Three Mistakes Americans Make With Their IRAs
Wall Street certainly wants your IRA
IRA Owners believe Wall Street has their best interest at heart.
“This is a critical time to reassess your investment, work and living strategies.”
This is a statement HS Dent made in a recent Escape Artist article:
For most Americans when “investment” or “work and living strategies” appears in the news, or perhaps in an article or in conversation the last thing that comes to mind is one’s IRA.
How can this be when there exists five trillion dollars in IRA funds? One would think that when “investment” or “work and living strategies” is mentioned one’s IRA would immediately pop into mind. We will explore some of the key reasons why you as an IRA owner do not have a knee jerk reaction when you hear “investment” or “work and living strategies” and think of your IRA.
Wall Street has spun a beautiful web over the last thirty years effectively and efficiently capturing 97% of forty-five million IRAs held by Americans. Routinely Wall Street’s Agents, Stock Brokers, Financial Planners and Mutual Fund Salespeople invest five trillion IRA dollars. While it is true Wall Street and WalMart are not exactly kissing cousins one thing is undisputable; both have mastered the art of sales and Wall Street may have trumped WalMart by making you think it is the only place to buy financial products with your IRA.
How Did Wall Street Capture 97% of Five Trillion IRA Dollars?
The answer will require a brief journey into the history of the IRA. In 1974 the IRA was created by ERISA (Pub.L. 93-406, 88 Stat. 829, enacted September 2, 1974) and signed it into law by President Gerald Ford.
The financial worth of IRAs was limited because contributions were capped at a meager $1,000 annually with many Americans opting to make monthly payments of less than $100 into their IRA Accounts.
With so few poker chips in the pot few companies were clamoring for the nascent IRA business.
Fast Forward A Few Decades
Today the collective worth of the 45,000,000 IRAs has grown to more than five trillion dollars (it was closer to eight trillion until the last stock market debacle).
But along the IRA’s evolutionary path a mystery unfolded, with five trillion IRA dollars available for investments why were competing companies not fighting tooth and nail to capture a respectable share of the IRA market. Even NAR (National Association of Realtors® with 1,000,000 Realtor® Members strong did not pursue the IRA dollars. It was like Wall Street in the Super Bowl of Dollars but the opposing team never bothered to show up.
The reason your local Realtor® has never called you to suggest you use IRA dollars to buy real estate is because he/she doesn’t have a clue such a transaction is possible. This is evidenced by the fact that most Realtors® who have an IRA have their funds in … yep, Wall Street products. Ironically Realtors® don’t even buy for their IRAs what they sell.
Another reason many Realtors® never chase IRA dollars is because they believe there just isn’t any serious amounts of money in them.
In 2008 Employee Research Institute reported:
- 49% of IRAs have less than $25,000 saved
- 24% of IRAs have $25,000 – $100,000 saved
- 15% of IRAs have $100,000 – $250,000 saved
- 12% of IRAs have $250,000 or more saved
Don’t fret if your IRA ranks in the “49%” or “24%” brackets and don’t believe the train of financial freedom has left the station without you because your IRA can partner with you, or other peoples’ IRAs including your spouse e.g. you invest $50,000 and you or someone else’s IRA invests $50,000 (more on this “partnering later).
HS Dent went on to add in his article:
“The next decade will be the most challenging and the most rewarding of any decade since the 1930s. The entrepreneurial people who see this coming will reap huge rewards and create whole new lifestyles.”
Unfortunately millions of Americans won’t be able to look forward to “the most rewarding of any decade since the 1930s” because they do not know that their IRA or Company 401(k) funds once transferred into an IRA can make non traditional IRA investments including investments in foreign countries.
But My Broker tells me I’m Already Invested In Foreign Countries
Don’t let your Stock Broker blind side you here by interpreting “foreign investments” with FESE (Federation Of European Stock Exchanges), Japan’s Nikkei or China’s HSI and HSCEI Stock Exchanges. Stocks are stocks, dirt is dirt.
Your IRA CANNOT Buy Foreign Real Estate
Fortunately for you this statistical fact, 97% of IRAs cannot buy real estate, is a removable limitation not a legal fact.
