The Internal Revenue Code provides multiple tax deduction and deferment solutions for asset owners including Self Directed Individual Retirement Accounts (SDIRAs) and 1031 exchanges. Each option has its advantages and disadvantages, and the appropriate solution depends on the current asset ownership and the need for self-usage of the property.

SDIRAs have two primary advantages over 1031 tax deferred exchanges. First, the United States government allows the write off or tax deduction of any contribution for most IRAs. Second, when the SDIRA sells the appreciated asset, there is no tax due (unless purchased with a loan, then Unrelated Debt Finance Income (UDFI) or Unrelated Business Income Tax (UBIT) may apply), those profits are returned to the SDIRA. 1031 exchanges are the appropriate strategy when selling an investment property already owned and when debt is needed to acquire the replacement property. Disadvantages of a SDIRA are debt must be non recourse and there can be no self-usage of the property.

SDIRA Asset Types

SDIRAs have been around for over 30 years allowing individuals to invest in a variety of non traditional investments including:

• Single and multi unit homes
• Livestock
• Commercial property
• Improved or unimproved land
• Mortgage, note or accts receivable
• Foreign property investment
• Tax liens
• Gold or silver
• Private placements
• LLC and partnerships

Investments in collectibles such as artwork, rug or antique, metal or gem (the exception is gold, silver, platinum and palladium bullion), stamp or coin or any alcoholic beverage and insurance are prohibited.

Self-Directed Retirement Plans

The types of retirement plans that can be self-directed and the current contribution limits are:

Rules & Regulations

SDIRA owners should follow three primary rules in their investment activities. First, there can be no self dealing or personal use of the SDIRA asset. This includes parents, grandparents, children or grandchildren of SDIRA owner and/or spouse. Brothers, sisters, Aunts, Uncles, Cousins can use the property at fair market rent. Second, debt must be non recourse to the SDIRA (the titleholder is the SDIRA) which limits the number of available lenders. Third, the SDIRA cannot engage in any transaction (direct or indirect) with anyone related or considered a disqualified person. Examples of disqualified persons include:

• You and your spouse
• Lineal ascendants and their spouses
• Lineal descendants and their spouses
• Any fiduciary of the SDIRA
• Anyone providing services to your SDIRA
• Corporations, partnerships, trusts, or estates in which you own, directly or indirectly, at least 50%.

Basic steps to buy real estate or asset in a SDIRA are:

1. Open/contribute or roll over funds from an existing plan held with a broker to a SDIRA.
2. Locate investment.
3. Make an offer on behalf of SDIRA.
4. Complete buy direction letter.
5. Review and approve title documents.
6. Deed recorded in SDIRA name for example, Entrust Freedom LLC FBO Client Name, IRA #12345.
7. Expenses paid from SDIRA.

Regulations require that third party custodians provide SDIRA account administration including annual reports to the IRS. The Entrust Group is an old established administrator with competitive fees. They provide free consulting on the many rules and effective strategies such as holding the asset in a limited liability company with checkbook privileges.

Your stock broker or financial advisor will not advise you how to take money away from their pockets and invest in real estate through your IRA, or 401K plan either. The financial magazines run large ads for brokerage firms and mutual funds T.V. and radio investment shows are supported by the same Wall Street advertising dollars…your money. I would be curious to see how many investment magazines will publish this article or if any investment shows will address this topic.

Stated on the IRS website “…..because of “administrative burdens”, many IRA trustees do not allow IRA owners to invest IRA funds in Real Estate. IRA law does not prohibit investing in Real Estate but trustees are not required to offer Real Estate as an option.” No commission for real estate sales may have a say here described as “administrative burdens”.

An Individual Retirement Account is a personal savings plan that allows you to set aside funds for your retirement. Investments made within these plans grow in either a tax-deferred or tax-free environment.

The IRS allows your IRA to earn tax free or tax deferred income with NO limitations on how much you receive—you can earn thousands of dollars with no tax consequences. A “Self-directed IRA” will allow you to choose your own investment strategies to earn significantly more for your retirement.

The term ‘self-directed’ does not actually have any legal connotation. It does not imply a different type of IRA, or a separate set of IRS rules. ‘Self-directed’ is simply an accepted industry term indicating that the IRA custodian is allowing the IRA owner greater control over their investment decisions. When an IRA account is self-directed, the IRA owner makes all of their investment decisions and instructs the custodian to act. You must have a custodian as a third party administrator.

Be careful who you choose as your custodian. Most of these “professionals” are part of the same old 97% controlling crowd previously mentioned. Our recommendation is that you find one that charges an administration fee and believes in Land Investments.

