In part two of this exclusive online interview, agent M. D. Anderson, below right, of Chandler, Ariz., talks in more detail about the intersection of real estate and insurance products. Anderson is a longtime multi-licensed insurance agent as well as an accountant, certified legal document preparer and an active Realtor® with RE/MAX Diamond in Mesa, Ariz.
Daniel Williams: What are your thoughts on letting consumers continue to invest in real estate via mutual funds, and variable accounts in insurance products?
M.D. Anderson: I sold them all at one time and some of the REITs I sold made some very nice returns some years for my former investment securities clients. But, a REIT or shares in a real estate project or partnership do not allow direct management or choice of locality. To me, it’s more like leasing then actual buying. I prefer real ownership of real property so I can be 100 percent real and ready to choose all the details.
That is because I am a runner. I want to run things. And, with billions leaving those traditional three holders of most IRA money today, I am not alone. They don’t all buy land or rentals with a self-directed IRA, but most do. And, most advisors at most firms ignore the real and present fact that in the long term, only real estate produces the most millionaires in this country.
Of course, that isn’t even touching the passive advantage of owning real estate directly. You don’t have to watch it every day or be on meds and counseling when the stock market takes a big adjustment downward.
Williams: So real estate, long term, will produce better yields then the more traditional IRA-type accounts?
Anderson: All I am saying is that you will have less wear and tear along the way and history to date proves real estate adjusts, too. But it is deemed a long-term holding investment and thus, held for long periods of time, it will increase in many cases by simply letting father time do his job.
Williams: What’s the risk in putting one of those inherited IRA clients you get for consulting, or their heirs, into a self-directed IRA funded with real estate?
Anderson: The beauty of the IRA plan is that grandpa or grandma can transfer a portion of their current IRA into a self-directed IRA and allow a realtor to choose the proper investment real estate for the account. But it doesn’t end at death. By combining my inherited IRA skills and knowledge, we teach the IRA owner to fully document that they do not want the heirs to cash the IRA in at their death.
By resetting the RMDs to their kids or their grand kids on a portion of the money, one can easily extend the tax deferral period another 30 or 40 years on children and twice that long on younger grandchildren.
Williams: What if the attempt to kill the inherited IRA (which was attempted last year) resurfaces?
Anderson: Grandfathering is often used in such drastic measures. I was there when TEFRA passed. Finding a pre-1982 annuity, which allows the basis to be pulled out tax-free under FIFO accounting IRS rules, is almost impossible now. But, if you do, it is a gold mine for tax benefits. And, I do believe can still be 1035’d into a new account and still hold that old tax law. So, most likely those that have established an inherited IRA will be under the old law if this does indeed take place. All the more reason to move quickly if a loved one dies with a big IRA this year.
Williams: Any last comments?
Anderson: Just that up to 50 percent of the content on self-directed IRA accounts is wrong on the Internet. Some who are in authority would have you think you could go to jail for even trying to do this. The securities industry is totally biased against these accounts, because for the most part, if an investor chooses to run their own investments in a self-directed account, it is to buy hard assets such as gold, silver bullion, allowable coin bullion, trust deeds, real estate, etc. The brokerage houses are losing a lot of money now to this ever-increasing field.
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