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Proposal in U.S. House of Representatives bill prevents use of IRA funds for real estate deals

The current bill that is being proposed by the House Ways and Means Committee has a proposal that limits how investors can invest their retirement savings. Investors will no longer be able to invest retirement funds in real estate deals and must remove existing capital from these deals.

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Section 138312 of the current bill states the following:

  • Prohibits an IRA from holding any security if that security requires the IRA owner to have a certain minimum level of assets or income (any deal or fund that requires investor accreditation).
  • If an IRA has invested in such securities, that IRA will be disqualified and the investor must pay taxes on that account.
  • The effective date is December 31, 2021 with a 2 year transition period for IRAs already holding such investments to dispose of the asset.

The impact of this bill is significant to our industry and our investors. Real estate sponsors will no longer be able to take IRA money from investors for real estate syndication deals or any type of debt securities.

Even more concerning, any IRA money that is currently held in these types of investments will need to be removed by the investor by December 31, 2023 to avoid their retirement accounts from becoming taxable. So if an investor has invested a portion of their IRA funds in our deal, those funds will need to be exited from the deal to avoid their complete IRA account from becoming taxable

In the last few years, investor desire to diversify their holdings beyond the stock market & into real estate has exploded. This has not gone unnoticed by the companies that make revenue with a constant flow of IRA funds directly to the stock market. Clearly, there are forces working behind the scenes to reverse this trend and Section 138312 is an example of this.

What can you do:

  • Reach out to your elected officials in the US House of Representatives and the US Senate and tell them that you oppose Section 138312 and that it impacts your investments.
  • Send an email about this proposed legislation to your other investors and educate them about this change and request they email their elected officials to oppose this legislation because it limits investor choice and diversification.
  • Let your friends and family know about this so they can also oppose this proposal.

Below is additional information on the proposed bill:

Summary of each section of the House proposal:

https://waysandmeans.house.gov/sites/democrats.waysandmeans.house.gov/files/documents/SubtitleISxS.pdf

Section 138312 of the House bill can be found on the bottom on page 689:

https://waysandmeans.house.gov/sites/democrats.waysandmeans.house.gov/files/documents/NEAL_032_xml.pdf

Forbes article:

https://www.forbes.com/sites/jamiehopkins/2021/09/15/7-ways-the-new-tax-bill-could-impact-retirement-planning/?sh=7d80ae705423

Links for investors to search for their elected officials:

https://www.house.gov/representatives/find-your-representative

https://www.senate.gov/senators/senators-contact.htm

Sample text that you can provide your investors to write to their elected officials:

Dear {insert name of official},

As an investor, I am writing to you about my opposition to Section 138312 of the US House bill. This proposal has a direct impact on investor choice and limits my ability to diversify my retirement savings. By not allowing me to invest my retirement savings in private investments, you are requiring me to keep all of my IRA money in the public markets.

Additionally, by forcing me remove this capital from existing deals or lose my tax-free status, you will have a significant impact on my retirement savings. I ask that you oppose this proposal.

Thank you.

{investor name}


We must come together, act with urgency and push back on legislation that clearly is not in the best interest of our industry and our investors. We ask that you join us and get the word out to your professional network and your investors on this proposal and make our voices heard to our elected officials.

If you would like to learn more about Multifamily Real Estate and how to invest, please email me directly at James@jcoreinvestments.com


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A Trillion What

This has been covered a trillion times (pun intended), however I think people need to be reminded on how much of anything encompasses a trillion. Joe Biden offered up his plan for a 1.9 trillion dollar stimulus package and I am flabbergasted by the sheer number of dollars that our government is able to spout with a straight face. I am not going to dispute that people and small businesses are in great need of this help. This is not to debate of which party spends more, the only goal is to put a face to the behemoth of a 1 followed by twelve zeros.

I’ll make you the richest person in the world ( well kinda)

I am a genie and I am going to grant your wish and pay you 1 dollar every second for your entire life, from the time you are born to the time that you die. If we do some quick math, every day of your life you will make $86,400. With that figure in mind we can calculate your annual one dollar a second income to be 31.5 million dollars every single year of your life. To keep things simple you will also not have to pay taxes, because I am a genie and I can make that happen.

OK, let’s figure out how much you would make in your lifetime

On average a US male lives to be 78.5 years old, but for the sake of argument we are going to round to 80 years. So if you made $1 for every second of your life you would accumulate a grand total of $2,522,880,000. That is 2 billion, 522 million, and some gas money, to spend on whatever you want, all completely tax free. Side note: that wouldn’t even get you in the top 200 billionaires, you would still need another 5 billion just to break into the list.

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OK, so you’re not the richest, but does this have to do with a trillion?

You’re right, but I am getting to the point. Let’s say that you wanted to crush the billionaires list and be the first guy with four commas. Screw the three commas club!. At your current rate of income to reach 1 trillion dollars you would need to live for 31,709.79 years.

Wait a minute, that sounds like a really long time…

Glad you brought that up. You would have to start making one dollar a second, 86,400 dollars a day ~20,000 years BEFORE the Saber tooth tiger became extinct and ~28,000 years BEFORE Wooly Mammoth became extinct. By the way, to get to the 1.9 trillion in the aforementioned stimulus package, it would take you ~60,208 years, which would put you into the end of the middle paleolithic era. Maybe you should have wished for $100 a second?

Oh god, what about the national debt?

Why would you even ask that! The national debt is racing toward 28 trillion dollars. With that in mind, using our calculation of $1 a second, the national debt would take approximately 881,000 years to pay off the national debt. However that 881,000 years does not include interest. That would put us closer to the Big Bang.

By Chris Hinshaw