Hey, you with the big retirement account! Yeah you… the person desperately wishing your savings were in a Roth account rather than a Traditional account. What if you could make that transition right now… without a penny in taxes or penalties? I’m Bryan Ellis… get ready to have your mind blown RIGHT NOW in Episode #102!
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Folks, thanks for your patience during the past couple of days while I’ve not published episodes for you. You can probably tell that my voice sounds bad right now, and it’s been worse in the last couple of days. Very bad cold. So thanks for your indulgence!
Socrates once said: “Like sands through the hourglass, so are the days of our lives.”
Well, I’m not certain if he really said that, or if it was just ripped off by a 1980’s-era soap opera, but the hourglass is a central figure in the powerful strategy you’re about to learn.
Let’s lay the ground work: You’ve got an IRA or 401k, and it’s built up very well for you over time. But it’s a traditional account, and when you start making withdrawals in a few years, Uncle Sam is going to come calling… and you’ll be paying him back for those tax deductions… and a whole lot more… that you took along the way that you thought were such a good deal.
You’d do nearly anything to have a “redo”… to use a Roth account instead, so your withdrawals would be totally tax free. Because what Uncle Sam is about to do to you… well… you can practically hear pigs squealing and that awful banjo music from the movie “Deliverance”.
But before I go any farther: I’m not acting as your tax or legal adviser. Go see somebody who is licensed. This is a bleeding edge strategy, and it’s entirely possible to screw it up. So don’t screw it up. Get help from a professional. If you want a referral, I’ll give you that info in a minute.
It would be absolutely ideal if you could just transfer your Traditional funds into your Roth and let that be the end of the story. And you can, but the tax bill you’ll get will be staggering. So, no dice there. And it would also be nice if there was a fancy legal construct by which you could just bleed value from your Traditional to your Roth, but that’s not kosher either. There must ALWAYS be an exchange of fair value in every transaction, otherwise the IRS is going to send you a particularly nasty letter.
But, there IS a really cool strategy which can go very much in that direction, while fully respecting the law. And since it’s a pretty technically intense strategy, I’m going to illustrate it with a story.
Two young men, brothers in their 30’s, wanted to partner together to purchase an investment property. They found a good piece of property for their objective. Good location, strong potential, everything is in place as it should be. The asking price was totally reasonable. The deal was a go.
But the brothers had a disagreement. Both of them had enough to buy more than 50% of the property, but neither of them had enough to buy the whole thing. So they had to decide how to divide it up.
They thought about doing a 50/50 deal, but they knew they’d ultimately run into a disagreement at some point. And that’s when the older brother had a great idea. His proposal was this: The younger brother would pay the majority of the purchase price, and would own the property outright immediately. He could do anything he wanted with the property, and every penny that he made from that property would be his to keep.
The older brother would put up the remainder of the purchase price – less than half – and he’d not own the property at all… until a certain point in the future. What point is that? 25 years from now. It’s as if there was a special hourglass… but this one doesn’t measure hours. It’s measurement is for 25 years. While sand is still flowing through this hourglass, the younger brother is in complete control. The property is his. All of the benefits are his. All of the income is his. All of the authority is. And then… 25 years from now, when that last grain of sand passes from top bulb to bottom… the roles reverse, and the older brother becomes permanent owner with all of the benefits of ownership.
Well… that suited the younger brother just fine. He got the property he wanted at a great price, and he could keep all of the money he made from using that property. And the older brother got to invest a much smaller amount of money, but had a clear way to benefit in the future from that investment.
So what actually happened? How did the transaction work out for the brothers?
Hahahahaha! My friends, believe it or not, that’s totally irrelevant. What IS relevant is this:
On day 1 of this deal, it’s a beautiful thing for the younger brother and kind of a drag for the older brother. But older brother is a bit wiser, and more patient.
How does it look on the day this deal turns 10 years old? Well… the younger brother still has plenty of time, and can make plenty of money… but he’s starting to be aware of the limited nature of his situation.
And what about when this deal gets to be 24 years old, with only 1 year remaining? Think of it this way: If you were thinking about buying the interest of just ONE of these brothers on the day that the deal is 24 years old with only 1 year remaining… which brother has the better position, for which you’d pay most money?
Clearly, the older brother. The younger brother has only 1 year of ownership left, but the older brother gets everything after that. Because with every passing day… with every grain of sand that slips through the hourglass, the older brother is another day closer to owning that property outright, forever. And the younger brother is another day closer to having nothing at all.
It’s as if time – and time alone – transfers value from the younger brother to the older brother. And in reality, that’s really what’s happening.
How does this relate to your retirement account?
Think of the younger brother as your Traditional IRA with a lot of money, and the older brother as the Roth where you want your money to end up.
So, it goes like this. You have a Traditional IRA or 401k with a lot of taxable profits. And what you really want is for that account to quit growing and for a Roth account to grow instead.
So you set up a Roth and put a small amount of capital in it.
Then, your two accounts partner on a real estate deal. Your traditional pays the lion’s share of the price in order to own the property in the near term. And your Roth pays a much smaller amount in order to own the property in the long term.
In the meantime, your Traditional account will likely do things to improve that property… so that property will likely become a lot more valuable. And of course, your Traditional is free to use that property to generate income or whatever it wants to do.
But… here’s the beauty of it… with each passing day… with each passing grain of sand… the value of that property is shifting more and more AWAY from the “Here-and-Now”… the part that’s owned by your Traditional account… and is shifting more and more TOWARDS the “Forever After”… the part that’s owned by your Roth account.
And – at some point in the future – that property, along with all of the improvements made on it by your Traditional account – will be the sole property of your Roth account. And when your Roth account sells that property in the future… those profits – which could be SUBSTANTIAL – will be available to you ENTIRELY tax-free.
This is called “Transaction Engineering”. Sometimes, you’ll make more money simply by STRUCTURING an investment well, even if the investment itself isn’t wildly profitable. And when the investment IS profitable, those gains are beautifully and powerfully amplified.
Want to know more, and how to make it work to LESSEN the burden of the income taxes Uncle Sam will demand of you when you cash in that fat Traditional IRA of yours?
Then be sure you’re on my private discussion list by texting the word SDIRadio to 33444. I’ll send you a referral for a great attorney who can help you do this entirely by the book… and other magical things as well!
Again, text the word SDIRadio – with no spaces or periods – to 33444 right now.
My friends… invest wisely today, and live well forever!
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