Real Estate IRA’s: Getting Started Right (Part 5 of 5)

September 22, 2017  --  Episode #276

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Have you ever thought about the risk of lawsuits involving real estate in your IRA?  Or maybe strategies to reduce your IRA taxes during retirement… or even estate planning issues for your IRA?  These things are rarely considered until it’s too late, and they are the topic of Step 5 of 5 Simple Steps to Getting Started Right with Real Estate IRA’s.  I’m Bryan Ellis.  This is episode #276 of Self-Directed Investor Talk.



Welcome back, my friends, to the final installment of 5 Steps to Getting Started Right with Real Estate IRA’s.  If you missed any of the previous steps, you definitely should go back and catch up, and the links for those episodes will be available to you on today’s show page.  I’ll give you that link in a minute.  In fact…t

Today’s show page can be found at SelfDirected.org/276.

My friends, today’s information may be a bit disturbing for you, but better for you to hear it now than in the future when it’s too late.

I’d like for you to stop and think about this question:  Does owning real estate in your IRA open you up to legal risk… you know, lawsuits, that sort of thing?

Hmmmm…. Well, I can tell you for sure there’s a lot of misunderstanding about this point, even among lawyers.  In fact, I was teaching a class about this very topic at the Georgia Real Estate Investor Association this past weekend, and there was a real estate attorney in the room who said it was his opinion that IRA’s are exempt from creditor claims, such as lawsuits.

Well, he’s mistaken.  IRA’s and 401k’s do include some statutory legal protection, but that protection is not absolute, and is even rather narrow.  It’s also rather state-specific, and depends on whether you have a Traditional or Roth IRA.  For example, it looks like IRA protection in the state of Alabama is pretty strong, for both Roths and Traditionals.  But for you folks out in California, there’s a well-established body of case law that makes it clear that if a judge thinks you either have enough money in your IRA for retirement OR if you’re young enough to re-earn the money, they can take it from you at will.

It’s pretty scary.

I’ll include a link to state-specific information about creditor protection on today’s show page at SelfDirected.org/276, so be sure to check it out.

What I’m talking about here is called external risk, because it deal with risk outside of the IRA.  In other words, if you’re in a car wreck or a bad business deal or whatever, and you face a lawsuit that you lose… that’s the kind of situation that you may or may not be protected from through your IRA.

But there’s another type of risk against which NO IRA or 401k is protected, and that’s INTERNAL risk.

Imagine this:  Your IRA buys a house and rents it out.  The tenant trips over an air bubble, falls, and gets injured.  Of course, they proceed to open a lawsuit for $5 Million in damages.

But who will they sue?  Well, they’ll sue everybody they can possibly include, but most likely, they’ll sue the property manager and the owner of the property.  Who is the owner of the property?  It’s your IRA.  And what if that crazed tenant wins that lawsuit and gets a $5 million judgment?

Well, my friends, everything in your IRA is at risk, up to the amount of that judgment.

The statutes that protect your IRA in the event that YOU are sued bring no security to your IRA in the event that your IRA is sued.

Under the law, you and your IRA are different entities.  If you’re sued, the IRA may be protected.  If the IRA is sued, there’s no protection.

See the difference?

Well, here’s the thing… nobody thinks about this sort of thing until it’s too late, unfortunately.

There ABSOLUTELY are things you can do ahead of time to make sure that your IRA assets have some degree of protection, some sort of insulation, in the event of a nasty lawsuit.  But have you taken any of those measures?  Do you know what they are?

If you have legally risky assets, like real estate, and you don’t already know that your IRA is structured to withstand that type of risk, then this is definitely something you should discuss with an attorney sooner rather than later.  Yes, of course, I have a good attorney suggestion for you at SelfDirected.org/276.

The same thing holds true about taxes and estate planning.

On the tax issue… for those of you using Traditional IRA’s – remember, folks, all you’ve got is a tax deferral.  Uncle Sam is still going to take his pound of flesh, no doubt about it… he’s just going to wait until you’re retired to strike.

But are there ways to structure your assets now so that your taxes are lower then?  YES THERE ARE!  That, in fact, is what the Hourglass Technique is all about… I’ll tell you more about that next week.

My friends, the point of today’s show is not necessarily to give you all of the solutions to these issues, because I can’t.  All of these things – legal liability, tax planning, estate planning – these are all things that are highly specific to your situation.  You MUST get good advice from an attorney to properly address them.

So the point of today’s show isn’t to give you the answers, but to get you thinking about things that may not naturally occur to you… until it’s too late, that is.  And too late is never the right time to be thinking about anything.

So there you have it, my friends… all 5 parts of 5 Simple Steps to Getting Started Right with Real Estate IRA’s are done and in the can.  If you’ve missed any of them, the links to all of them are on today’s show page at SelfDirected.org/276.

Hey… I’d love to hear from you about this.  Did you enjoy this series?  Give you me feedback on today’s show page at SelfDirected.org/276.

My friends, invest wisely today and live well forever!


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Bryan Ellis

I am host of Self Directed Investor Talk, which I'm told is America's #1 podcast and for affluent self-directed investors. I'm also something of an expert in self-directed IRA's, solo 401k's and 1031 exchanges. You can find more of my writing in some cool places like TheStreet.com, Entrepreneur.com, ThinkRealty and even Forbes (that was always one of my goals!). I live in metro Atlanta, Georgia with my wife and business partner Carole Ellis(she's a real business partner... not just because she's my wife... I'd want to work with her if I wasn't married to her... and I'd want to marry her, too). I also have 4 children ranging in age from 2 to 20 (yes, you read that correctly). It's my goal to be the name everybody thinks of when they think of Self-Directed IRA's and Solo 401(k)'s.