How the Top 1%ers Are Doing Things Differently With Their Children
Ever wonder what the wealthy are doing differently with their kids? While most of us play it safe investing in traditional stocks and bonds, the top one-percenters are teaching their kids bold investment strategies that will secure their financial future.
So what are the secrets of investing wisely that the rest of the 99% need to figure out?
It's true — the wealthy have more resources than most of us. But is it their substantial amount of money or their smart investments that help their children build generational wealth? Can anyone learn these habits and secure their financial future?
To find out, let's delve into a few of the investment practices the wealthy follow.
How the Top 1% Create Generational Wealth
Wealthy parents talk to their children about money. They teach them to do more than save their pennies — they show their kids how to use their money to invest and accumulate wealth to pass down from generation to generation.
By simplifying investing and making it fun, children become confident in making decisions and taking risks. Wealthy parents explain the meaning of a diversified portfolio and allow their children opportunities to choose a small portion of companies they'd like to invest in. This makes the process exciting and the children more engaged.
Additionally, wealthy business owners frequently employ their children to work for their companies, giving them small jobs such as cleaning the office or modeling for advertisements. Children under 18 can be paid tax-free up to the standard deduction of $12,950 for 2022. The money is tax-deductible, and the children won't have to pay income taxes.
If kids work for their parents' company, parents can then help their kids invest their earnings into a Roth IRA. For example, if you hire your child to do chores or menial tasks for your business at 7 years old, pay them $500 a month, and invest the $6,000 a year in a custodial IRA, they will have roughly $100,000 by 19 years old.
How the Top 1% Teach Their Children to Invest
Not only do the top 1% show their children how to invest at a young age — they teach them how to invest wisely. The wealthy aren't putting all their money into stocks and bonds — they’re investing in non-traditional assets such as real estate.
Real estate is an excellent investment. It has historically appreciated over time and can be less volatile than traditional assets like stocks and bonds. Real estate not only diversifies your investment portfolio but also generates higher returns at a faster rate than traditional assets.
Here's the hidden gem — the wealthy are using self-directed IRAs to purchase real estate investments with their retirement savings. Most real estate investors aren’t aware they can invest with tax-exempt or tax-deferred dollars. A self-directed IRA allows you to invest in real estate, enjoy the tax benefits, and build generational wealth.
What Exactly Is a Self-Directed IRA?
A self-directed IRA is similar to the traditional IRA or Roth IRA. It has the same tax advantages and follows the same regulations and laws. The maximum contribution limit in 2022 is $6,000, or if you're over 50 years old, $7,000. Profits or gains acquired must stay in the retirement account until 59½; any early distributions will be hit with a 10% penalty fee.
The advantage of using a self-directed IRA is that you can maximize your investment strategy by investing in tangible assets. Real estate is one of the most popular investments as it usually provides high returns. Any investments made will be tax-deferred — meaning there will be no taxes paid on any income made from real estate investments until retirement withdrawals are made.
Why Invest in Real Estate Through a Self-Directed IRA
As Andrew Carnegie famously quoted, “ninety percent of all millionaires become so through owning real estate. More money has been made in real estate than in all industrial investments combined.”
The top 1% have accumulated million-dollar portfolios by investing in real estate through self-directed IRAs — and many of them started out with little money. A real estate investment made through a self-directed IRA will be similar to any other real estate purchase, except any tenants will pay their rent to your IRA and the property title would read that your IRA is the owner. All the income is meant for retirement.
For example, a client opens a self-directed IRA for his children with a $6,000 start to invest in a real estate project. The family uses a self-directed IRA to buy and renovate a single-family home — they bought a house for $270,000 and later sold it for $550,000. After renovation, property taxes, and commission, the tax-free profit would be $150,000 and put directly back into their IRA.
If the children contributed 1% of their $6,000 contribution ($2,700) toward the purchase of the house, they would gain $1,500 — turning the 1% investment into a 55% profit. Although the children won't have access to the earnings from self-directed investments for many years, they’re learning creative ways to build financial security for their future.
These investment strategies are available to anyone.
Wondering Why You Haven’t Heard of a Self-Directed IRA?
The wealthy are well-informed that investing in real estate using a self-directed IRA will put them on the fast track to making a substantial profit.
So, why isn't everyone shouting from rooftops about these benefits and taking advantage of a self-directed IRA?
Mainly because large financial institutions that control 401(k)s and traditional IRAs can only allow their customers to invest in stocks and bonds. This is because investing non-traditional assets with tax-advantaged capital comes with hefty and complex IRA compliance rules, and these institutions simply don’t offer these services on a large scale.
Self-directed IRAs are not managed by brokerage firms or banks, but by custodians. The right custodian will show you all the options for investing in alternative assets.
Contact Chicago Trust Administration Services to Learn More
Millionaire or not, Chicago Trust Administration Services would love to help you learn more about self-directed IRAs and investing in real estate. One of our experienced custodians can assist you with the legalities associated with self-directed IRAs and make the investment process smooth.
Chicago Trust Administration Services has been helping clients with non-traditional investments for over seventeen years. Please call us to set up a complimentary meeting and let us show you how to invest like the top 1%ers. To schedule a complimentary meeting with us, please call 312-869-9394 or email steve@ctasira.com.
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*The content and opinions in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
**CTAS professionals are not financial advisors and cannot provide advice or recommendations regarding specific investment decisions.