CESA – a New Tool For Your Real Estate Investor Tool Box

Last week I attended the northland monthly meeting of Mid-America Association of Real Estate Investors and came away with a new tool in my tool box for finding potential private money for my real estate investments:  Education Savings Plans

I can talk to people who could be a potential private lender, but they may not realize that they have the potential to be a private lender and unless I have something to give them that will help them, why would they want to take the time to listen to me about how they could make better returns on their investment.

Also with all the rules and regulations, I don’t really want to advertise for potential private lenders as I could be violating some law somewhere.  So instead, I take the education approach and approaching people to educate them about Self Directed IRA plans AND now Self Directed Education Savings Plans, well I am not asking anyone to lend me any money, I am just asking to show them how to better utilize savings that, hopefully they are already doing or planning to do.

So for example, when I meet people I know who have spent many years in corporate America and are planning to retire soon, or who may have lost a job recently or even who are planning on staying at their corporate job I can always educate them on the option of transferring their existing IRA or 401k into a Self Directed Plan where they can self direct their investments into real estate, mortgage notes, or even stocks and bonds.

I can also explain to them the power of a Self Directed Roth account.  How all returns earned in the Roth are tax free and that they can take their current savings in a traditional IRA or 401k, pay the taxes on it and convert the funds to Roth Funds and then go out and do deals in their IRA and never have to pay taxes on the investment returns.

If they are approaching the age where they can start taking distributions on their Roth, how a $10,000 profit on a real estate deal with their own money outside of a Roth would cost them in taxes however if they already have an existing Roth IRA & have reached the age where they can start taking distributions, that they could do the same exact deal with in their Roth IRA, earn a $10,000 profit in the Roth IRA and take it as a distribution and never have to pay taxes.  Very powerful for them.

I could also explain the power of an Inherited Roth IRA for their heirs.

Now after the meeting I have a reason to approach younger people about Self Directed Education Savings Plans for their children..  Sure I could still talk to them about starting a Roth IRA and should as it can help them.  But now I can talk to young people about starting an Education Savings Plan (Coverdell Education Savings Account – CESA)for their children  or older people about starting one for their grandchildren.

These are plans that can be started for a Child at any age under the age of 18 with a maximum contribution each year of $2,000.  The money in the account can then be self-directed into Real Estate Investments or Mortgage Notes and the return back to the CESA is tax free.  So if an account was started for a child at birth and grown till age 18 tax free, the funds can then be used to pay for college.  The funds could be used well before college to pay for Private School.

So if you are out looking for private funding for your real estate deals, be sure to take the time to educate yourself on Self Directed IRA Accounts.  You might find a way to use them in your own life to your own advantage and as you help other people understand how they work, you just might find someone who wants to be your private lender.

So where can you learn more about Self Directed IRAs and Education Savings Plans Well I have several resources for you – the companies that offer to hold these funds – Qualified Custodians.  Two companies I like to access for information are Quest IRA and CAMA Plan.  I like these two companies because I know their owners personally and I know the owners are active real estate investors themselves, so if I have a question on how to do something, I can be fairly sure that the question can be answered from first hand experience.

Kim A Tucker

Kim Tucker along with her husband Don and son Scott make up the core kcmoHomeBuyer Team that has been buying homes across the Kansas City Metro since 2000.

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