Now the stage is set forindividual retirementaccounts (IRAs) to becomethe dominant retirementaccount, inparticular, self-directed IRA accounts(SDAs). While benefitting from the sametax advantages of traditional IRAs,SDAs allow investors to manage thedirection of their own investments.
Through SDAs physician-investorscan now channel the more than $10 trillionin total retirement assets into realestate investments such as trust deeds,mortgages, and tax liens. Physician-investorsshould take the following stepsin order to start investing their retirementfunds in SDAs:
Step 1: Locate an SDA custodian.While traditional IRA custodians mayclaim to provide SDAs, most restrict thetype of investments to assets from whichthey will derive a commission. However,independent IRA custodians allow individualsto select from a wider range ofreal estate options, such as private equities,limited partnerships, and limited liabilitycompanies. Once you have chosena company for your SDA, ask them tosend you a kit and the necessary investmentauthorization forms for real estate.
Step 2: Complete the new SDApaperwork. This usually consists of anIRA agreement, fee schedule, and disclosurestatement. Read the documents andfill in the requested information. Payattention to beneficiary designation; failureto name a beneficiary will default tothe ordering rules contained in the financialinstitution's IRA agreement. ManyIRA documents indicate that the individual'sestate will be the designated beneficiaryif no one is named. Individualstransferring or rolling over funds fromanother IRA will also need to completean IRA transfer/rollover request form.
Step 3: Fund the new SDA. Youcan move assets from one IRA to anotherby transferring funds, a tax-free, nonreportablemovement of assets betweenretirement plans that generally occursbetween similar types of plans.
You can also choose to roll overfunds between IRAs, in which a distributionto an IRA owner of cash orother assets from one retirement planis then deposited into another retirementplan, or between an IRA and anemployer's plan. A rollover is also tax-free—provided the entire rollover contributionis redeposited into anotherIRA custodian within 60 days after theIRA owner received the distribution.Any amount not rolled over in time istreated as an early withdrawal andtaxable in the year distributed.
Step 4: Authorize a real estateinvestment. Once you find a real estateinvestment to acquire, physician-investorswill sign an investment authorization,which instructs the SDA custodianto buy it. Follow the instructions containedon the investment authorizationand provide your SDA custodian withcopies of the requested documents priorto funding. Document requirements willvary between custodians, but mayinclude a draft of the proposed deed toensure that vesting will be properlyreflected. Typically, you will also beasked to write a check drawn from theaccount or wire funds to a third-partyescrow company, and the title goes in thename of the SDA and the custodian.
As individuals get closer to retirement,they tend to be less interested in growthand more interested in preservation—protecting the value of their portfoliofrom any declines. Real estate ownershipwithin an SDA can help physician-investorsachieve their objectives.
Paul E. Maxwell is a member of Trust Administration
Services Corporation. For more
information, call 800-455-9472, e-mail
firstname.lastname@example.org, or visit www.TrustLynk.com. The information in this article is provided
for personal, educational, and informational purposes only
and does not constitute a recommendation or endorsement
with respect to any company, security, or investment. All
investments involve risk, including the possible loss of principal.
Individuals should work closely with their accountant,
financial advisor, and/or attorney before implementing any
significant change to their portfolio.