New Direction CEO Bill Humphrey Talks Real Estate Investing for Retirement on RE/MAX of Boulder Podcast

Patricia McCrystal

July 14, 2015

Monday, July 13^th 2015 – In a podcast hosted by RE/MAX of Boulder, New Direction IRA’s CEO Bill Humphrey gave a rundown of the history of self-directed IRAs, and the benefits investors can glean from real estate investing for retirement. Podcast host Duane Duggan is a Broker Associate with Boulder Property Network, and was one of the attendees at New Direction IRA’s very first public continuing education meeting in Denver back in 2003. There was a familiar air between Humphrey and Duggan that allowed dialogue to flow easily and remain accessible for viewers and listeners of all knowledge bases.

Left to Right: Duane Duggan and Bill Humphrey

Duggan kicked off the podcast with a nod to New Direction’s growth since its conception in 2003, as the company now boasts $1.14 billion in account assets under its roof. Humphrey explained this number is indicative of self-directed IRA account growth in general, as more investors become disenchanted with the securities market and seek to invest their retirement savings into a more tangible asset market that they know and understand – such as real estate. In fact, Humphrey pointed out, “self-directed IRAs are the fastest growing segment of the retirement industry as a whole”.

So what kind of IRA does one need to take advantage of real estate investing for retirement? One that you’re in control of (Humphrey). Employer-provided retirement accounts such as 401(k)s typically only allow for securities investments. However, a Traditional IRA, Roth IRA, SEP IRA, SIMPLE IRA, Individual 401(k) and Checkbook IRA can be self-directed. With a self-directed IRA, investors can capitalize on their personal knowledge and experience of the real estate market to purchase real estate, fund fix-and-flip projects, purchase notes, deeds, and partner with other IRA accounts to finance a real estate purchase. You can even use self-directed Health Savings Account (HSA) to invest in real estate.

“Real Estate investors are finding that the IRS doesn’t define what account holders can invest in,” Humphrey explained, “the IRA administrator does.” In other words, the scope of investments your IRA is legally allowed to make is nearly limitless – the only investing limits an account holder may run up against are those exacted by the account administrator. A self-directed IRA administrator like New Direction IRA specializes in the bookkeeping for alternative asset investing so that account holders can invest in anything they desire, as long as it follows IRS guidelines (no life insurance or collectibles). “Any investment you’ve ever made is probably one that you can make through your IRA” (Humphrey). In fact, New Direction IRA was conceived because Co-founder and President Catherine Wynne was interested in investing retirement funds in real estate, and believed there should be a better market for self-directed IRA administrators.

What are the advantages of investing IRA money? Humphrey explained that the IRS made a deal with IRA holders – you can save money in your account and watch your IRA’s real estate investments grow on a tax deferred basis, as long as you as the account holder (along with other disqualified persons) don’t directly benefit from the funds or assets while they’re in the account. Once the account holder reaches legal distribution age, they can access their tax-deferred funds and/or take possession of their assets as a distribution.

“One of the aspects that turns real estate investors to self-directed IRAs is the spectacular market growth" (Humphrey). Your IRA can buy real estate and take advantage of market appreciation – something many Coloradans (particularly those living in the Boulder area for the past 20 years) can appreciate. Tenants from rental properties can send cash directly to your IRA account, which you can direct New Direction to either save in your account, or put toward more investments for your IRA. As far as depreciation goes, your IRA can benefit from depreciation as long as the property is debt leveraged. However, depreciation will not effect your personal finances, because the IRA owns the property, not the IRA account owner.

What is New Direction IRA’s role as a self-directed IRA administrator? New Direction does all the bookkeeping and administrative services for your IRA that is required by the IRS in order to keep a buffer between the IRA account holder and the IRA’s funds/assets. Because your IRA is the owner of all real estate investments made with the IRA funds, New Direction signs all contracts on behalf of your IRA, and sends checks from your account at the direction of the account holder. New Direction does not endorse or recommend any assets or asset providers: “We’re not here to tell people to not buy ocean front property in Arizona,” Humphrey joked, “we’re just here to make sure the paperwork is done right.”

You can watch the full podcast on Boulder Property Network’s YouTube site, and read RE/MAX of Boulder's blog about the podcast here. Visit New Direction IRA.com to learn more about how to start investing in real estate with your self-directed IRA today!

Become a First-Time Homeowner, Thanks to Your IRA (Even if You’ve Owned a Home Before)

Patricia McCrystal

July 10th, 2015

There’s no time like this summer to buy your first home. The market is booming, and you’re ready to stop shelling out cash to your landlord and invest in a long-term asset that will belong to you. Plus, you’ll finally be able to paint the walls!

If you have a Traditional IRA account, you may be able to use your retirement funds to finance the down payment of your first home. The distribution age of your Traditional IRA account normally isn’t until you reach 59.5 years of age; withdrawing assets or capital gains before that age can result in taxation and a substantial penalty.

However, IRA account owners are permitted to withdraw money before distribution age, penalty-free, in certain circumstances – in this case, IRA owners can withdraw up to $10,000 for qualified acquisition costs on a home, without paying the 10 percent penalty for early distribution. Qualified acquisition costs generally cover buying, building, or rebuilding your first home, as well as funding most settlement, financing and closing costs.

Since all contributions into your Traditional IRA account are deposited “pre-tax”, you will have to pay ordinary income taxes on the money you take as a distribution. This could potentially bump you up into a higher tax bracket. Additionally, you will no longer benefit from the compounding interest on your account’s lump sum.

Despite these caveats, there are more perks involved with this exemption: you can take distributions from your IRA account for home buyers other than yourself, including persons who are otherwise disqualified to interact with or benefit from your Traditional IRA in any way. Your distributions can be used to cover home buying/building expenses for your children, grandchildren, spouse, parents, mother in law, etc.

Additionally, you can qualify as a first-time home buyer even if you’ve owned a home before. As long as you haven’t owned a home dating back two years prior to (what will be) the closing date of your new home, according to the IRS you’re technically a first-time home buyer.

Using your Traditional IRA account to finance your first home (or in some cases, your second) can be a fabulous perk to regularly and sensibly investing in your IRA. Consult with your trusted financial adviser to weigh the costs and benefits of taking an early distribution to fund your first home. And as always, happy investing!