NOTE: ALTHOUGH THE RECONCILIATION BILL DID NOT PASS, THIS CONCEPT IS CLEARLY ON THE RADAR FOR CONGRESS AND REMAINS TO BE A TOPIC OF DISCUSSION
Damion Lupo is Founder CEO of the eQRP company. He sets up retirement accounts and helps people figure out how to use their self directed money, their retirement, IRAs and 401 K's to invest in real estate and other alternative assets outside of Wall Street. That's always been an important area, but right now it is an especially important time because Washington might be up to a few fun things to make it interesting and keep us on our toes with our retirement dollars.
What's going on right now in Washington DC with people's taxes and retirement dollars, and how is that relevant for real estate investing?
Damion has some information to share.
The Reconciliation Bill represents three and a half trillion dollars in spending. In order to pay for things like green technologies, they've got to find places to create new revenue. It's called pay go – you basically pay for something by cutting something else or taxing something.
One of the possible targets is retirement accounts, specifically self-directed IRAs. This has the potential be the biggest overhaul in the history of retirement accounts, and if it passes, it's going to obliterate self-directed IRAs, including ones that are already invested in.
These provisions around retirement accounts will certainly be interesting to follow.
So, who could possibly be impacted? Anyone with a self-directed IRA that's invested in real estate is going to be hit really hard. Also, anyone that has a self-directed IRA that is an LLC.
The rules they're proposing are: you cannot invest in anything that requires an accreditation or sophistication status, so all the five or six Regulation D stuff. You can't invest in any company that's not a public company. So an LLC that you have, that's a single member LLC for an IRA, those may no longer be allowed. If you're investing in an LLC that's doing a real estate deal, if it's not a public company, it most likely will not be allowed.
This essentially could take all the fun out of self-directed IRA investing.
Word on the street was that Congress was looking at January 1, 2022, as a potential start date to shake things up.
Hypothetically speaking, if you've got a real estate deal you're in, you would have to move that deal. The forecasted reality is, you would have two years to exit, and most deals are just not two year deals. Most deals are 3,4.5, 6, or 7 year deals. So people would potentially be in a world of hurt. But here's the interesting part, the National Association of plant advisors, which is all the 401k lobbyists, said, Oh, we like this. Why? Because it doesn't impact 401k and doesn't impact ERPs.
In the event a similar bill passes, what should you do?
Joe investor over there who has maybe a quarter million dollars invested in a deal – they have an IRA probably a million dollars or less. If/When this legislation passes, what's the investor to do? What's the right pivot for that person to take in order to stop that 10% penalty and everything made taxable?
The way to fix this is to migrate the assets.
Here's one idea to consider.
Move the IRA into an eQRP. When you do that, you're now exempt from the legislation because it's not attacking the eQRPs, it's not attacking the 401k space, which is where eQRP. This is specifically done with an in kind rollover. Most people are familiar with rolling money from an old 401k into an IRA. You can then roll that IRA or self-directed IRA into an eQRP, even if it's invested. That's an in kind rollover.
Once you roll it over, there's no tax, no penalty. When this happens, you roll the asset that you're already invested in, and the cash, and move it all over. At that point, you can continue to invest, and nothing changes. So it's kind of like a retitling of the investment. You're changing its nature, but it's still invested in the asset and you don't get penalized. You continue to be able to be invested in that piece of real estate.
If you want to learn more about how to do that, the best thing to do is go to MichaelBlank.com/QRP, get a copy of the book, and schedule a call with us to talk about your situation and figure out how to navigate this. We're going to spend time digging into the situation, making sure that it works.
We want to help, because we're trouble could be looming with people investing IRAs due to the the unrelated business income tax. A lot of people don't realize that's coming until something sells. There's not going to be any UBIT tax with an eQRP, and by getting that process started, we're going to get ourselves outside the crosshairs and into safer territory.
Definitely worth pondering.