Is there any way to convert or remove money from IRAs without having to pay the conversion tax?
Unfortunately, we cannot just remove money from our IRAs without paying income tax. However, there is a system to transfer up to $1,000,000 of money trapped in IRAs and 401(k)s with no tax consequences.
Many investors prefer to have the tax-favored protection on the contribution phase, but do not want to pay income tax during the distribution phase of retirement planning. There is a way to indirectly achieve tax-favored benefits during the contribution phase without giving up the tax-free accessibility and transferability later.
Balance sheet control is the key to enhancing net worth. In order to increase net worth, we need to either increase assets or decrease liabilities. Asset control can truly enhance retirement. Some of the assets on a balance sheet can be used to enhance net worth, while increasing the efficiency of a personal income statement. For example, real estate can provide a means for asset optimization. By utilizing the value of real estate, you can multiply your assets exponentially.
What is equity arbitrage?
Through this system, you are able to optimize balance sheet assets and increase net spendable retirement income. Take a real estate asset that can be transformed into two assets: the actual real estate structure and cash. In a positive real estate market, real estate will appreciate. If you separate the cash from your real estate, the cash asset can then be put to work as a second investment asset.
By harvesting this equity, you can arbitrage the cash asset in excess of the cost of borrowing from your real estate. For example, if you take a loan against your real estate at a rate of 5 percent, you could use this cash to invest money at a rate higher than 5 percent.
Distributions from a qualified vehicle such as an IRA or 401(k) are considered taxable income. Therefore, you can offset these distributions with mortgage interest deductibility. Thus, you could remove money from your qualified vehicle with no tax consequences. As long as the returns of your qualified plan meet or exceed the cost of the loan, you will never deplete the value of your account.
The cash that you acquire from your equity harvest could then be used to invest in a tax advantage retirement vehicle. However, these funds need to be invested in a vehicle that remains liquid, safe, and has a strong rate of return. If you use a vehicle such as a maximum funded insurance policy, you can reap returns in excess of 8 percent per year net, and you’ll minimize the taxation of Social Security earnings.
Chris Kichurchak is the president of Noble Financial Group. Reach him at (216) 236-0101 or [email protected].