Remember you can own more than 40 different types of assets in an IRA account. You're not limited to holding just traditional securities. Most major brokerage firms managing IRAs offer a selection of mutual funds for you to invest in but restrict your holdings to traditional securities. They are usually not equipped to handle real estate, private equities or others asset classes that the IRS permits. For instance, you can own most any type of real estate including vacation houses, boat slips, and/or commercial. You cannot, however, own any real estate that you care currently benefiting from. For example, you can own a beach house but you or your family cannot use the property during the time it's held within your IRA. But, you can rent it for a profit. Another example...you can purchase a building lot and flip it 30 days later for a profit...all legal within your IRA. You can even invest in cattle within your IRA. Banks will also lend on IRA purchases. So, it's possible to use leverage. You can expect to pay a slightly higher interest rate than if you were borrowing personally but, in some cases such as real estate, the ability to use leverage in your IRA more than justifies the higher rate. Most people are only aware of the traditional mutual fund type of investments. But, if those are doing poorly...well, you've got other choices. To invest in other types of assets, you need to open whats called a "self-directed IRA" with a custodian that allows you to invest in the full range of asset types allowed by the IRS. With a self-directed IRA, you can invest in real estate and privately held businesses, make secured loans (such as a mortgage), make unsecured loans, and also invest in traditional assets such as stocks and mutual funds. With real estate bought by a self-directed IRA, any income and capital gains grow tax-deferred in the case of traditional IRA or tax-free in the case of a Roth. Fees for a "self directed" IRA with a full-service custodian are higher than those charged by custodians offering only traditional securities. There are only 3 assets classes the IRS forbids you to hold within an IRA: Collectibles, Life Insurance, & S Corporations. As usual with the IRS, there are lots of little quirky rules that failure to follow could result in significant penalties so this type of IRA investing is not recommended for people skittish about actively participating in the decision making process. Anyway, you would not have to sell an office building or a herd of cattle just because you changed custodians. The "system" is geared towards funneling the "masses" into traditional securities. OTOH, that's the safest investment for the vast majority of people. /tricia

In managing most businesses, if the manager doesn't pay the employees, they don't continue coming to work very long. Each of us above being a toddler has a business that we run on the side. Nice part is, our employees don't charge for their work. As a matter of fact, they pay us! Each of those employees is called a Dollar (if you're in the U.S., it's a Bill; in Canada, a Coin, which we call a "Loonie"). If a kid sends that dollar out to buy ice cream it works for him/her once - and s/he can enjoy the "fruits" of the employee's work. Same for Mom and Dad regarding food, rent, clothing (unless they live in a much warmer climate than in this area - Buffalo had over a foot of snow, yesterday!). For many people in this part of the world, a car is pretty well in the category of "necessity", as well, as we have pretty well organized society around the car: many built-up areas no longer have sidewalks. If one finds ways to hang on to some of those dollars, they'll work for that person as long as s/he hangs on to them, with one exception - if they stick them into the mattress. Banks like to tout their guarantee that when we leave money with them, they'll pay rent on it, and guarantee to pay back every dollar that we lent them. They never mention the other guarantee - that, apart from the rent on the loan, they won't pay us one dollar more, either. But, there's a problem: I say that, when we invest our dollars where we are guaranteed to get each back, that their number can't grow, either. And the value of each declines each year that we own it. I say that there's two rats that eat your cheese: the income tax people want to talk to you each year about all of your earnings in that year. And they want some of it, of course. In Canada, they quite different rates of tax on varying kinds of income. If, apart from the rent, the number of your invested dollars can't grow, you need to add some of those invested dollars to the asset each year so that your purchasing poweer doesn't shrink as the value of each of those dollars of your asset shrinks. That rat's called "inflation" and it has eroded the value of each of your saved dollars every year - since the 1930s. With the rates of interest that borrowers are willing to pay these days, when we take out some for tax, and more to add to the saved dollars, each of which will buy less each year, often times there isn't any left. Know what? The rats eat first! If there's any left, you get that. Recently, there's none left. Imagine - the bank (as borrower) makes more on your money than you do, quite a bit of the time! As a matter of fact, every borrower, whether bank, corporation or individual figures that s/he can make more on the borrowed money than it costs him/her ... or they wouldn't borrow, would they? Suppose you'd put $10,000. into the bank 15 years ago, on a 5-year certificate, and renewed it twice since. Now, when you receive that money (apart from the rent) they'll pay you precisely what they borrowed - $10,000. That $10,000. would have bought a decent car, 15 years ago. Not now: inflation cut its value substantially through those years. Did inflation hurt the bank? No, they rented that money out to someone else (actually, usually about 8 "someone"s), at a higher fee than they paid you. Suppose I borrowed that $10,000., 15 years ago, agreeing to pay the bank the interest only monthly, and did that. How much would I owe the bank now? Right - exactly $10,000.00. Which will buy a great deal less now than it would then. So I gained from inflation: the guy who put his money into the bank lost ... unless the interest covered it. Farmers like to stick one seed into the ground and have it grow into an ear of corn (maybe even a couple of ears). Similarly, I like to invest a substantial portion of my assets into situations where I expect them to grow, given a number of years - and mine go back varying lenths of time to about 40 years. Some grew nicely ... and several paid increasing amounts on the investment over the years. However, I haven't had to answer to the income tax people about that increase in value ... and won't, until I sell them (or die). Which gives me much of the benefit of the tax-deferral in the tax-deferred retirement accounts (but with far fewer restrictions). And when I cash them, I pay tax on the increase at half regular rate. Some didn't pay anything, or sporadically. Some of those assets grew in value, more than enough to cover the ongoing returns that they hadn't paid (and on which I'd have had to pay tax at the time). Some didn't pay ... and went down in value, into the bargain. As a wise person said, "You can't win 'em all!". An investment group of about 25 that has met monthly for around ten years, that I've attended for six or seven, calls those latter experiences "tuition". In the school of learning how to manage money more effectively. When did you last merit a free luch? Good wishes for learning how to make your income and assets work better for you than for the other guys. ole joyful P.S. Actually, many of us get a "free lunch" here at Gardenweb, and various other places - for we've learned a lot, and it hasn't cost us anything but time, and internet fees, that we pay anyway. Actually, a while ago, it cost the guys giving the advice - for one could read for free ... but the owners charged a fee for one to open his (her?) big fat yap. Quite an imposition for us former clergy! Wouldn't you agree? o j

