Se ha dado cuenta de que todos los jugadores de beisbol suspendido eran Latinos?

This title translates into "Did you notice that all the suspended baseball players were Latino?"

Today was what I would call a conflicted day in Major League Baseball.  A dozen MLB jugadores accepted their punishment without any appeals. One jugador, however, has said he would appeal his 211 game suspension and his name is Alexander Emmanuel Rodriguez.

The nation's sports reporters have talked endlessly about Mr. Rodriguez, but none so far have said anything about the jugadores being all Latinos. I am not being politically incorrect in noticing this fact. Rather, my curiosity is more of . . ."how are all these players tied together?"

I am fascinated by how this happened? Was one player the one who knew every other player on a close enough level to not only tell them about the Biogenesis clinic, but also trust them enough to risk their career by telling them? How did it progress from the very first athlete who decided to use performance enhancing drugs from the Biogenesis clinic? How did the second guy become a Biogenesis client and then the next one and so on? How did this expand to a group of jugadores?

A-Rod was born in New York. He moved with his parents to the Dominican Republic when he was four years old. Later when he was in the fifth grade, his parents had split and Alex moved with his mom to Miami. He would win the state baseball championship for his high school and of course, move on to be one of the best baseball jugadores around.

He lied to Katie Couric in an interview about using PED's, then later admitted to lying about his use. He claimed to have only used then from 2001 - 2003. Which brings us to today.

I have in my Google Drive a copy of the Joint Drug and Enforcement Program between Major League Baseball and the Major League Baseball Players Association. After a review, I question whether the MLB Commisioner's office has a case based on blood samples, or based on witness testimony. The Joint Drug Agreement or JDA talks about blood tests and urine analyses. Was there a blood test that Mr. Rodriguez failed? If not, then how can he be suspended for 211 games as a result?

The JDA says clearly 50 games for a first offense, 100 for a second offense and lifetime ban for a third offense. Although Alex publicly admitted prior steroid use, the MLB Commissioner's office never suspended him for the prior use. Yet now they want to not only jump over the 50 game and 100 game suspensions, but impose a 211 game suspension? Not only does this seem kind of screwy, but where is the failed blood test?

Further, in the JDA there is a confidentiality clause that applies to all people involved. This confidentiality clause was not only violated in Mr. Rodriguez's case, but also the other player's confidentiality was brutally violated. There were a lot of people talking well before the final punishment was handed down. In fact so much so that everyone knew the result, even me, in advance.

Here is what I see from a legal perspective. The JDA shows rampant violations from all sides. If the Commissioner's office does not like the fact that they did not previously suspend A-Rod, but now feel "justified" in the best interest of baseball, then too bad. That was their mistake. They had a failed blood test in 2003, but that was before the JDA went into effect. Whether they like it or not, that doesn't matter. The JDA was agreed to by the Commissioner's office and doesn't expire until 2016.

Secondarily, the JDA says that a first offense is 50 games. Like it or not, this is A-Rod's first offense. The Commissioner's office doesn't have a clause in the JDA that gives them the authority to impose a penalty of 211 games. My detractors will say that they gave Ryan Braun a 65 game suspension and that number was not in the JDA either. However, the critical difference is that Ryan Braun did not appeal his penalty. As a result, the Commissioner's office got away with a clear violation of the JDA. 

The other critical legal issue is where is the blood sample that was administered according to the JDA procedures? This is not a JDA blood process administered case. Instead, this is a case where a clinic operator at Biogenesis was threatened with legal action if he did not cooperate with the Commissioner's office. It doesn't matter whether this guy said, "Yes, I personally injected and supplied A-Rod with banned substances."  It also doesn't matter if he claims to have given him a boatload of these drugs. I would only have to remind you of the guy who claimed he injected Roger Clemens, but to no avail as Clemens was found not guilty of lying to Congress. It doesn't matter that you or I do not believe Roger Clemens. The facts are what they are, in that Clemens was acquitted.

The Commissioner's office was using intimidation by floating out to the press a possible lifetime ban against A-Rod. The truth is they could not jump to the third failed test penalty, because there has not been three test failures, or even one if my suspicions are correct. It was patently obvious now that they were simply trying to put pressure on A-Rod and his legal team to cave. This is typical legal maneuvering. Threaten the worse possible penalty to force an outcome that favors your position. Attorneys use this play book everyday. It appears at this point that A-Rod's attorneys are advising him correctly. They actually read the JDA as did I. Their interpretation as is mine is that A-Rod may be able to get his penalty reduced. 

