Bill Roberts - "Baby Boomer" Retirement Planning

Don't Go To Jail, Collect Your $200 by Bill Roberts

I received an email the other day from an ActiveRain member asking about using his Self-Directed IRA to buy a house that he could "rent" to his son. I want to respond to this by saying that a Self-Directed IRA should be your very best investment vehicle for providing for your retirement BUT you need to follow the rules.

You may invest in just about anything from within your IRA but there are specific things that you CANNOT do:

Prohibited transaction. A prohibited transaction is any direct or indirect:

1. Sale or exchange, or leasing of any property between a plan and a disqualified person; or a transfer of real or personal property by a disqualified person to a plan where the property is subject to a mortgage or similar lien placed on the property by the disqualified person within 10 years prior to the transfer, or the property transferred is subject to a mortgage or similar lien which the plan assumes.
2. Lending of money or other extension of credit between a plan and a disqualified person.
3. Furnishing of goods, services, or facilities between a plan and a disqualified person.
4. Transfer to, or use by or for the benefit of, a disqualified person of income or assets of a plan.
5. Act by a disqualified person who is a fiduciary whereby he or she deals with the income or assets of a plan in his or her own interest or account.
6. Receipt of any consideration for his or her own personal account by any disqualified person who is a fiduciary from any party dealing with the plan connected with a transaction involving the income or assets of the plan.

Exemptions. See sections 4975(d), 4975(f)(6)(B)(ii), and 4975(f)(6)(B)(iii) for specific exemptions to prohibited transactions. Also see section 4975(c)(2) for certain other transactions or classes of transactions that may become exempt.

And just for the record, a Disqualified Person is:

Disqualified person. A disqualified person is any person who is:

1. A fiduciary.
2. A person providing services to the plan.
3. An employer, any of whose employees are covered by the plan.
4. An employee organization, any of whose members are covered by the plan.
5. Any direct or indirect owner of 50% or more of:
1. The combined voting power of all classes of stock entitled to vote, or the total value of shares of all classes of stock of a corporation,
2. The capital interest or the profits interest of a partnership,
3. The beneficial interest of a trust or unincorporated enterprise in a, b, or c, which is an employer or an employee organization described in 3 or 4 above. A limited liability company should be treated as a corporation, or a partnership, depending on how the organization is treated for federal tax purposes.
6. A member of the family of any individual described in 1, 2, 3, or 5. A member of a family is the spouse, ancestor, lineal descendant, and any spouse of a lineal descendant.
7. A corporation, partnership, or trust or estate of which (or in which) any direct or indirect owner holds 50% or more of the interest described in 5a, 5b, or 5c of such entity. For purposes of 7, the beneficial interest of the trust or estate is owned directly or indirectly, or held by persons described in 1 through 5.
8. An officer, director (or an individual having powers or responsibilities similar to those of officers or directors), a 10% or more shareholder or highly compensated employee (earning 10% or more of the yearly wages of an employer) of a person described in 3, 4, 5, or 7.
9. A 10% or more (in capital or profits) partner or joint venturer of a person described in 3, 4, 5, or 7.
10. Any disqualified person, as described in 1 through 9 above, who is a disqualified person with respect to any plan to which a section 501(c)(22) trust applies, that is permitted to make payments under section 4223 of the Employee Retirement Income Security Act (ERISA).

And if you fail to comply then the IRS has a special plan for you:

Line 16. Section 4965-Prohibited Tax Shelter Transactions. For tax years ending after May 17, 2006, if an entity manager of a tax-exempt entity approves or otherwise causes the entity to be a party to a prohibited tax shelter transaction during the year and knows or has reason to know that the transaction is a prohibited tax shelter transaction, then the entity manager must pay the excise tax under section 4965(b)(2).

