Case outline: Mrs. Dawson is 57 years old, she and her husband are recently retired. Prior to contacting Uranga & Associates Mrs. Dawson and her husband had been researching the possibility of purchasing a new primary residence to retire to in another state. After completing the Compatibility Form and consulting with Mr. Uranga, Mrs. Dawson, placed approximately $500,000 of her 401k rollover in a SAFE HARBOR® IRA account. This established the structural foundation for her IRA/real estate plan. This SAFE HARBOR® IRA account, guaranteed to earn a minimum of 2% with a potential of 5% or higher as a ten-year average, insures against loss of principal value due to investment exposure during the life time of the contract. Uranga & Associates then structured Mrs. Dawson’s SAFE HARBOR® IRA account to provide an income stream to be used to pay interest and principal on the traditional 30-year mortgage obtained to purchase the new primary residence. Any tax liability generated by this income stream has been calculated to be offset by allowable tax deductions on the real estate. Mrs. Dawson and her husband plan to relocate to their new primary residence and rent their old home until the housing market stabilizes and market conditions are more favorable to sell. At that time, they will be able to keep any capital gain up to $500,000 tax free on their old home and invest that gain in such a way as to supplement their retirement income. Mrs. Dawson’s IRA will continue to support the mortgage payments on their new home for a minimum of 18 years, with a potential of 27 years or more depending upon the interest she earns in her SAFE HARBOR® IRA account.  

Summary: The IRA/real estate plan enabled Mr. & Mrs. Dawson to purchase their retirement home immediately, allowing them to relocate to the community they want to live in without having to wait, possibly years, for their current primary residence to sell. By structuring Mrs. Dawson’s rollover 401k to support the purchase of the new home the Dawson’s essentially flipped the more conventional roll of their retirement monies and real estate equity. The equity they have accumulated in their current home, which they had always intended to use to purchase their retirement home, is inaccessible until the home sells. Mrs. Dawson’s retirement fund however, when structured by the OUTSIDE® method can be accessed immediately. 

By using the retirement monies to purchase their retirement home, the Dawson’s achieved several things. Firstly it enabled them to take advantage of attractive prices in the currently deflated real estate market. Secondly, by structuring retirement fund withdrawals to pay the mortgage on their real estate purchase they offset most, if not all, of the tax liability they would have, at some time otherwise, had to pay when they eventually withdrew from the 401k account. Thirdly, since the Dawson’s are now in the financial position to not having to sell their old home in order to purchase the new home, they can bide their time until the market is more favorable for a profitable sale and in the meantime benefit from rental income. And lastly, and perhaps most importantly, the OUTSIDE® structure allows the Dawson’s to move on with their life.  No matter what your age is, it is painful to feel trapped, unable to move ahead with your plans because of financial commitments that keep you from experiencing the change you are ready to make in your life. The OUTSIDE® method gives the Dawson’s the freedom to live the life they want, in a secure financial framework that makes sense for their future.

Additionally there are estate planning benefits to this IRA real estate plan that are not covered in this brief synopsis.