Letter Re: How To Use Your IRA /401k to Fund a Survival Retreat Property

Dear SurvivalBloggers,
How do you use your IRA /401k to fund survival property or fund a startup business in the area you want to exit to?
I have been running into many of my clients here in the north east, way outside the American Redoubt, that want to take greater control over their 401k or IRA’s that have accumulated over a period of time.
Being a reader of this web site for a number of years, I felt that I could explain to your readers thru a simple monograph of what an individual or group of individuals could accomplish with a little planning and action in regard to this premise:  The stock market is not a place to have any of your assets.  Let alone your retirement assets.  How can you remove the assets from a stock or mutual fund based IRA or 401k ?     You know you need to do something to protect you and your family soon, very soon, but you may not have the funds to accomplish this now.  If you spend a few minutes to read through this to gain a small understanding that you don’t have to lose all your retirement contributions when the fall occurs you will be half way there.  I must warn you up front that this will be a complex transaction. Extremely time consuming and hopefully the custodian you utilize along with your legal and financial advisors can handle it. This is a small overview, food for thought.

Face it, the retirement you in vision or hope for has a limited if at all chance of occurring. The financial actions of the last fourteen years of our federal government have just about removed the United States dollar from being the base currency of the world.  It has also enslaved its populace by transferring economic growth for social programs.  For better or worse this is not the government of our parents.  We will have to live in it until the pendulum of normalcy swings back; or be prepared to deal with the consequences of it not occurring. Remember that inflation is coming. To what extent no one knows,   hopefully, not the inflation of the late 1970’s or early 1980’s.  When it occurs what will happen to your money? Your retirement funds which are locked down into money markets are probably not indexed for inflation.  Should have, would have, and could have decision tree will all be told.  This nest egg could be put into use right now not ten twenty years from now.   You have heard and read enough here and other sites that the stock market is ripe for another correction. “Oh don’t worry good stocks will always come back” Or, you may have heard that if you put stop limit loss (which is basically a tool that if you own a stock you can direct your broker to sell the sock if it drops to a certain price) you will mitigate the loss on the price.  Great Plan in a normal economic system.  However, with over seventeen trillion in debt the financial china-syndrome is just around the corner, by the way, how will you get your money back from the brokerage house? Only those who diversified thru debt free real estate will have something of value. Especially if you start as soon as possible to put it into place a strategy.

This is where a self-directed IRA/401(k) can help. This will be the tool that you will be using to redirect your funds from the retirement vehicle into an ultimate safety net such as:  farm land; timber land with cabins; survival retreats; horse farms; coal mine; a franchise, a startup business etc…I think you get the idea.   How can you do this? It all started back in 1996 when the IRS lost in Tax court the Swanson case (Swanson v commissioner 106 TC 76 1996) this held that a newly established entity owned by an IRA and managed by the IRA owner may make investments using IRA funds without violating the prohibited transaction rules under Internal Revenue Code Section 4975.   This allowed individuals to fund investments with their retirement funds and not consider this funding to be a prohibited transaction (explained later). This was subsequently affirmed by the IRS in Field Service Advice Memorandum (FSA) 200128011.

Enough technical stuff, just know that it is legal and you will have some hoops to go through, but look at the alternative. Your money stays were it is unable to be accessed without penalty until you reach 59 ½ years of age and then you would need to include it in ordinary income (taxed) on what you withdraw (unless of course you have a Roth) and hopefully able to access. So how do we take advantage of this? Many advisors and stock brokers are not aware of this method because it does not provide sufficient profit for themselves or for their institutions (surprise-surprise).  However, there are many ways to accomplish this; I will present one that I have seen utilized to build and construct a 2,800 square foot underground bunker on 300 acres of land.  

The first step in this process is to contact the entity in which you have your investment.  This may be a bank, brokerage house, or your current employer.  (As an aside: why would you have all your retirement funds invested in the company you work for? ask former Lehman Bros. employees if it worked for them!). If they allow you to accomplish this great if not then you need to find another custodian of your funds that will allow this to occur and transfer (rollover) your assets to that entity.  Once allowed some of the questions you need to ask are: what is the setup fee? (Usually around $6,000—not cheap which must be paid with funds outside the IRA) what is the annual fee to manage such a task? How much cash must be kept within the IRA to fund future expenses of the investment?  Once the fee structure is settled then your custodian must establish a business entity which will ultimately own the real estate.  This is an easier process then you think, the entity used must be a C-Corporation and not a pass-through entity.  To my understanding the LLC or S-Corporation (pass-through entities) are specifically not permitted to be used. Then, for simplicity sake, the IRA buys the stock of the C-corporation from the C-corporation, thereby transferring funds into that entity. The funds go from IRA/401(k) into a 401(k) entity that owns the stock of the corporation.  It should be noted that the entity that your IRA invests in must meet the simple definition of an operating company.  More than likely the Real Estate Operating Company that is created will purchase the land/farm/survival retreat and actively managing the property. 

It is important here to discuss an operation company.   An operating company is an entity that sells a service or a product.  If the company is to be considered a Real Estate Operating company the entity must hold the property as inventory to sell it ; or, actively managing the property thru collection of rents, responsibility of repairing and general improvement.  You cannot go and buy a farm and sell the commodities (wheat, corn, oats, hay, straw, beef, milk etc…) and keep the cash.  The entity receives the proceeds. You are what the government considers a disqualified person. It can pay a fair wage, however you must be careful not to violate the prohibited transaction rules of IRC 4975.  A disqualified person covers a range of people including those persons who have a fifty percent or more interest, a member of their family, or even an individual with a 10 percent or more interest. (I know 50% or more? 10 % or more interest this is why you need competent advisors).   Because a prohibited transaction can happen if a sale, leasing, lending of money, furnishing of goods, services, facilities, or the transfer thereof to a disqualified person for their benefit can cause the whole plan to become nonexistent and all be taxed and penalized.  Are we having fun yet? 

Let me simplify: You your wife, your like-minded brother and his wife all agree that it is time to purchase a survival retreat.  However, you all realize that you do not have the cash on hand to accomplish this without taking on a vast amount of debt. All four of you have IRAs or 401k.   You all transfer your funds into one financial advisor. A new corporation entity is created.  The corporation sponsors a 401(k).  Existing retirement funds are rolled over into the new 401k .  The new 401k purchases the farm/money producing entity.   The entity is in existence to make money, so it has a business purpose. Its an operating company. It has filed its Articles of Incorporation with your state.  You have obtained a tax identification number (EIN). You may have to register with the State for a sales/use tax ID number. You may need a business license or register with the local Ag agent. Since it is a viable business it will need workers.  You then can pay yourself and the others a fair, competitive, arms-length wage. You may have a need to store items in a secure environment and build an underground facility to accomplish this. 

Every corporation is responsible for keeping at its principal place of business accurate and complete books of records of accounts and minutes of the shareholders/directors. 
This short narrative was written for informational purposes only. If you want to relocate to the American Redoubt and would like to open a business; purchase an existing business; buy a working farm; buy a timber outfit ; or just take control and have some retirement funds or have family or friends of like-mind this summary is for you.  Please also keep in mind that your financial advisor and accountant does not need to know the true reason behind what you are accomplishing with your funds; nor, do they need to know that your underground storage facility is really a bunker.  – An Anonymous CPA