Traditional IRAs, SEP IRAs, Roth IRAs, 401(k)s, 403(b)s, Coverdell Education Savings (ESA) a.k.a. Educational IRAs, Qualified Annuities, Profit Sharing Plans, Money Purchase Plans, Government Eligible Deferred Compensation Plans, Keoghs are qualified plans that can be converted into “Self-directed Retirement Plans”. For more detailed information visit the Internal Revenue Service’s website. Also see Publication 590. On pages 40-41 you will see what investments are not allowed. Land is not included and therefore qualifies as does other types of real estate investments.

Our recommendation is to Stay away from investing your IRA money into an S corporation. S corporations only allow individuals (not entities) and certain permitted trusts to be investors. So if your IRA (an entity) is the investor, the S Corp would lose its status and its tax rate would change to a potentially less favorable one. Roth accounts can be used but take time to accumulate larger funds portfolios.

When purchasing Land with funds coming from an IRA, remember that the IRA itself must purchase the Land and hold the grant deed. All property taxes for that Land must also be paid from the IRA. The self-directed IRA should be opened first with cash or funds rolled over from other IRAs, 401ks, retirement plans, and then the Land should be purchased. Large tax penalties can occur if these transactions are not done properly. Proper care in deciding when to sell or lease the Land is also important. Land, especially pre-developed Land, is a long-term investment and often needs to be held for a minimum of five to seven years to produce the highest returns.

You can leverage a Land purchase with as little at 15% down and amortize 20 years with Farm Credit. They are located throughout the United Sates with different names. In the Land Brokerage business they are called “The Land Bank”. Farm Credit has had the most consistent programs for Land investors. Because of your increased buying power when you use leverage, the profits you make from the ability to use leverage can greatly outweigh the tax associated.

For more information we also recommend you visit, IRAAA™ is a nonprofit education-oriented alliance of financial planning, real estate, legal, banking, investment, and accounting professionals interested in further developing the niche industry of Self-Directed IRA & 401(k) investing. Their Promise is “IRA Association of America aims to provide affordable, unbiased and comprehensive education on the topic of investing with a Self-Directed IRA or Solo 401(k)”.

Make sure that you Google “Self Directed Retirement Accounts” and other associated words. Do your homework. This article’s sole mission is to stimulate your creative juices and reveal part of this untold story. After all you be in control of your own destiny and have the benefits of being a Land Owner. The greatest freedom there is.

In closing I invite you to review the results that the traditional investment community has had control of over 97% percent of this county’s retirement accounts, and “they” have been making a great living off your money. Look at the mess we are in. Ask yourself why would “they” want to let you know about alternatives that “they” would not be able to charge for?

My Land Investors have not lost a single dime and will not in the future. Land is the oldest and most stable investment there is. Contact a Realtors® Land Institute “Accredited Land Consultant” in your market area at. They will help you evaluate the investment potential and the “Highest and Best Use” for future development and utilization. They are ready to help you find that piece of dirt that will provide for you and your family for years to come as it always has and always will.

I’m sure there are three people in America who figured the stock market just right this year and are swimming in money like Donald’s Uncle Scrooge. I am not among them. And neither are millions of others who didn’t duck out.

The value of the stocks in my Roth IRA is where it was about 15 years ago. I am tail-gating 63. This is not good.

An Individual Retirement Account (IRA) is a retirement-savings plan that’s funded by smiling, hopeful nitwits like me. Officially, we are called, beneficiaries.

About 47 million U.S. families have at least one IRA. In 2007, IRAs totaled about $4.2 trillion. I’d guess it’s less than $2.5 trillion today.

Several types of IRAs are available. The most used is the traditional IRA, which a taxpayer funds with a tax-deductible contribution of pre-tax income. The tax hit falls on all dollars withdrawn, both those contributed originally and those earned from investment.

With a Roth IRA, the contribution is taxed going in, but withdrawals, including gains, are not. The Roth should be a better deal, except, of course, when your account loses over time.

When deciding between a Roth and a traditional IRA, we nitwits must project future tax rates for the time we plan on withdrawing money. If we bet that future rates will be high and current rates are low, then Roth is the way to go. But if current rates are high and we think that future rates will be low, then the traditional IRA has more appeal. The federal government could eliminate this crystal-ball aspect of retirement planning by establishing a future tax rate that applies to IRAs.

Federal rules govern each IRA type. “The taxpayer must follow every rule to the letter–in setting up these accounts, administering them and making contributions and withdrawals,” said Thomas D. Arbogast, tax expert at the Pittsburgh law firm of Schnader Harrison Segal Lewis, LLP. “Otherwise, taxes and even the loss of the IRA account can be imposed.”

You cannot, for example, contribute to a Roth IRA if your adjusted gross income exceeds $110,000 for an individual and $160,000 for a married couple, filing jointly. The maximum annual contribution is $5,000 for those under 50 and $6,000 for those over.

