fbpx
  • Home
  • |
  • Podcast
  • |
  • How To Save Massive Taxes Every Time When Using Retirement Plans To Invest
How To Save Massive Taxes Every Time When Using Retirement Plans To Invest

August 6, 2021

How To Save Massive Taxes Every Time When Using Retirement Plans To Invest

Do you know that you can invest in real estate using retirement plans? Do you know that the type of plan you invest with can mean the difference in thousands and thousands of dollars in returns? Get educated and learn the difference between the options available to you.

It’s Not How Much You Make But How Much You Keep

Photographer: Jon Tyson | Source: Unsplash

If you have an IRA, you can roll those funds into one of three different retirement vehicles, tax-free and penalty free to include;

  • SDIRA – Self Directed IRA’s
  • Solo401k’s
  • QRP’s – Qualified Retirement Plans

Which option you choose will have a significant impact on the overall returns of your investments.

Most investors choose self directed IRA’s. I believe they choose this avenue because they don’t know or understand the difference.

UBIT Tax

Photographer: Max Harlynking | Source: Unsplash

There is a tax assessed within SD IRA’s but not within Solo401k’s or QRP’s. The tax is called a UBIT tax which stands for Unrelated Business Income Tax. The tax basically is assessed on any earnings within the SD IRA that relates to leverage. On real estate transactions, most deals will have a loan on the property between 70-80%, therefore 70-80% of the earnings will be subject to this UBIT tax.

Is the UBIT tax material?

In my opinion the tax is absolutely material and I believe investors should educate themselves as to their alternatives. Here is my understanding. Let’s assume an investor invests $100,000 into a real estate syndication using a SD IRA and the deal has a 75% loan on the property. Let’s assume the property is later sold and the investor doubles his/her equity. In this case 75% of the $100,000 gain will be subject to UBIT tax in the SD IRA, so $75,000. I’m told this tax rate can be as high as 37%. So 37% multiplied by $75,000 equals $27,750 in taxes that your SD IRA would be subject to paying.

Solo401k’s and QRP’s Are Not Subject To The UBIT Tax

Solo401k’s and QRP’s are not subject to the UBIT tax. Because of this, in my opinion it is much better to use one of these vehicles to invest retirement funds into real estate transactions.

Can I Do Something If I’m Already Invested With A SD IRA?

It is my understanding that yes you can take action if you have already invested using a SD IRA. It’s my understanding that you can setup either a solo401k or a QRP and then transfer the ownership interest from the SD IRA into the Solo401k or QRP if you do it before the sale of the property.

How do I learn more?

I recently interviewed Damion Lupo on the podcast and he discusses the benefits of using an eQRP or enhanced QRP. I believe you will learn about the various options available to you by listening to this podcast. Link below.

Advantages Of The eQRP For Maximizing Wealth

Disclaimer

Please seek counsel from your accountant, tax advisor and legal advisor. I am not a practicing CPA or tax advisor. I’m simply sharing information I have learned over the past several years.

Why do I share this story with you?

I share this because I want each of you to maximize your investment returns. Get educated on your options and then take action!

Don’t Miss Out – Subscribe and provide 5 Star Review On Apple Podcasts

Don’t miss out on an episode to learn from other seasoned investors. If you have yet to subscribe and provide us with a five star review on Apple Podcasts, it’s FREE and will take 30 seconds. Click the link below, hit the SUBSCRIBE button then scroll down and select 5 stars (the fifth star furthest to the right). That’s it!

Darin Batchelder's Real Estate Investing Show

If you’ve already subscribed and provided us with a five star review, then thank you and please share the show with a friend!

Related Posts

How Doubt Kills Mores Dreams Than Failure Ever Will

How Doubt Kills Mores Dreams Than Failure Ever Will

Advantages Of Trading Up To New Attractive A Class Properties

Advantages Of Trading Up To New Attractive A Class Properties

How Curiosity, Tenacity & Persistence Lead To Real Estate Investing Success

How Curiosity, Tenacity & Persistence Lead To Real Estate Investing Success

How To Champion A Fantastic And Unique Tenant Experience

How To Champion A Fantastic And Unique Tenant Experience

Darin Batchelder


Wealth creation through real estate provided me with a new passion to get the word out and let others know that they have an alternative to investing in the stock market.

If I can inspire and educate just one person to take action that results in life changing wealth creation then the work to launch and grow this podcast is well worth the effort.

{"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}
>
Tweet
Share
Share
Pin