And here's an article (excerpted) that just showed up today in the WSJ. Many people hold stock in their 401ks, so this does seem a potential issue. There is simply no telling what the income tax and capital gains rates are going to be at the date of your death, so keeping at least these minimal records (cost basis) certainly wouldn't hurt. The article goes on to point out that Congress can make retroactive changes in the estate tax laws; it's been proven legal as the IRS won the two cases filed against them. Will the Estate Tax Disappear? Changes in the Way Inherited Assets Are Valued Could Cost Heirs and Cause Hassles WSJournal October 22, 2009 Many people hope the federal estate tax will disappear next year, as scheduled. They could be sorry if it does. Back in 2000, Congress enacted a gradual loosening of the estate exemption. It has since risen to its current level of $3.5 million per individual, or up to $7 million per couple. The tax is scheduled to lapse just for next year and return in 2011. Washington insiders are betting lawmakers won't let that happen. Instead they believe Congress is likely to act before the end of this year to extend the current system through next year. And perhaps they should, because getting rid of the estate tax actually would cause problems for most taxpayers. At issue is the "step-up in cost basis" that all assets receive when an owner dies. The way the law is currently written, if the estate tax goes away, so does the step-up in cost basis. That's where the problem lies. Step-up means that the property heirs receive is valued as of the date of death. So if Grandma leaves a grandchild stock selling for $75 a share that was bought in 1970 for $2 per share, the heir's "cost basis" in the stock is $75. If the grandchild then sells the stock for $80, the taxable gain is $5 per share. The same holds true for both real estate and personal property, like an heirloom ring or art. If Congress fails to extend the current system for 2010, then at the owner's death all assets would retain their original cost, called "carry-over basis." Under this system the heir's stock would have a cost basis of the original $2 per share rather than $75. If he then sells the stock at $80, the taxable gain would be $73 instead of $5Âa huge difference. For most heirs the switch to carry-over basis would mean paying far more in extra income taxes than is due under the current estate tax system. Currently only about 5,500 estates are federally taxable each year, because is exemption is fairly high. Carry-over basis would also pose a massive record-keeping burden, forcing multiple generations of taxpayers to keep documents over many decades.

Check the Household Financed forum, too. I think we recently discussed some of this over there. Here is a link that might be useful: Household Finances