The good news is that this restriction ends in 2010 and the account holder will be able to move from a traditional IRA to a Roth regardless of income while spreading the tax hit over two years.

IRAs mostly help middle-income taxpayers who can squeeze out an annual contribution and get their account started early in life. Rich folks don’t need IRAs, and poor folks can’t fund them.

IRA plans use custodians to administer the accounts. Most IRAs are parked with custodians like banks, stock brokers and funds. It follows that most IRA money is invested in stocks, funds, bonds and interest-earning paper.

I’ve had an IRA invested in stocks for 30 years. I’ve watched its value go up, down and end up not far from where it started.

Enough! I would have done better putting my retirement money into land held through a real-estate Roth IRA.

A real-estate IRA can buy land, houses, commercial property, mortgage notes and rental units, among other investments.

The IRA can also finance a purchase through a nonrecourse loan (security limited to the IRA-purchased property) or a private loan. The IRA itself cannot collateralize a purchase.

Money in the IRA from contributions, interest and earnings needs to cover a property’s carrying costs—property taxes, repairs, insurance and improvements.

The IRA owner can’t use the IRA-owned property as a personal residence or place of business. But the IRA can buy its owner-beneficiary a retirement home that’s rented until the owner retires, takes a distribution of the asset and moves in. Rental income goes into the IRA, not the owner’s pocket.

The IRA owner can direct real-estate investments but is prohibited from managing IRA properties. The IRA account holder can hire a property manager to take care of IRA properties, paid from IRA monies.

Rural land — and particularly, timberland — lends itself to a retirement investment. Woodland is an easy IRA keeper. It requires little management almost all of the time.

It appreciates long-term and generates timber-sale income every so often. Risk of loss is low. Timber sales can be arranged by a consulting forester and timed to catch a rising market. Small IRA accounts can afford 10 to 15 acres, which is a good investment for young adults.

If the IRA property has no mortgage, the IRA account need not pay taxes on income the property produces. If the IRA property carries a mortgage, the IRA account must pay the Unrelated Business Income Tax (UBIT), which is levied on income left after property expenses are deducted. If an IRA buys $100,000 of real estate with a $40,000 mortgage, the UBIT would only fall on 40 percent of the rental income. The first $1,000 of net income is spared the UBIT.

When an IRA property is sold, the gain is subject to the UBIT tax if it’s mortgaged. If it’s not mortgaged, the taxable gain is either deferred under a traditional IRA or exempt under a Roth IRA.

The UBIT applies to any trade or business carried on by the IRA. Other types of income are free of it, including dividends, interest, royalties, annuities, most real-estate rents and gains from sales other than trade-or-business property.

The real-estate IRA can also be used to originate mortgage money to borrowers and purchase existing mortgage-based promissory notes. And less obvious investments are also allowed, such as options on real estate, tax-sale certificates and foreclosures.

Certain types of transactions are prohibited. Your IRA cannot work investments with a “disqualified person,” including your immediate family, your IRA custodian and those providing services to your IRA, such as a broker. Your IRA can, however, invest with your siblings, in-laws, aunts, uncles and cousins. It cannot lend money to business entities when 50 percent or more of the stock is owned by you or a disqualified person,

An IRA cannot be used to buy life insurance and most collectibles, such as art, antiques, rugs, metals (with the exception of certain U.S.-minted bullion coins), gems, stamps and alcoholic beverages.

A very useful primer is Patrick W. Rice’s, IRA Wealth: Revolutionary IRA Strategies for Real Estate Investment, 2nd ed. (Square One, 2007, $17.95). Rice helps clients find investments and matches them with custodians. (www.iraresource.com)

Real-estate IRA custodians can be found through an Internet search. Custodians review the investments, do the paperwork and hold the IRA money and property titles. Investments can be found through the taxpayer’s own network, consultants and real-estate brokers.

In light of the unpleasant fact that most Americans are not able to fund their own retirements under the current system, the federal government might consider expanding the definition of assets that can be contributed, raising the cap on annual contributions and making it easier tax-wise for more Americans to help their own retirements.

If I was in my 30s or 40s, I’d set up a real-estate Roth IRA and buy timberland. But readers should be warned: I was the guy who bought Pan American World Airways stock just before it flew into that dark night from which nothing good emerges.

The younger you are when you start planning retirement, the better. But those of the 77 million Baby Boomers who have not saved enough may not be out of luck.

If relocating to a small town or rural area might be in your plans, here are ways to approach it:

Buy your retirement place as soon as you can. This is often hard to do, because it requires that you start a long-term investment when you’re young and many considerations are unknowable or subject to change.

Some make decision easier by starting it as a second home that can become their retirement place.