For purposes of section 4965, plan entities are:

• Qualified pension, profit-sharing, and stock bonus plans described in section 401(a);
• Annuity plans described in section 403(a);
• Annuity contracts described in section 403(b);
• Qualified tuition programs described in section 529;
• Retirement plans described in section 457(b) maintained by a governmental employer;
• Individual retirement accounts within the meaning of section 408(a);
• Individual retirement annuities within the meaning of section 408(b);
• Archer medical savings accounts (MSAs) within the meaning of section 220(d);
• Coverdell education savings accounts described in section 530; and
• Health savings accounts within the meaning of section 223(d).

An entity manager is the person who approves or otherwise causes the entity to be a party to a prohibited tax shelter transaction.

The excise tax under section 4965(a)(2) is $20,000 for each approval or other act causing the organization to be a party to a prohibited tax shelter transaction.

A prohibited tax shelter transaction is:

1. A Listed transaction within the meaning of section 6707A(c)(2). Listed transactions are reportable transactions that are the same as, or substantially similar to, any transactions that have been specifically identified by the Secretary as a tax avoidance transaction for purposes of section 6011.
2. A prohibited reportable transaction is:

If this is too much to deal with then you really need an "advisor" for your taxes and investments. Shift the responsibility to an "expert" so that you maximize your returns without jeopardizing your future. A good CPA or Attorney with specific tax knowledge is worth his (or her) weight in gold. And a good retirement investment advisor is also indispensable.

Most of this information is directly from the IRS website. I hope you noticed the penalty for engaging in a prohibited transaction. They will assess you an "excise" tax of $20,000 per violation. You may read that as a fine in addition to disallowing the investment in your plan, which could have even more devastating consequences.

BE VERY CAREFUL WITH SELF-DIRECTED IRA INVESTMENTS.

Because if you are not you will not pass GO, you will not collect $200, and you may very well go directly to jail.

Timing the Market by Bill Roberts

Qualcomm is a local high tech company here in San Diego. Owning their stock has made quite few of their employees and other local people Millionaires. I figured that everybody could understand making money this way. You simply bought Qualcomm stock in the beginning and sold it after the price went up (way up).

Last Friday it closed at $42.39 per share. Back in March of '03 you could have bought some Qualcomm stock for around $15.00. Now my question to you is, "Would it really have mattered to you if you had paid $14.50 or even $15.50? Sure, you want to make as much as you can, but if you had tried to "time the market" to buy it at $14.50 you might have missed it completely and had to pay upwards of $20.00 per share if you wanted in.

My advice to you is to buy when you can. Don't worry about picking up every nickel off the table. Just get what you can. You would have gotten nearly 300% growth in the share price. Why be greedy?

The Real Estate Market

Now here in San Diego we have a "soft" real estate market. Prices are off their highs by 30% or more in some areas. Some people think that there is a little more room for prices to drop.

If you want to invest in San Diego real estate now is a good time to get in. Because it is a "soft" market the buyer has an edge when negotiating with the seller. Good deals and good terms can be had. Maybe the market will fall another 15% before it starts back up. Then again, maybe not.

What is for sure is that ten years from now the prices are going to be considerably higher. How much higher is simply conjecture, but certain facts need to be reckoned with:

• More people will want to live here in ten years;
• The dollar will be worth considerably less in ten years; Room for growth will become more scarce;
• Labor and materials for construction will be more expensive;
• And there is no indication that government is going to make development in the region any easier.

All of these factors considered together make for a very complicated analysis, but a reasonable person could conclude that prices will be up 200% to 400% in the next ten years.

Now Is The Time

Is it really going to matter if you pay 5% or 10% too much now? Trying to "time the market" could cost you the opportunity to get in at this "buy point." Ten years from now you will be glad you bought now.

Call Bill Roberts (619) 244-4610 for any real estate questions you may have.

Memories Or Just Getting Old by Bill Roberts

My wife was off work today and she wanted to watch Rachael Ray. OK, I like to cook so I used to watch her on Food Network all the time so I said "sure, let's watch her."