Why would Wall Street educate you that you have severe limitations with its IRA model or that you can take your IRA money, create a different type of IRA and look elsewhere to invest. For the last thirty years Wall Street has been too busy making billions in fees extracted from trillions of IRA and Company 401(k)s funds.
The truth is your IRA can and always has had the right to buy properties both at home and across the oceans and on other continents. However having the right doesn’t automatically mean the “ability” to buy investments outside of the Wall Street box.
Your Wall Street IRA CANNOT buy foreign real estate
Again this is true but not because of any IRS regulations. The simple fact is Wall Street is neither equipped nor does it want to be to handle much more complicated transactions like the acquisition of real estate.
Wall Street generates revenue by executing paperless transactions triggered by the flick of a computer key. In seconds a “Buy” or “Sell” order is executed and commissions are earned. Pretty simple, very efficient and at zero financial risk to Wall Street, it isn’t its money-it’s your money.
Real estate can be a tedious process beginning with the submission of offers, making, accepting or rejecting counter offers, creating amendments, requesting appraisals, completing mortgage applications with job verifications and credit reports, procuring Title insurance, home insurance and more.
Is it any wonder Wall Street hasn’t jumped into real estate game except for REITs. Real Estate Investment Trusts which shares are also sold by the click of a computer key and again generating hefty commissions of 5% – 10%.
Time to Remove the Handcuffs and Invest in What You Want When You Want
Wall Street has quite effectively handcuffed Americans into believing that their IRAs can only invest in Wall Street products and that excludes real estate both domestic and foreign and real estate related products; Tax Lien Certificates, Notes purchased at a discount, lending, leases, water rights etc.
Wall Street, through its agents like your Stock Broker, has also misled many Americans with IRAs to believe that their IRAs are Self-Directed IRAs-they are not.
For you skeptics who need further proof of the statement simply call your Stock Broker, Mutual Funds salesperson or Financial Planner who handles your IRA funds and state matter-of-factly, “I want my IRA to buy a duplex”. Be prepared for laughter, disdain or outright deception.
It Is Time To Change Your IRA Now, Not Next Week, Next Month or Next Year
In the world of IRAs there is a simple fact, 97% cannot buy real estate thus you need to convert (transfer) your existing Wall Street IRA into an alternative IRA vehicle that can better serve your investment needs. There are three you should consider. One can be done online and in a few minutes. The other two require 15 – 30 days to establish.
- The Self-Directed IRA
- The Check Book Control Self-Directed IRA
- The Individual 401(k)
Changing IRAs does not dictate you must fire your friendly Stock Broker or Financial Planner or give up that 100 shares of Microsoft stock you purchased when Bill Gates was a young man; with any of the three later retirement plans you can still buy, hold and sell Wall Street products.
There Are No Tax Consequences When Changing IRAs
More than a few irked Stock Brokers have been known to say, “You will be taxed on any IRA transfer that moves your IRA money from Wall Street to another IRA Custodian.” This is not true. You will not suffer any tax consequences if the transfer to your new IRA is handled correctly. To accomplish this can range from $50.00 to $4,000.00 depending on the complexity of the retirement plan you select and the versatility it offers.
Looking for an IRA alternative to accommodate expanded investment choices can seem daunting especially if your Brokerage Firm, Financial Planner etc. plays the “fear” card, “You’ll be taxed”. This untruth is used to discourage you from moving money from the Wall Street coffers and resulting in lost income to your broker. Other wall Street ploy is the stall, “Gosh, we can’t seem to locate the transfer paperwork” or “Ge, are you sure you sent it, we can’t find it?”
Such devious acts are not unheard of in Wall Street lore.
Not All Self-Directed IRAs Are Equal
Because the Self-Directed IRA, the Check Book Control Self-Directed IRA and the Individual 401(k) vary greatly they will be covered in Part II.
Part II will discuss …
IRA Mistake #2
Not knowing how the Self-Directed IRA, Check Book Control Self-Directed IRA and the Individual 401(k) work, the benefits and burdens of each, the cost to establish and if you should change from your existing Wall Street IRA.
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