The Commissioner's office is obviously looking at this like we are going to try to enforce the harshest penalty we can on A-Rod. From their point of view, they will have succeeded in tarnishing A-Rod's reputation and probably nixed his chances for the Hall of Fame. They know full well that nobody likes a cheater.

What I do not like is selective enforcement. Barry Bonds was vilified for his alleged PED use, but he never failed a single test, nor was he ever suspended either. Barry's punishment was to come from the Baseball Writer's of America who are the guys who vote players into the Hall of Fame. Baseball is held in such high regard compared to other sports. We only have to look at this weekend for proof. The NFL enshrined Christopher Carter this weekend. A truly great NFL player, but with a troubled past. The difference is that the NFL players vote other players into the NFL Hall of Fame. In baseball, Bob Costas and newspaper writers vote in the players. Seems a little ironic doesn't it? I think the NFL has it right. The players know each other better than Bob Costas or any other sports writer ever could. Something for the Major League Baseball Players Association to think about, no doubt. 

A-Rod's punishment is already baked in the cake as far as the baseball writers are concerned. However, whether the Commissioner's office is going to win their case based on the JDA is up for arbitration. If the arbitrator follows the JDA, then you should see a reduction in the 211 game penalty to 50 games. The only thing that would change that is an out of arbitration settlement.

It is in the JDA that the arbitrator can reduce the penalty, but to no less than the minimum. The minimum in this case is 50 games. This is my prediction baring a settlement. 

For the record, I do not like unethical people in my field, but I do believe that even those people are entitled to go through the process to defend themselves whether that be arbitration or through the courts. It is not up to you or I to be their judge. 

Buyer Beware with Variable Annuities

Variable Annuities are one of the most broker sold products out there. The reason is that the commissions on these products are very lucrative. Generally, they can range from 6 - 10% in commissions to the brokerage firm.

What is generally glossed over during the sales process are the surrender charges. The surrender charges can get as high as 14% or more in the first year and decline from there over a ten year period or sometimes even longer.

Also, the expenses on these policies are very high and sometimes can be in the 2.5% to 3% per year range. Common sense would tell you that this acts like an anchor on a boat. You are not going anywhere as long as you have that kind of an anchor holding you back.

Further, brokers often tout the 10% free withdrawals, but fail to tell you that this does not start until one year and a day later.

Perhaps, the biggest fallacy in regard to Variable Annuities are these Guaranteed Minimum Withdrawal Benefit Riders. Most of these riders have a 5% guarantee. Here is where it gets confusing. These policies have a 10% free withdrawal already. So, the 5% GMWB Rider is of what benefit? Why do I need to pay 0.50 to 0.75% per year additional for a 5% GMWB Rider if I am already getting a 10% free withdrawal without any rider charges? This will knock my annual expenses up closer to 3% to 3.75% per year!

The broker's answer is that the Variable Annuity invests in the stock market and in case the broker's advice is horrible and the policy loses money, then you are still guaranteed the 5% withdrawals with the GMWB Rider. Gee thanks. Just what I need, an investment weighted down with expenses that most likely is going to perform poorly, because my broker doesn't have a clue how to diversify it.

Oh by the way, did I mention that there are several insurance companies who are panicking about having these GMWB Riders on their Variable Annuities and are offering to buy their policy holders out with cash payments? Could this be a clue that maybe that cannot guarantee the 5% GMWB Rider like their broker claims?

Another thing. The 10% free withdrawal is a cap, so technically you can pull out only 5% if you wanted. Again, why do you need to pay for the cost of the GMWB Rider every year? I for one am unconvinced.

One final point on Variable Annuities. Did your broker tell you that if you really wanted to buy a Variable Annuity, then you can find them without any commissions or surrender charges? That's what I thought.

I recently tried my hand at producing a short video that shows the broker sales process to unsuspecting buyers. After they buy the variable annuity, then this is when they find out all the sordid details.

Please forgive as I am not a video producer, but I think I get my point across. Click the link below to go to our web site. Enjoy.