About nine percent of America’s 111 million householders (owners plus renters) — roughly 10 million — own a second home, the rate being highest among those in their 50s, according to Professor Rachel Drew, coauthor of a November, 2007 study by Harvard’s Joint Center for Housing Studies, “Projecting the Underlying Demand for New Housing Units: Inferences from the Past, Assumptions about the Future.”

The advantages of extending your second home into your retirement residence are many.

The second home can be used mostly as a rental unit with income helping to retire its mortgage and the owner getting many tax benefits along with some personal use. As equity builds and appreciation occurs, you have another asset to borrow against. You also can have local friends in place before retirement.

Buying a second home sooner allows you to buy a retirement place cheaper.  The second home you bought for $100,000 30 years ago might easily cost $750,000 or more today as a retirement place. The tax-free profit you will get on the sale of your principal residence can now be used for retirement living rather than for the purchase of your next house.

Buy your retirement place with your IRA. A Roth Individual Retirement Account (IRA) is the best retirement savings vehicle available. It allows an individual to contribute $4,000 annually (on which tax is paid), but all principal and all appreciation can be withdrawn tax-free in retirement. Most of us keep our IRAs in stocks, CDs and bonds.

You can also use IRA money to buy a retirement place in advance of your retirement.  You cannot live there or use it until you retire. And you can’t use the retirement property to collateralize a loan, even its own.

You can use its rental income before your retirement to pay for maintenance and build your IRA account.

Using IRA money to buy rural land is simpler than buying a rural residence, since land generally requires little maintenance or insurance, and taxes are usually low.

If you sell timber or lease the IRA land for crops, minerals or hunting, your net income after taxes and expenses is added to your IRA. Taxes on income earned from the IRA property has to be paid from IRA funds. The biggest benefit of IRA real estate is its appreciated value, which you can sell before retirement and put the net into your account.

The IRS has established rules for buying and managing real estate with IRA money: you must know what they are and follow them. See Title 26—Internal Revenue Code, Section 408A, Roth IRAs.

An excellent introductory book on the subject is IRA Wealth: Revolutionary IRA Strategies for Real Estate Investment, 2nd ed., by Patrick Rice, SquareOne Publishers, 2007 at http://www.iraresource.com. Mr. Rice locates real-estate investments for IRA owners.

Picking a Place. Where to Retire Magazine is a good source for articles on small communities that are retiree-friendly, at http://www.wheretoretiremagazine.com. Money Magazine ran a “Best Places to Retire in 2006” at www.money.cnn.com/magazines/moneymag/bpretire/2006.

Warren Bland’s, Retire in Style, 60 Outstanding Places Across the USA and Canada, 2007, profiles suitable small towns and small cities. He also writes community reports; both at www.nextdecade.com.

He’s developed a useful evaluation tool for retirees by which he rates communities – poor to excellent — against 12 criteria: landscape, climate, quality of life, cost of living, transportation, retail services, health care, community services, recreation, cultural/educational activities, work/volunteer activities and public safety.

Professor Bland gave me these picks for small towns with rural lifestyles available in their host counties: Ithaca, NY; Bloomington, IN; Charlottesville, VA; Gainesville, FL; Fredericksburg, TX; Chico, CA; and Medford-Ashland, OR.

Five of these six have a university. Smaller towns with colleges offer many of the same benefits to retirees—restaurants, bookstores, cultural activities, sports and cheap 17-year-old computer fixers.

If out-in-the-country-living is your goal, choose a county and then a couple of neighborhoods that appeal to you. I’d look for a pretty place with fewer than 20,000 residents, no resource-extraction controversies, a small college and a slow-growing rural economy.

What relocating retirees value in a rural community.

• Compatibility with a new group of peers
• Levels of services that meet their needs, however they’re individually defined
• Peace and quiet—political, environmental, neighborhood
• Proximity to what’s important to them—family, part-time work, recreation, religious congregation
• Climate and interesting topography
• Opportunities for volunteerism

Multi-channel television, Internet and catalog shopping, DVDs, email, search engines and all the rest make “distance-from” much less a discount factor in rural life than in the past.

Important services. Retirees should evaluate these services:

• Proximity of primary-care and emergency physicians. If a relocator has special needs, those medical providers have to be convenient and competent.
• Quality and reliability of hospital transportation
• House and yard help

Property search criteria. Retirees need to accept that they will be able to do less property-related hard work as they get older. Therefore, look for property that has:

• Convenient and safe physical access, particularly in bad weather
• Age-friendly layout in land and house
• Routine maintenance that’s easy.
• Dependable utilities

Some of us will be fortunate enough to retire with no loss in our standard of living, but most of us will not. Relocating to a small town or rural community will stretch your retirement dollars as well as your mind.