How do you maximize the potential for an inherited IRA… before you inherit it?  And why does this matter for you… even if you don’t expect to inherit an IRA?  I’m Bryan Ellis… I’ll tell you right now in Episode #87…

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The inherited IRA… particularly the inherited ROTH IRA… one of my favorite topics… and one of the most powerful financial tools EVER.

I got a great question last week from a listener named Christa, who said:  “I followed your advice in Special Edition #1 from back in February of 2015 where you advised to have a relative create a roth IRA and to specify me as the beneficiary.  My father set up a Roth and deposited a small amount of money into the account as you advised.  What do I do now so I can maximize the benefits of the Roth?”

Great question, Christa… and wise thinking on your part.  My friends, what Christa is referring to is one of my absolute favorite strategies.  Just imagine this:  Imagine an account for which, just by virtue of performing your investments in that account, that all of your profits on those investments are 100% tax FREE – not tax deferred – but, even better than a typical Roth IRA, you can actually take those profits out at any time you want, and not be required to wait until retirement age?

Yep… you heard that right.  A magical financial account that makes income taxes on investment profits just VANISH.  Pretty amazing, right?  There’s only one problem:  The only way to get one of these magical accounts is to inherit it.  And for you to inherit it, you guessed:  Somebody has to pass on to the great by-and-by.

Well, Christa has been smart, and has arranged for her father to create a small Roth account and has specified Christa as his beneficiary.  Christa’s father is not only not dead… but he’s doing quite well and will be with us for some time.  Christa’s question to me is:  What can I do in the mean time to maximize the value of that account when I inherit it?

I love this question, Christa.  And I’ll tell you EXACTLY what you should do.

But FIRST:  Can I take a moment to brag again on my Phoenix team?  We’re about to wrap up another GREAT “passive real estate flip” where we work with a client who wants to take advantage of the hot market for flipping real estate, but who hasn’t the time or expertise to perform the flipping process for themselves.  Now, I’ll go ahead and admit… the deal I’m about to describe to you is in escrow on the resale side.  We bought this property almost 3 months ago and have fully renovated it.  It is under contract to be sold, and escrow will close on that sale in about 2 weeks.  The bottom line on this deal?  Assuming it closes on time, the cash-on-cash return will be 29.6% for a 4-month transaction.  And even if escrow is extended, we’ll still solidly be in the 20% cash-on-cash ROI range on this deal.  My guys in Phoenix are just simply extraordinary… and I’m so proud to be associated with them, and to connect my clients with them.  If YOU would like more information about what they’re doing, and how YOU could get involved in our Passive Property Flipping, please check out my free webinar right now.  You can see it at SDIRadio.com/flip… again, that’s SDIRadio.com/flip.  This particular opportunity is most suitable for clients with a minimum of $75,000 of liquid capital.

So, Christa wants to know how to maximize the benefit she receives from the Roth IRA she’ll inherit sometime in the future from her father, who is currently alive and kicking, thankfully!

Christa, I admire your interest in planning for optimization.

Here’s something I want you to remember:  That Roth IRA belongs to your father.  It will not be yours until you inherit it after his passing.  So the first thing to consider is that you should make sure your relationship with your father is on steady ground, because at any time between now and that fateful day, your father still owns that IRA, and can change the beneficiary at any time… or he could just withdraw the money in it and use it to his liking.

But assuming that your family ties are strong, here’s what you can do:

Consider building the Roth IRA alongside of your father.  Remember – it’s his account, so everything done with that account will require his approval.  Depending on the size of your account, you have various options.  It’s my impression from your email that your father deposited a fairly small amount of money into the account, and do you know what?  That’s ok.  The value of an inherited Roth IRA is not in the amount of money you inherit in it – though more is always better – but it’s in the incredible tax advantages that it offers you… you know, that advantage where all of your investment profits are both entirely tax free AND available for your immediate usage without penalty.

So here’s the thing:  If your father’s account is small, I recommend that you do two things:  First, to the extent it’s consistent with your father’s tax planning and financial circumstances, ask your father to add more contributions to it over time in order to grow the capital base.  The money for those contributions may even be given to your father by you… so long as you do so in a tax-compliant manner.

But the other thing… the far more consequential thing… that you should do is this:  Begin to learn some investment strategies you can use that require less money, and probably more effort.  For example:  Many people will flip one or two real estate contracts each year in their IRA.  While I do fear that the IRS could change it’s stance on that particular activity in the future, in recent years, it appears that they’ve been pretty liberal about allowing that strategy.  And the strategy is simple:  You find a property that can be bought at an attractive price and get it under contract in the name of your IRA, and pay the earnest money deposit using your IRA’s funds.  You then find some other party who is interested in the property, and “assign” the contract to them for a fee, thereby getting back your earnest money and a nice profit.  It’s frequently possible to earn nice sums of money – making $5,000 to $15,000 per assignment transaction is not uncommon.

BUT… it does require work.  That’s the tradeoff… if you’re dealing with a small amount of money in your Roth IRA when you inherit it, you’re going to have to focus on deals where you can substitute effort for money, to the extent that such is allowable in your IRA.

There are other methods too… there’s a lot of flexibility in note investing, for example… particularly with the use of partial notes.  But that’s a topic far too big for our remaining time.

And something very important, Christa:  You can NOT contribute more money to the Roth IRA after you inherit it.  No more contributions are allowed after inheritance.  You can make all of the profit you want in that account, but you can’t contribute more money to it.

Bottom line, Christa:  You should spend your time right now LEARNING how to do these types deals where you can substitute effort for money in an IRA-compatible manner.  This will allow you to quickly build up your Roth IRA capital base to a point where you can do other, more substantial, deals… and really enjoy the astounding tax advantages that an inherited Roth offers.

And to the rest of my listeners:  A Roth IRA… even one with a limited amount of capital… coupled with education about how to use it… is one of the most valuable things you could leave to your children and grandchildren.  Please take a moment to listen to Special Edition 1 of this show, published on February 15, 2015 for more information.  It’ll blow your mind.

Have a great day my friends… and remember to check out my webinar about Passive Property Flipping for affluent investors over at SDIRadio.com/flip.

Folks… invest wisely today… and live well forever!

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