Lara Spencer, another of my "faves" from the old days on Good Morning America was doing her regular visit with RR. During Lara's segment Frankie Valli came on. OMG is he short. I couldn't believe he was Rachael's size and shorter than Lara. Well, his height didn't matter when I was listening to him and The Four Seasons on the radio.

I was happy to see him and I was expecting to hear him sing. Guess what. He didn't sing so I went to YouTube to satisfy my desire to hear The Four Seasons. If you want to remember those days too I have embedded a couple of their hits.

So let's hear it for The Jersey Boys...

If you want any more you gotta sing it yourself

Money, Money Everywhere by Bill Roberts

Every newscast talks about the economy, the mortgage meltdown, and what the government is doing about it.

I'm sure that by now you realize that the housing crisis was brought on by the Fed's actions vis-à-vis interest rates. They (specifically Greenspan and Bernanke) destabilized the mortgage market, the housing market in general, and the very economy by reducing rates to zero and then sharply raising the rates back to a normal level. This kind of action does not take place in a vacuum. These guys torpedoed us. Anybody making excuses for them is in denial of the truth.

As for inflation, we've been on that path since Roosevelt "established" the value of an ounce of gold at thirty-five dollars, up from it value of twenty dollars the day before. Instant inflation. Then came WWII which was very expensive. To pay for it the U.S. floated a lot of bonds. So as not to have to pay them back, the government inflated the currency some more. Now over 75 years later, this process is too ingrained to expect change. The dollar will just keep getting worth less until its worthless.

But we can learn from history and prosper. Germany during the Weimar Republic suffered horrible inflation. The mark went from being a respected currency to nothing. Towards the end it took bushel baskets full of high denomination marks to buy a loaf of bread.

But the people were able to pay off their mortgages with these devalued marks. The banks took the hit. Every cloud has a silver lining.

What did you learn?

So what is the lesson? The more you owe and pay back with devalued dollars, the more you will make. Money buried in the backyard is going to depreciate. Money leveraged in real estate is going to yield huge returns. This might be called "Mortgage Planning" or just common sense. Take advantage of this. We know what's coming. It's not like it is going to be a surprise.

Call Bill Roberts (619) 244-4610 if you want to position yourself to benefit from the coming inflation.

The Big Money Mystery of 2008 by Bill Roberts

Everybody has an opinion about the Mortgage Meltdown. Everybody has a suggestion about how to "fix" it or prevent another occurrence.

I have my doubts about all this.

My friend Bill Archambault writes extensively about all aspects of the mortgage industry. If you don't know him or read his blog, you should.

He recently posted about Why Are We Calling Lenders Predatory

This started as a comment on that post.

After "analyzing" the lending process Bill suggests that part of the problem is the federally mandated Truth in Lending disclosure (the TIL).

You can't legislate against stupidity. And disclosures only help the brokers and lenders by limiting their liability. Who can possibly read and understand an inch thick sheaf of contracts, addenda, and disclosures?

The real problem is that all these loans were made with the general thought that the market would continue to go up. Ask anybody if they would have done what they did if they had known that the bottom was about to fall out of the market.

The TIL is a worthless document anyway because the loan terms and costs aren't set until it is ready to fund. The final HUD-1 is the only disclosure that reflects reality and it comes a little too late for most people to make any changes in their plans.

The loan products that were sold were created with the idea that there were unlimited funds available and they (The Wall Street types) wanted/needed to make their product "competitive" in order to sell it.

Why?

So the real question is "why did the market tank?" We need to look at the doings of the Federal Reserve in driving interest rates down and then driving then back up.

Also, was there a conspiracy to "transfer" wealth from other countries (the buyers of the "sliced and diced" mortgage backed securities also known as derivatives (Collateralized Mortgage Obligations (CMO's)) to the good old U.S. of A? Because that IS what happened. A lot of money was lost by European and Middle East investors. Where did it go? And yes, it is a zero sum game. That money ended up in our economy. Interesting.

This "event" will capture the imagination of economists and financial writers for a long time to come. All we can do is live through it.