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How to Turn Your Client’s IRA into a Transaction

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By Chris Clothier

Three big problems can occur when purchasing an asset like real estate with your SEP IRA. First, from the very beginning, every cost associated with the purchase must come from the SEP IRA. If an investor places earnest money on a property and writes a personal check, the transaction could be voided and considered outside of the SEP IRA, which could mean penalties and taxes. Second, if an investor purchases a property and does not leave a proper amount of reserves in the SEP IRA itself, it can lead to problems. With real estate, there are always going to be scenarios where additional costs are going to be incurred. There are rules in place limiting deposits into a SEP IRA just as on a traditional IRA, and paying for expenses outside of the SEP IRA can have major consequences. When purchasing real estate, make sure you have the additional funds in the account to cover any future expenses.

The key to managing a SEP IRA is to keep it “passive.” Don’t even think about using the property for your own use and don’t mix your rental income with personal funds. Pay for management, repairs and other costs of operating the rental property.

Consider setting up a SEP IRA in your brokerage and discuss it with your customers who are interested in real estate investing.

One of the great things about investing in real estate is that it’s all about cash flow, and if your customer’s property appreciates as well, that’s frosting on the cake. Never again do they need to obsess over the stock market or gold prices. They can just watch those rent checks roll in every month like clockwork.

Clothier_ChrisChris Clothier is a partner at MemphisInvest.com and Premier Property Management Group.

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