Beginning the strategy of adding Real Estate Investments into your own IRA(s):

1. Find a trusted Financial Planner who will choose a balance between the asset types that best fit your retirement portfolio.

A growing number of investors are sinking IRA money into real estate. Section 408 of the Internal Revenue Code lets you use IRA funds to buy a home, a building, land-just about any property that's out there.

Most financial advisors commonly recommend diversifying into several General Securities such as: Stocks, Bonds, Mutual Funds, Life Insurance, Annuities, U.S. Govt. Obligations, CD's, Real Estate Investment Trusts (REITS), Money Market, Public Limited partnerships, etc.

The strategy of using Special Assets under Section 408 is often omitted. Assets such as: Futures, Promissory Notes, Real Property, Private Limited Partnerships, Limited Liability Partnerships.

More and more retirees are requiring broad areas of expertise from their qualified financial planners. References for qualified financial planners will be provided upon request.

2. Select the right RE Trust custodian for you:

Create a "self-directed IRA" with an IRA custodian that handles real estate. "Roughly two dozen institutions in the U.S. can do this," comments Patrick Rice, author of IRA Wealth: Revolutionary IRA Strategies for Real Estate Investment. Rice suggests three firms: PENSCO Trust Co. in San Francisco (800-969-4472), Sterling Trust Co. in Waco, Texas (800-955-3434), and Lincoln Trust in Denver (800-825-2501).

3. Consult with your CPA, and work with a professional (IRA) Real Estate broker:

You'll want an accountant to investigate tax issues and the property's viability. Also, (this is where I will come in -- Email Gary Smith *) you will need to work with a trusted real estate broker to represent you as the buyer, who's experienced in IRA / RE Investment strategies, and can find the best quality investments in the Assets category you wish to hold in your self directed real estate trust account.

4. Learn the rules and eligibilities:

If you plan to buy a vacation home, forget it. One of the many mind-numbing rules about self-directed IRAs is that you can't buy property for personal use. I can guide you through this phase and provide other resources as well. You CPA and financial planner may require help understanding this new strategy as well (this is where I will come in -- Email Gary Smith *).

5. Be patient give your self the time to decide where, and what type of RE investment will be best for you.

Most investors want property that'll bring in cash but won't demand much time. A good example: parking lots. They're low maintenance and provide steady income when leased to a parking firm, but based upon your individual situation, location may be more important (e.g. California Real Estate tends to lead all other markets and may be able to bring exceptional returns compared to other areas). Remember these may be long term or short term strategies because there will be no capital gains to be concerned about in your self directed retirement account. This again is where you may need the advice and expertise of a good real estate professional (this is where I will come in -- Email Gary Smith *). 6. Be conservative do not over extend your IRA resources:

Don't invest all the IRA in property-you may need some liquidity to cover taxes, expenses, and minimum IRA withdrawals at age 70 (if the account is dry, the IRS can penalize you). I recommend a minimum of 50% down for any real property investments from your IRA's, with funds left to back up for contingencies based upon the RE investment product chosen. I have found that 6 months may be a realistic time frame to give you to finally enter into a specific self directed IRA real estate investment strategy. (i.e. select resources*, educate, plan, and search out the best RE value for you).

* Gary Smith can advise but cannot receive compensation for services until he has completed his RE Broker license within the State of California. This anticipated to be completed in the 4th Quarter of 2004.

EXAMPLES OF TACTICAL PROVISIONS OF IRA TAX LAW:

• You can withdraw cash from your custodial IRA account and use it any way (tax-free and penalty-free) for up to sixty days, as long as you re-deposit the cash in an IRA account within 60 days. The only restriction is that you can not perform another "IRA to IRA rollover" from the distributing or the receiving IRA until at least twelve months after the withdrawal.



• If you take a distribution from a qualified retirement plan, tax-sheltered annuity (403(b)) plan or governmental eligible deferred compensation (457(b)) plan which is eligible for a rollover, 20% of the amount which is not directly rolled over to another plan or IRA must be withheld for federal income tax purposes. If you do not deposit an amount equal to the full value of your distribution into another plan or IRA within 60 days of your distribution, you will be liable for income taxes (and possibly an additional 10% penalty tax) on the amount you do not roll over. You can avoid all withholding, income taxes and penalties by establishing an IRA account and instructing the plan to directly roll over the full amount of the distribution to your IRA.



• Recent tax law changes have added two new exceptions to the 10% penalty tax on early (pre-age 59 1/2) withdrawals from IRAs. The 10% penalty tax will not apply to IRA distributions used to pay "qualified higher education expenses" of the IRA owner, his or her spouse, or the child or grandchild of the IRA owner or his or her spouse. The 10% penalty tax will also not apply to IRA distributions that are "qualified first-time homebuyer distributions" (not to exceed $10,000 during the recipient's lifetime).



• If you are not eligible to deduct an IRA contribution on your personal income tax form, you can still make a NONDEDUCTIBLE contribution of up to $3,000 ($3,500 if you are at least age 50) to your IRA account. Although these are after-tax dollars, you will not have to pay taxes on the earnings until you withdraw them from your IRA. Even better, if you qualify for a Roth IRA and satisfy certain other requirements, you won't even pay taxes on the earnings of your Roth IRA when you withdraw them. This has an even greater long-term impact on your account earnings because of the avoidance of higher taxes on savings grown and compounded over many years in your account. However, you must keep track of the nondeductible amounts separately from your tax-deductible contributions and earnings. IMPORTANT NOTE: Because this can be tricky, it is advisable to set up a separate account for your nondeductible contributions. One more point: you still cannot contribute more than $3,000 a year ($3,500 if you are at least age 50) total and deductible and nondeductible contributions in any combination. (For families with a non-working spouse, the combined limit for both spouses can be as high as $6000, plus another $500 for each spouse who is at least age 50.)

USEFUL KNOWLEDGE FOR "Self Directed" RETIREMENT PLANNING

• SEP IRAs. If you are self-employed or you have a small business with a few employees, you may want to consider a SEP IRA. An employer or self-employed individual who establishes a SEP IRA can contribute (tax-deductible) for each employee (including the individual) up to $41,000 for 2004 ($40,000 for 2003) or 25% of net compensation, whichever is less) each year under a SEP IRA. SEP IRAs can be treated just like regular IRAs. That's because the rules for investing SEP IRAs are the same as those for regular IRAs, and each employee has his or her own separate IRA to hold the employer's contributions. Other specific rules deal with an employee's required tenure, income and minimum age for participation, which are established through a simple two page standard IRS form (form 5305 SEP). Because there are no additional reporting requirements for SEP IRAs, the benefits that accrue to SEP IRA participants are the same as for IRA account owners (e.g., compounded tax-deferred savings). Of course, the SEP IRA has the added benefit of larger annual contributions.
  
  
• Many people are not aware that there is not a limit on the number of IRAs one can have. For example, you could open and maintain 5, 10, or even 100 separate IRAs. Of course, there are certain disadvantages of doing so. You'll receive up to 12 statements per year for each IRA. If you're taking your investments seriously, you'll need to examine each of these statements and calculate the changes in net gain or loss across all accounts each reporting period. The administrative burden causes many to give up, usually resulting in poor investment performance due to neglect. Probably more significant, is the fact that you may have multiple custodial fees, and companies to deal with, plus more complicated calculations when you start taking distributions.