Intermediate terms

Essential Retirement Account Investing Terms

This curated collection includes key terms that might be helpful when exploring retirement accounts and their role in investment strategies. It covers various account types and how they can be leveraged for long-term wealth building, including real estate. These terms were selected based on common questions and areas where investors often need clarity.

Learning Path

Alternative Capital Sources

Alternative capital sources are non-traditional funding options for real estate investments, including private money, hard money, seller financing, and crowdfunding, offering flexibility and speed for deals that may not qualify for conventional bank loans.

Intermediate13-16 min

Individual Retirement Account

An Individual Retirement Account (IRA) is a tax-advantaged savings plan designed to help individuals save for retirement, offering benefits like tax-deferred growth or tax-free withdrawals.

Beginner6 min

401(k) Plan

A 401(k) plan is an employer-sponsored retirement savings account that allows employees to contribute a portion of their salary on a tax-advantaged basis, often with employer matching contributions, to invest for their future.

Beginner5 min

First-Time Homebuyer

A first-time homebuyer is an individual who has not owned a primary residence in the last three years, making them eligible for special loan programs and financial assistance designed to facilitate homeownership.

Beginner3 min

Non-Recourse Loan

A non-recourse loan is a type of secured debt where the lender's claim for repayment is limited solely to the collateral property, protecting the borrower's personal assets from seizure in the event of default.

Intermediate14-15 min

Prohibited Transactions

Prohibited transactions are IRS-forbidden dealings between a tax-advantaged retirement plan (like an SDIRA) and a "disqualified person," designed to prevent self-dealing and misuse of funds.

Intermediate5 min

Self-Dealing

Self-dealing occurs when a fiduciary acts in their own best interest rather than the best interest of the person or entity they represent, creating a conflict of interest.

Intermediate2-3 min

Self-Directed IRA LLC

A specialized retirement investment structure where a Self-Directed IRA owns an LLC, granting the account holder "checkbook control" to directly invest in alternative assets like real estate, while maintaining tax-advantaged growth.

Advanced5-6 min

Unrelated Business Taxable Income

Unrelated Business Taxable Income (UBTI) refers to the gross income derived by a tax-exempt organization from any unrelated trade or business regularly carried on by it, less the deductions directly connected with the carrying on of such trade or business, subject to certain modifications. This income is taxable to the exempt organization.

Advanced5 min

Early Withdrawal Penalty

An Early Withdrawal Penalty is a fee charged by a lender if a borrower pays off a loan before its scheduled term or makes significant extra payments, often found in certain real estate loan agreements.

Beginner2 min

Self-Directed IRA

A Self-Directed IRA (SDIRA) is a specialized retirement account allowing investors to hold alternative assets like real estate, private equity, and precious metals, offering enhanced control but requiring strict adherence to complex IRS regulations to avoid prohibited transactions and Unrelated Business Income Tax (UBIT).

Advanced11-12 min

Checkbook Control

Checkbook control grants the administrator of a self-directed retirement account, typically an IRA or 401(k), direct authority to manage and invest funds by writing checks or initiating electronic transfers from a dedicated LLC, bypassing traditional custodian approvals for each transaction.

Advanced2-3 min

Arm's Length Transaction

An arm's length transaction is a business deal between two independent, unrelated parties, ensuring fair market value and no undue influence.

Intermediate2-3 min

Disqualified Persons

A "Disqualified Person" is an individual or entity, as defined by the IRS, legally prohibited from engaging in certain transactions with a self-directed retirement account to prevent self-dealing and conflicts of interest.

Intermediate2 min

Down Payment

A down payment is an initial upfront payment made when purchasing a property, representing a portion of the total purchase price and reducing the amount of money borrowed through a mortgage.

Intermediate15-18 min

Tax-Deferred Growth

A financial strategy where investment earnings, such as capital gains or interest, are not taxed until a later date, typically when the funds are withdrawn.

Beginner2-3 min

Tax Implications in Real Estate

Tax implications in real estate refer to the various taxes, deductions, and credits that affect an investor's profitability and financial obligations, encompassing income, property, capital gains, and estate taxes. Understanding these is crucial for optimizing investment returns and ensuring compliance.