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SHIRA is Gaining More Attention As an IRA Investing Strategy

SHIRA is Gaining More Attention As an IRA Investing Strategy

If you would like to tap into your qualified retirement plan to purchase investment property and avoid all the usual prohibited transactions, the SAFE HARBOR®-Directed IRA™ (SHIRA™) may be the vehicle for you.

Lasaii’s OUTSIDE® structure of utilizing IRA money for the purchase of real estate is extremely flexible, has zero use-restrictions and costs little to nothing to set up and maintain.

Don’t have enough money in your IRA to completely fund the investment of your choice? Not a problem. Qualified plan monies can be coordinated with ordinary income to satisfy purchasing requirements.

Worried about having enough liquid assets in the IRA to pay for property taxes, insurance and maintenance? No worries. With a SHIRA, you don’t have to pay those items with IRA dollars.

Thinking about buying a fixer-upper, working on it yourself and then self-managing the rental? Absolutely—a match made in heaven!

Truth is, just about the only thing that is excluded from qualifying with a SHIRA plan is the use of a Roth IRA.

There are three components in the SHIRA program:

1. Real estate—any real estate! This could be a personal residence, a vacation property, a rental property or even commercial real estate. It could be a new purchase, a current home or a yet-to-be-identified real estate bargain.

2. An IRA or other qualified retirement plan that can be converted to an IRA. Usually a value of at least $250,000 is required to produce measurable benefit, but often as little as $100,000 can be structured to advantage.

3. A mortgage—yes, a mortgage. This may seem contradictory to you because you are probably imagining the IRA buying the real estate outright as it might in a self-directed IRA. However, that is not the case with a SHIRA. The SHIRA structure is only of benefit in coordination with a mortgage. Any mortgage will qualify—traditional, FHA, HELOC or even private financing.

You are probably wondering, why use your IRA if you have to get a mortgage? The answer is simple. It is not only good business to use leverage wherever possible because your ROI will be so much greater, but with a SHIRA, a mortgage is necessary to act as a fulcrum supporting the gradual transfer of IRA assets into the real estate investment.

Worried about qualifying for a mortgage? Don’t be. That’s where your SHIRA comes into play. Skillfully structured by Lasaii’s consultants, your SHIRA will qualify you for that loan.

With the completion of a SHIRA plan, in essence, you now own two investments. One is your SAFE HARBOR-Directed IRA, and the other is your real estate. One supports the other while the two exist legally as completely separate entities.

Let’s Examine the Benefits of the SAFE HARBOR-Directed IRA

Choices: With a SAFE HARBOR-Directed IRA, you can buy a primary residence, a second home, a vacation/rental/investment property, commercial sites or land on which to build. You can also use the SHIRA to fund payments for an existing mortgage.

Flexibility: If you sell one property supported by your SAFE HARBOR-Directed IRA, you can restructure your SHIRA to fund a new property. You can buy in the United States or overseas if you qualify. You can mix SHIRA and non-SHIRA funds to buy property or multiple properties. You can buy real estate as an individual or with partners.

Immediate Occupancy and Enjoyment: The real estate is titled in your name, not in the name of your IRA, so you and your family can occupy and enjoy your home immediately. You can use the property as a primary residence, a vacation home, a rental property or simply keep it as an investment. The choice is yours.

Appreciation: Real estate, as is true with other investments, has an opportunity to appreciate in value over time. If you choose to support the purchase of real estate with a SAFE HARBOR-Directed IRA, then you will be allowed to occupy and enjoy the property while it appreciates in value.

Rental Income: Any net rental income goes directly to the individual and not to the IRA. It is yours to use as you wish.

Tax Savings: If you qualify, you can enjoy all the tax benefits associated with real estate ownership. Like all IRAs, your SAFE HARBOR-Directed IRA will continue to grow tax deferred.

Step Up in Tax Basis: The real estate you purchase through a SAFE HARBOR-Directed IRA can be passed to your heirs with a step up in basis. This means there will be tax savings on any appreciation accumulated. SHIRAs offer additional inheritance benefits as well.

What Does It Take to Set Up a SAFE HARBOR-Directed IRA?

First, the foundation must be created. In the initial consultation, a Lasaii representative will discuss the client’s financial goals and personal circumstances to determine if the SAFE HARBOR-Directed IRA is a good fit—and to discover if the client qualifies for the program. If so, consultants will help guide the client in structuring a customized IRA real estate plan, personalized to the client’s needs and goals. Clients can then choose from a variety of IRA-approved custodians for their SHIRA. The custodians Lasaii offers for the SHIRA account provide vehicles that protect the principal from market downturns and allow for growth at the same time. Next, the SHIRA account is opened by rolling over or transferring funds from existing qualified retirement plans to the SHIRA without any tax consequences. This process can take from two to six weeks, depending on how quickly IRA funds can be transferred.

With the foundation in place, the next step is to coordinate and integrate the IRA, the leverage and the real estate. A lender of the client’s choice is engaged to establish a mortgage or prepare to refinance a current mortgage if desired. A real estate checking account will be opened at the bank of the client’s choice. It will receive monthly direct deposits from the SAFE HARBOR-Directed IRA earmarked to make the mortgage payments. The checking account and other back-office documents are necessary to remain compliant with IRA tracking requirements.  With the SHIRA structure, the plan will also offer tax benefits associated with real estate ownership. Another two weeks should be plenty of time to complete this stage, especially if the loan application is underway prior to the transfer of funds.

Flexibility is one of the greatest benefits of the SAFE HARBOR-Directed IRA. If the client moves, sells or buys additional real estate, the SHIRA can be structured to support the mortgage the client wishes to service most. When unanticipated events occur—divorce, death, illness, etc.—adjustments can be made to the structure of the plan to accommodate the new situation. Depending on the choice of custodian, clients can reallocate their funds within the account annually. Real estate purchases can be made in the United States or overseas and can be made by an individual or with partners.

Lasaii has 23 years of experience in working with clients to coordinate IRA real estate plans. The company structures and maintains accounts in accordance with all IRA retirement plan rules and real estate legislation. Lasaii’s program combines a selection of 29 IRS real estate tax codes governing tax avoidance, qualified plans, and/or real estate transactions, depending on a client’s individual plan. All updates to these tax codes, as well as any legislative changes, are carefully monitored. Lasaii also continually reviews the custodian’s IRA investment vehicles to ensure they meet all requirements mandated by IRS tax shelter inspectors. As stewards of their client’s SHIRA, Lasaii keeps all records in its database and in hard files for complete transparency.

Lasaii’s OUTSIDE® structure has, for many years, benefited those with this valuable inside knowledge. Even 23 years after the first SAFE HARBOR-Directed IRA was formulated, it is still a relatively unknown technique. However, the word is spreading. Those who had a SHIRA plan in place before the collapse of Wall Street and the housing market in 2008 sing the praises of how this structure protected their assets.