Two Tax Systems: Real Estate-Related IRAs
"In America there are two tax systems, one for the informed and one for the uninformed. Both systems are legal."
One of America's most famous jurists, Justice Learned Hand made this statement over 40 years ago. When used today, one would certainly have to include the little understood world of Individual Retirement Accounts (IRAs). The point I am making here is that we all need to keep ourselves informed about what IRA alternatives are available to us. Being uniformed about these IRA alternatives almost certainly means we are not taking full advantage of the opportunity to secure better returns on our retirement dollars. The vast majority of Americans have since their (IRAs) introduction in 1974 allowed our IRAs and 401Ks to be directed by someone else, such as their friendly broker and their Wall Street affiliates. This easygoing, very passive "let someone else do the work for me" attitude may well have continued forever had it not been for the Wall Street crash of 2000. With more than a trillion dollars lost in IRA and 401K equity alone, it challenged the very way we viewed Wall Street.
The clear fact is if we Americans had known or understood back in 1974 that our IRAs and 401K's could be used to purchase real estate-related items like Tax Lien Certificates, Tax Deeds and Mortgage Notes, millions of American baby boomers would today be retiring with vast sums of cash and assets inside of their IRAs and 401Ks.
NASDAQ reported on March 10, 2005, that it had risen to 59% of what it was five years earlier! This means $100,000 invested in NASDAQ listed companies in 1999 would be worth something like $59,000. That's very sad, but it’s where most Americans are today. Magazine, newspaper and television advertising campaigns have created the illusion to millions of Americans that those Wall Street products were the only financial products you could buy. This is not the fact, and as outlined above, Wall Street has not preformed too well over the last 30 years.
Real Estate on the other hand has out performed everything over the last 30 years by a very long way. IRAs and 401K's in general have over 90 percent of their funds in financial products. This may well lead you to ask "Why? Are those Wall Street financial products superior in any way to real estate investments?" No! Here are some quotes taken from two very respected publications:
"... Since the major housing organizations began keeping records in the 1960s, there has never been a year in which the average existing U.S. residence lost value. Not one”– Fortune Magazine, Aug. 12, 2002.
"It is striking that after the longest, strongest bull market in history, the average American built more wealth owning a home than investing in the stock market.” – Denver Post, March 14, 2002.
After reading these quotes, it really is hard to understand why our IRAs and 401Ks are not 90 percent real estate versus 10 percent Wall Street products. Maybe it’s time for all of us to get just a little more informed about those hard earned dollars before it’s too late!
Have an opinion or a question you would like me to answer, then write me! Carl@freelocalpapers.com
About the Author
Carl Hampton is the author of the best selling book “From Credit Despair to Credit Millionaire”. His financial column “Your Money Matter” is now syndicated in a large number of newspapers with a readership of over 4 million readers per week.
He has more than 31 years in Real Estate, Banking and Insurance. He purchased his first investment property at the age of 18 for cash with money he had made from selling household products door to door. Before he had reached the age of 21 (1977) he had purchased more than 100 investment properties with a positive cash flow of more than $5,000 per month.
Carl has built and sold a number of very successful companies over the years including an Insurance Company that he built from the ground up by sending out salesman in the lower income areas. The salesmen who were all locals would collect the premiums weekly from their clients. For most of these families it was the only way they could afford home or life insurance. By the time he sold the company there were more than 3000 agents with an annual income of over 27 million dollars a year.
He retired in 1996 at the age of 40 but after five years he returned full time to his first love Real Estate investments. In 2001 using the same successful formula he launched the Road to Riches program helping thousands of clients from all over the county reach their financial dreams.
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