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Discounted ROTH IRA Conversion By Investing in Ground-Up Construction
IRA QUICK FACTS
Traditional IRA vs Roth IRA
TRADITIONAL IRA
- Invest Traditional IRA money before paying taxes
- Withdrawals are required by age 73
- Pay taxes when you withdraw money
ROTH IRA
- Invest Roth IRA money after paying taxes
- Withdrawals are never required
- Withdraw money tax free
roth IRA benefits
- Access Roth contributions at any time, but Roth needs to be in place for 5 years in order to withdraw gains tax free
- Roth IRA balances do not count in the calculation for taxing Social Security benefits, or in the calculation for the tax on investment income
Converting your IRA to a Roth IRA at a Discount
Roth IRA's are preferred due to the potential of tax-free growth, but there are limits to high income earners on contributing to a Roth. Due to this contribution limit, many want to convert some of their traditional IRA funds to a Roth IRA to maximize their Roth IRA benefits. This is commonly called a "back-door Roth IRA".
PROBLEM
High Taxes
Investors having to pay current income taxes on the converted amount from a traditional IRA to a Roth IRA as the conversion is taxed as current income.
SOLUTION
Re-Invest the Funds
Invest your traditional IRA into a ground-up construction project and convert at a discounted value due to an interim valuation.
HOW IT WORKS
New Valuation
Upon starting construction a new valuation is issued with a reduced value, allowing for a Roth conversion at a discount. To visualize this, some ground-up real estate projects have what is called a "J" curve when it comes to their valuation. See the chart below.
Example of a ROTH Conversion Through a BV Construction Project
Investing in a ground-up construction project through a traditional IRA enables an investor to convert to a Roth at a discount as the valuation could be devalued by approximately 30% during construction.
This devaluation can be caused by factors such as illiquidity, lack of transferability and initial deal costs among other factors.
Upon the sale, the value increases due to the sales price which is designed to be higher than the overall construction cost and creates a profit for investors.
The graph above is purely an example and not a projection of an actual return.
TRADITIONAL IRA TO ROTH IRA
HOW DOES the conversion WORK?
Below are the the steps to completing the Roth IRA conversion.
Step 1:
INVEST
An investor uses their traditional IRA to invest in this type of project.
Step 2:
CONSTRUCTION
Construction starts and a third party prepares a valuation report assessing the reduction in value.
Step 3:
VALUATION
The IRA custodian receives the third-party report and reduces the investor's value of their IRA.
Step 4:
CONVERSION
The investor initiates a Traditional IRA to Roth IRA conversion at their custodian at the reduced valuation.
Step 5: EXIT
The Construction of the development project is complete; the project is leased and reaches stabilization. Typically, Sponsors anticipate that at this stage of a project the valuation will be higher than the initial capital invested into the project. The project is then sold, and distributions are made to investors back to their Roth IRA.
*Some real estate projects create UBIT so check with your Sponsor or tax professional on how that might affect you.
connect with us to Learn More
Eligible development project Open for Investment
mixed-use ACTIVE ADULT DEVELOPMENT
The project is known as “The Belton” and consists of an active adult development of approximately 199 units including 16 single story cottages. The Corinth area easily connects to other north Texas cities such as Denton, Dallas, Fort Worth, McKinney, and Plano.
Rendering of Future Development
mixed-use ACTIVE ADULT DEVELOPMENT
Rendering of Future Development
The project is known as “The Belton” and consists of an active adult development of approximately 199 units including 16 single story cottages. The Corinth area easily connects to other north Texas cities such as Denton, Dallas, Fort Worth, McKinney, and Plano.
LAND ACQUISITION
Rendering of Future Development
BV Capital is actively raising equity to fund the predevelopment and acquisition of approximately 468 acres of land in Caddo Mills, TX. The land will be the site of a master-planned community named "Stroope Ranch", a seven-phase development project that will consist of approximately 1,435 single-family lots.
dst I 1031 Exchange qualified
Actual Image of Sacramento Rehabilitation Hospital
The BV Ernest Health Neuro Rehab DST is a zero-debt offering open for accredited investors seeking capital gains deferments, including a 1031 Exchange. Sacramento Rehabilitation Hospital is a part of Ernest Health, a network of rehabilitation and long-term acute care hospitals. These disabilities occur regardless of the economic environment.
*The information contained herein does not constitute an offer to sell nor is it a solicitation of an offer to purchase any security. Offers will only be made through a private placement memorandum to accredited investors and where permitted by law. Investments in the firm’s limited partnerships involve a high degree of risk, including the possible loss of your investment, and they are potentially illiquid with an uncertain liquidity date. Prospective investors should carefully review the “Risk Factors” section of any private placement memorandum. Past performance is not indicative of future results.
**BV Capital is a member of the Bridgeview family of companies based in Dallas, TX. BV Capital offers investments to existing private clients, broker dealers, registered investment advisors and family offices. BV Securities (FINRA / BROKERCHECK / Reg BI) is Bridgeview’s managing broker dealer. BV Capital manages the financial and administrative operations for Bridgeview and BV Securities offerings.**
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