one of the Club’s Pillar One Advisors.

You can also stay up-to-date with us by signing up for our monthly newsletter, which contains a plethora of helpful information to keep you informed.

What kind of investor does this benefit most? Is there a specific age bracket/income level that will benefit most from adding rentals to their retirement account?

Jaime Raskulinecz: This strategy is ideal for experienced investors who are comfortable making their own investment decisions.

The investor must have enough money in the IRA – or other retirement accounts that they can transfer in – to make any payments for mortgage and expenses related to the property, even if there is a vacancy.

In addition, it would be prudent to have a plan in place to take required minimum distributions even with a nonliquid asset.

What are the tax implications of investing in real estate using your retirement account?

Jaime Raskulinecz: There are many implications that are somewhat complicated for a short discussion.

If the property is mortgaged, it has to be a non-recourse loan. And there could be a tax on the income the IRA receives in the form of rent called Debt-Financed Income Tax. This tax is applicable only to the percentage of income that relates to the percentage of the property that is financed. In this instance, a Form 990-T is filed and there are certain deductions that may be taken to reduce that tax.

This is really an in-depth conversation for a tax advisor. However, even with this tax, many people enjoy great returns using this investment strategy.

What makes this approach to retirement planning so unique?

Jaime Raskulinecz: The traditional broker/dealers and banks, like Fidelity, don’t hold nonpublicly traded alternative assets. Therefore, unless you are speaking to a firm that specializes in these types of transactions and assets, you won’t be able to do this.

At Next Generation, we provide custody and do all the required reporting to the IRS on these assets. In addition, we are unique in that our customer service is exceptional, we provide education on self-direction to consumers and their advisors, and we are experts in the processing of these transactions and the required record keeping.

If you’d like more information on Jaime’s services, visit www.NextGenerationTrust.com. You can also call 1.888.857.8058 or email her at NewAccounts@NextGenerationTrust.com. Phone consultations with a Next Generation representative are complimentary.

As a Pillar One Advisor, Next Generation offers discounts to Club Members. If you’re a Member, be sure to mention it to save 50% on your account opening fee.