Introduction
Brian Seidensticker, CEO of Tax Sale Resources, recently interviewed Jill Banner, Founding CEO of iPlanGroup.
iPlanGroup is an administrator of self-directed Individual Retirement Accounts (IRAs).
The Company empowers self-directed IRA investors to grow tax-advantaged wealth and retirement savings through alternative investments.
Those include assets such as precious metals, real estate, and liens and deeds purchased at tax sales.
Jill is also a tax sale investor. Her first investment, the purchase of a tax certificate, delivered a 400% profit within just four years.
Why are IRA Accounts a Good Solution for Tax Sale Purchases
The IRS requires that all IRA assets are held by a qualified custodian that will accurately report all transactions associated with the IRA account.
However, many retirement plan custodians only deal with IRA accounts that hold traditional assets like cash or stocks. They do not accept self-directed IRA accounts that hold alternative assets, due to the many nuances and varied types of investments they may involve.
But iPlanGroup does serve as a custodian for such accounts, and does so with convenient efficiency and full IRS compliance.
To get started, open an IRA account (unless you already have one) and make contributions to it each year with your earned income. If you have 401K funds at an old employer or at a financial advisory firm you can roll those funds over into an IRA, as well.
Then have iPlanGroup manage the IRA account such that you can use it to grow savings and wealth with alternative assets like those acquired through tax sale auctions.
How to Access IRA Funds for Tax Sale Auctions
If you need the funds in the IRA account to use for bidding, iPlanGroup can do same day funding on a normal business day.
Another way is to plan ahead and use what is known as a checkbook IRA, where the IRA invests in a Limited Liability Corporation (LLC). The LLC opens its own bank account, and funds in that account can be used to make purchases at a tax sale.
The funds can be accessed by writing a check or doing a wire transfer. Another strategy that Jill herself has used is to determine the maximum amount you intend to bid at the auction.
Then take funds from the LLC in the form of certified checks in various amounts you can use, depending on how much you wind up spending at the auction. If you don’t win any bids you can simply return the certified checks to the bank, explaining that they were not used as intended so the funds return to your account.
Your IRA Can Even Pay for Post-Auction Funds
You can pay post-tax sale auction related expenses from the IRA account, too.
But you cannot commingle personal funds with IRA funds. Using your personal non-IRA funds to pay for related property expenses is prohibited.
The reason that is not allowed is because you bought property with IRA funds and they are eligible for tax-deferred or tax-free IRA benefits.
If you added your own personal funds (which are subject to ordinary tax rules without the tax benefits) to enhance that asset the action would not comply with IRS retirement account rules.
Instead you can instruct iPlanGroup to cut a check from the IRA account to pay those costs. For example, iPlanGroup can write a check to the county in the amount specified and send it to the county as payment.
Keep in mind that any associated tax sale or redemption costs need to come directly out of the IRA to avoid commingling with personal funds.
So if you purchase a tax lien you’ll want to have extra funds in the IRA account to cover incidental expenses related to that purchase. You can use it for any related costs, including the cost to rehab the property.
Use the IRA to Take Advantage of Unique Third Party Financing
If you are doing a rehab project or have other tax sale asset costs, you may need more funds than you have in the IRA account.
In that case the IRA LLC can borrow those from a 3rd party lender. But there may be few financing options, because banks don’t provide loans on properties that do not have an insurable title.
In all but two states you cannot get an insurable title until you succeed at gaining a quiet title or go through a similar process – and that can take many months to do.
That’s why Tax Sale Resources put together a financing fund of its own which offers financing options to tax sale investors to enable them to grow their investment business to scale without tying up all their working capital.
There is also an option for investors to invest in the fund itself, with a minimum investment of at least $150,000.
You can use IRA funds to make that investment, and the IRA would receive whatever dividends the Tax Sale Resources fund pays to you.
That’s a great option for the investor who wants to financially participate in the tax sales industry through an IRA, to reap all the potential benefits, but without having to actually purchase liens and deeds.
Traditional IRA vs. ROTH IRA…the Good, the Bad, the Ugly
Using a retirement account offers you the opportunity for tax-deferred or tax-free growth of wealth.
A traditional IRA gives you a tax deduction when you add to it, and you’re only taxed upon withdrawal.
By contrast, a ROTH account is taxed when depositing the asset but it is not taxed upon withdrawal. Consult your tax planner or financial advisor to determine which type of retirement account is best for you based on your financial needs and goals.
As Jill emphasizes, when you’re using your personal cash the IRS becomes your silent partner. But you can eliminate the silent partner you’re forced to pay by taking advantage of the tax-deferred or tax-free benefits of an IRA and then organizing your IRA-funded tax sale business with assistance from iPlanGroup.
