Seizing Control of Your Retirement Plan by Investing in Mortgages: Part VI

This will be the last in a six part series of articles on using your IRA to invest in non-traditional investments such as mortgages.     Leaving a Legacy of Saving. As a father of three, I’m well aware of the cost of parenthood – from diapers to saving for college and everything in between.   Yet the greatest obligation of all is to leave a legacy with your children that will long outlive you and your ability to provide for your child. That is, creating a saving mentality with your children.   Fact is, we hail from a country that is filled with non-savers, and it is not likely that any of our progeny will casually acquire the ability and aptitude to invest.  Passing on the power of investment can be one of the most important lessons learned and will impact your child throughout their lifetime.  Having that investment grow tax-free is even better.   Can a minor have an IRA?  Absolutely – just two rules apply:  First, the minor must have a Social Security Number (can be obtained shortly after birth) and have earned income.   Well – how can a five-year old earn income?   Perhaps you have your child provide modeling services – and pay them for their work.  Or maybe they are working odd jobs on weekends.  Up to $5,000 in earnings can then be contributed by the minor into a traditional or Roth IRA.   Parents will serve as the trustee for the minor’s IRA until he/she reaches the age of majority – 18.  The choice of funding a Roth is especially powerful, as the money will grow tax-deferred until the child reaches 59.5 – then can be distributed tax-free.   With a self-directed IRA, the parent can partner their child’s investment with their own, such as private mortgages or real-estate.    Assuming a eight percent annual return (which is not unusual for self-directed investors who invest in mortgages) – and a contribution of $4,000 per year until the child reaches 18, due to your forethought, the individual may be able to retire early:   Total Contributions from year one to eighteen:     (18 x $4000) =                   $72,000   Gross Earnings – year one to year 55 =                                                           $2,511,412       Total Retirement Nest-Egg at age 55 =                                                 $2,583,412                                                      So, without further contributions from your child, and assuming that they continue to self-direct their plan wisely, at age 55 they would have over $2.5M in their account that would be taxed only upon withdrawal.  Better yet, if the plan account was a Roth IRA, then the same funds would be available to your child tax-free at age 59.5.   Whether you use a Roth, SEP, Simple, or Traditional IRA, 401(k), or other tax-advantaged vehicle – you should be informed about the wide variety of choices available.  As such, I would suggest that you speak to your legal and financial advisors regarding the structure of any investment or loan that you would issue from your IRA.    Strongly consider investing in mortgages through a self directed IRA.  Our firm would be more than happy guide you through the process. This process includes finding you prospective qualified borrowers, note, and mortgage forms. We can get you started fast.  Mortgage loans yielding 11 to 13 percent are begging for investors.   In the end, even if the mortgage goes into default you still have something tangible that can be rented.   In sum, instill a savings mentality in your children. They will thank you in the future. Remember, their future depends on it! Author is Bernie E. Navarro. Mr. Navarro is currently the President and founder of Benworth Capital Partners. Benworth Capital Partners are a privately funded hard equity mortgage lender. Mr. Navarro has quickly made Benworth Capital Partners the preeminent hard equity company focusing on South Florida. This has quickly earned them the right to be named the “Hard Equity Experts”