What are the implications of the new CARES Act on your IRA funds?

April 9, 2020

With the current economic situation calling for more financial flexibility and estate planning adjustments, investors are considering how best to leverage their Individual Retirement Accounts (IRAs) based on their personal circumstances.  

Fortunately, the recently passed CARES Act carries several provisions which give more financial leeway to individual investors in need of more options. As the public markets continue to waver for the foreseeable future, it’s important to keep in mind the revised laws which directly affect your IRA:

For all taxpayers who are otherwise required to receive an RMD in 2020:

  • Required Minimum Distributions (RMDs) for 2020 are not required. 

If an IRA owner is affected by COVID-19*:

  • Distributions prior to age 59 1/2 of up to $100,000 are not subject to the 10% excise tax in 2020, and,
  • Distributions of up to $100,000 in 2020 can be reported as income over three years and/or repaid.

 

*According to the Secretary of the Treasury, an individual is considered to be affected by coronavirus if that person is diagnosed with coronavirus, has a spouse or dependent diagnosed with coronavirus, or is experiencing adverse financial consequences as a result of:

  • being quarantined,
  • being furloughed or laid off,
  • having reduced hours,
  • being unable to work due to lack of childcare,
  • closing or reduced hours of a business owned or operated by the participant, or
  • any other factor determined by the Secretary of the Treasury.

 

While not all of the above stipulations may be relevant to your case, the underlying issue being addressed by the bill is the need to improve investors’ financial flexibility during periods of acute, widespread ambiguity. 

 

Should I consider investing my IRA funds in commercial real estate? 

In times like this, it’s important to consider investment alternatives which offer significant portfolio diversification and insulation from public market sentiments.

While most conventional IRAs are managed by an “IRA custodian” who can set restrictions on what types of equities, funds and financial products the IRA can invest in, a self-directed IRA (SDIRA) affords a more self-directed, active approach to retirement investing. By effectively capitalizing on the potential tax advantages of investing in commercial real estate through a SDIRA, investors can tap into the unique value-creating potential of the private market in a way that aligns with long-term financial objectives.

More specifically, if you invest in commercial real estate with your SDIRA, your potential income from those investments will be tax-deferred, in addition to potential gains from property value appreciation. As a result, the advantages of investing with your SDIRA may include both rental income and capital gains. 

Furthermore, by allocating a portion of your SDIRA towards commercial real estate, you can be more proactive with your retirement investments relative to more traditional means such as Real Estate Investment Trusts (REITs), where you don’t necessarily have insight into the specific properties or geographies you’re investing in and are at the mercy of a fund manager’s discretion. And as investors gain a more granular understanding of their portfolio distribution and influence their own investment choices, they will be in a better position to put their money to work precisely as they prefer.

 

What’s the process of self-directing IRA funds? Hint: it’s easy.

Investing through your IRA on iintoo’s online investment platform is just as convenient as investing through a standard taxable account. To begin the process of self-directing your retirement funds into commercial real estate, simply follow the steps below:

  1. Register with iintoo and set up your profile: Any individual who qualifies as an accredited investor can invest in iintoo’s real estate deals—either through an IRA or normal taxable account— all that’s needed is some documentation and we can easily guide you through the process. 
  2. Direct funds through an intermediary custodian: Once you’re ready to invest,  you can direct any existing retirement funds  to be invested through an intermediary custodian. While we recommend our partner, Madison Trust, iintoo can work with any custodian. Leave it up to us to coordinate the process with the custodian and make any income distributions and principal repayments to the custodial escrow account as required.
  3. Monitor, Review & Reinvest: Throughout the life of your investments you will receive ongoing project updates in real time, and you will be able to reinvest earnings into new deals through the same setup.

 

 

Bottom line: why do it now?

While the tax benefits of IRAs are well-known, many investors stand to benefit from rebalancing IRA investment allocations, particularly these days when diversification is more critical than ever and a long-term perspective on investing is advisable. 

To that end, the potential benefits of investing in real assets such as commercial real estate are multifold. Under the right conditions, commercial properties can combine equity appreciation with a rising stream of inflation-adjusted income to balance the ups and downs of the markets. And by offering a way to tap into the long-term potential of real assets and tangible investment opportunities through an IRA, iintoo provides investors with an enhanced set of options for creating lasting value and mitigating risk.

 

To learn more about what iintoo can offer you, feel free to explore our current offerings.

 


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