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Ryan of Maryland recently completed his first self-directed real estate investment – one that earned him a nearly 48,000-percent tax-free return. It’s a great start for any investor, but especially one who completed the investment when he was 19.
Ryan, now 20, has already discovered the power of a self-directed Roth IRA and the effect creative investing can have on generating tax-free wealth for his future.
Head-Start in Real Estate Investing
Ryan has been around real estate investing most of his life, but he really took an interest when he was 17.
“My father has been in real estate for many years and once I decided to go into the business, he has mentored me and taught me the business,” Ryan says.
He interned at his father’s real estate rehab and rental management company to make sure that’s what he wanted to do, becoming a full-time employee after graduating high school.
He and his father continue to grow their knowledge by attending seminars together. It was at a real estate investing seminar in Florida that they learned they could use retirement accounts to invest in real estate.
After opening his self-directed Roth IRA at Equity Trust, Ryan found a local homeowner who was underwater on their property and offered to help them get out of their mortgage by finding a buyer.
Ryan offered a real estate option for $10, which allows him the opportunity to find a buyer or purchase the property. He ended up finding a buyer who purchased the option from him for $4,800 – a return on his investment of nearly 48,000 percent. The purchase was completed approximately two months after he entered into the agreement.
Why Ryan Opted for a Roth
When Ryan learned about self-directed investment vehicles, he also learned the difference between a self-directed Traditional IRA and Roth IRA. A Traditional IRA is tax-deferred, while contributions to a Roth IRA are after-tax, so the growth and withdrawals are tax free – provided IRS guidelines are followed (see IRS Publication 590 for more information on Traditional and Roth IRAs).