How to Grow a Small Balance Roth IRA and Retire Tax-free.

Non-traditional strategies, how-to’s and tips for responsibly investing in a tax free retirement account.

Growing and Living Tax Free

Why is this so important?

Taxes are going up, up, up. This country has accumulated massive debt, to the tune of 20 trillion dollars. On top of that, we are stuck holding the tab for more 100 trillion dollars of “unfunded liabilities,” i.e. social security, Medicare, etc…

Faced with such a mountain, the politicians who run this country are recklessly looking for ways to “redistribute” any revenue they can. Taxes across the board are going up.

Bottom line is, this country (the politicians), need money. They need your money. They’re coming after it and they are going to take more of it if you continue to do business as usual. Let’s face it – you are a target if you are an entrepreneurial business owner. You cannot outrun the higher taxes. Working harder, working longer and driving the same old rattletrap of business and investment planning is no longer an effective strategy.

The Tax Effect

The effect of interim taxation, that is, the taxes that each one of us has to pay on taxable income each year, is almost devastating.

If you double $1 each year for 20 years in a tax-free environment (like a Roth IRA), you will finish with 1 million dollars. Isn’t the compound effect great?

Now let’s run the same numbers with a measly 15% total taxation (most people pay more). $1 doubled for 20 years taxed at 15% gets you $250,000. That’s a 4 to 1 decrease in the compounding effect.

Increase that tax to 28% overall, and instead of reaching 1 million dollars, the compounding effect of $1 over 20 years only reaches $51,000. That’s a 20 to 1 decrease. Are you crying yet?

Let’s look at the top tax bracket today, which is 39%. A 39% tax each year will devastate the compounding effect of that $1 doubling 20x to eventually produce only $13,000. Your investment is decreased by a factor of 77 to 1.

What We Can Do About the Taxation Noose

Many people mistakenly believe that only certain individuals with total taxable income under a certain dollar amount can have a Roth IRA. That used to be true, but in 2010 the tax laws changed to allow for anyone with a traditional IRA to convert any portion of that traditional IRA to a Roth IRA.

In this case, you only pay taxes at the time of conversion and only on the gain or profit in that traditional IRA. If you want to put some money in a Roth IRA, simply open a traditional IRA, contribute, then immediately (in the same day) convert that to a Roth or any portion of that contribution to a Roth.

Now, once you have money in a Roth IRA, your options open up, even if it’s a relatively small amount. It could be $6,000, $10,000, $20,000 or $50,000. Whatever the amount is, there are responsible strategies [which only real estate can provide] that will allow you to greatly leverage and enhance the return on (initially) small Roth IRA balances.

Example Of Leverage Opportunities In Real Estate

Five percent (or less) fixed rate long term mortgage money is currently readily available. You can use a Roth IRA for down payments, purchasing real estate in that Roth IRA and creating the advantage of the leverage.

A caveat: There are some taxes to be paid on debt leverage. But in most cases, the compounding effect of the leverage in that Roth IRA will surmount any of the taxes that have to be paid because of the debt leverage. Consult your professional advisor to see if this particular strategy is right for you.

Small Risk, Large Return

There are other ways to invest small amounts of a Roth IRA. As little as $500 earnest money can secure a contract for the purchase of real estate.

Contracts in real estate are negotiable and they are signable. A contract to purchase real estate does not have to be closed by the contract buyer (in this example, the IRA). With $500 earnest money down on a contract, that contract can be sold and assigned to another party. Those assignments can often be in the five figure range. I know of many people they have secured $15,000 or $20,000 for a contract assignment.

Investing opportunities aren’t limited to large sums of capital. $500, $5,000, $10,000, $15,000, or $20,000 in a Roth IRA can provide huge earning potential. Best of all, that money is now going to grow and eventually be distributed out of that Roth IRA – completely tax free.

But Wait…

Another strategy available to a Roth IRA involves “options”. Options are a great a way to control equity and property with a small amount of money. With $500 – $1,000 you could secure an option of $10,000 to control various sizes of property and equity. By using the leverage of options, you can greatly enhance the return inside of your Roth.

[Understand that’s a simple explanation of something that we talk about in great detail at Freedom Founders.]

There’s More

There are also lending opportunities. Yes, a Roth IRA can be a lender for real estate.

By take secure mortgage positions and utilizing “wraparound mortgages” you can leverage other people’s (or financial institution’s) money. The Roth IRA can often lend money at 12% – 15% to investors who are in the real estate business. The Roth IRA can leverage other existing financing and take an “override position” – another great leverage tool.

These are just a few examples of the ways that we show our Freedom Founders Members how to leverage small balance Roth IRA’s.

The catch?

The key to be able to do these things is to have connections to people with ‘deal flow.’ You cannot “self-deal” with your IRA, meaning, you cannot invest your IRA in deals that you are running or controlling. An impartial party needs to provide, organize and facilitate.

The Freedom Founders community is one that enables and empowers those connections. Members are able to make use of the best opportunities to grow their real estate investments both inside and outside of their retirement accounts.

You can try to reinvent the wheel, try to do it all yourself. Or you can let us help.

If you’re ready to fast track your Plan B, take your first freedom step and complete a brief questionnaire that will get you a complimentary strategy session with me where we discuss your situation.

I hope to talk soon.

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