How to Retire with your IRA

Wow, that was almost a rhyme!

Have you ever heard of people calculating a “magic number” for their IRA? A mystical number of dollars that they must accumulate before they can retire? Think how absurd that is! How would you do that calculation? Perhaps by using actuarial statistics to determine when you will die and then multiplying the money you will need each year times the number of years you have left?

No, Friends, life is just not that quantitative. We need a plan that is fluid. A plan that I call my “financial perpetual motion machine”.

The idea is to start with a few hundred thousand in your IRA. Most people have at least that by the time they are 59 ½. (That’s the age when you can withdraw from your IRA without penalty). That money must then be invested in a safe, high yield instrument that enables your IRA to grow at or above the rate at which you withdraw for living expenses.

Mutual funds, stocks, bonds, commodities? No, the rate of return is not great enough and the value can actually go down like we all saw back in 2008. That ain’t going to cut it!

Consider Tax Liens or Tax Deeds!!! Most rates on Tax Liens pay 18% to 25% annually as dictated by LAW!  That’s more like it! It can’t get any safer and it never goes down! Also, once in a while the lien is not redeemed, in which case you are awarded to DEED to the property…free and clear! This is because tax liens are ALWAYS the number one position lien on a property. They wipe out all other liens like mortgages, for instance.

Of course, you can’t just buy tax liens with your traditional IRA account. So, you must set your IRA as a “Self-Directed IRA”. Also known as a “Solo 401K” or a “Qualified Retirement Plan” (QRP). A third party sponsor must set this up for you and you will be assigned a new Tax Identification Number (TIN) from the IRS, setting the QRP apart from you personally as a separate entity, thus avoiding taxes on your gains. To fund your new QRP, you can transfer money out of your IRA into your new QRP. You “rollover” that money into your new plan just as you would do when you “rollover” money from old 401Ks into your IRA. We’re just going the other direction here.

You are the trustee of your QRP and you can then open a bank account for all the transactional activity such as wiring money to an auction company or depositing the returns from your investments.

Here’s a numerical example of how this works…

Say we have $400,000 in an IRA. After setting up the QRP, you can go online and start buying tax liens. There are literally thousands of them out there. All states and all counties have them. And most of them are auctioned off online with pictures and comps right there for your due diligence. Even if you screw up and buy lien on a house that gets burned out or ruined by a tornado, hurricane or flood and you are then awarded the deed, you can always find a contractor or investor who will buy it from you for at least double your initial investment.

So, with the $400,000 all invested in 18% tax liens, you will get $72,000/yr which you can easily live on, and your IRA remains the same. That’s perpetual motion!

Once in a while the lien will not be redeemed and you will be awarded the deed to a nice $200,000 house. Sell that, buy a new car and take a trip to Fiji.

Happy retirement!