Meet Wally Street

Flying Solo?

Are you flying solo as a small business person? Do you work for yourself or have your own LLC or S-Corp? Do you have a Solo 401(k)? Ideally it is best if you are the only employee as it makes things a little simpler, but you can have up to five employees with a Solo 401(k). You do not have to be incorporated, but you do want to pay yourself a salary. By paying yourself a salary, you can salary deduct up to $17,000 per year with an over 50 catch up contribution of another $5,500 per year. Theoretically, you can put up to $51,000 into a Solo 401(k) in 2013 with a Profit Sharing contribution to make up the difference. You can put up to 100% of your compensation, or $51,000 into this plan.

Now is the time to get started. If you are okay with traditional investments like mutual funds, ETF's and stocks, then Schwab, Fidelity or TD Ameritrade all have Solo 401(k) plans. However, you probably want an adviser like me to help you.

Here is why it might be a wise decision on your part to consider me as your adviser. Did you know that if you have an old 401(k) that you can re-roll it back into your new Solo 401(k)? That is only if you haven't messed things up by rolling it into an IRA Rollover account and combining it with a different IRA. Assuming that you have either left it at your former employer, or you rolled it over and kept it separate from your other IRA's, then you are good to go. You might have well over $100,000 right out of the gate.

Another reason you might want to hire me is that now that you have re-rolled your old 401(k)/IRA Rollover into your newly created Solo 401(k), you can now by real estate with the funds. Yes, you can buy real estate with your Solo 401(k). For that matter, you can buy real estate in your IRA or Roth IRA, too. Oh by the way, you can have a designated Roth account with your Solo 401(k). This means that your salary deduction amount can all go into this Designated Roth 401(k) which is tax free.

I can literally go on and on with planning ideas. Each case is different, but rest assured, I can provide great solutions for you.

A third reason to hire me is because you can pool Your Solo 401(k), your IRA, your Roth IRA and even combine with other family members accounts to buy real estate. Friends or business partners can combine their accounts, too. 

Think about this example. Suppose you are a two person law firm with a paralegal and a clerical person. You both have old 401(k)'s that you rolled into your new Solo 401(k). Your paralegal and clerical person can buy traditional investments with their accounts. However, you two attorneys can purchase your own office building with your Solo 401(k). Why? Because these Solo 401(k) accounts can hold the real estate until you are ready to sell and hopefully inflate the value of your accounts in the process.

A final reason to hire me is that there are a myriad of IRS rules involving buying real estate in these accounts. I can help keep you on the straight and narrow, help you find properties as a real estate agent, in addition to being an Investment Adviser.

If you are a real estate agent, a real estate agent team, a CPA, an attorney or other self-employed business person, then you really ought to take a look at these options. After all, it's your business and your future.

So, if you want to know more, then give me a call at (904) 547-2913.

Unique Planning Opportunity for Successful Real Estate Investors and Agents

With the real estate market rebounding, most real estate agents who thrived during the downturn have built even bigger businesses today. As a result of their success, they have some unique planning opportunities. Real Estate Investors and those who buy and sell it everyday, know the business and are much more comfortable with real property than most people.

What is not well known is that with some very strategic planning, a real estate investor can use the assets in their existing IRA's and Roth IRA's to purchase real estate. Ideally, the process is fairly simple to implement. In addition, to using your IRA's and Roth IRA's to invest in real estate, you can also use funds from a Solo 401(k) with a Designated Roth 401(k) account to purchase a new business, a franchise or an existing business. However, you cannot use any of the funds to buy your own existing business or the existing business of a family member. However, you can use your Solo 401(k) with a Designated Roth 401(k) account to purchase a New business! It has to be an arms length transaction, not a transaction structured merely for the purpose of evading taxes.

Let's look at using your existing IRA to invest in Real Estate first. How does this work?

Real Estate IRA LLC

There are just a few steps involved. You need a tax attorney firm knowledgeable in this area of expertise, not fly-by-night promoters who are here today and gone tomorrow. We can refer you to a top flight tax attorney firm that handles this from start to finish.

The Self Directed IRA LLC involves setting up a new Limited Liability Company (LLC) that is owned by the IRA and managed by you. Alternatively, you can have any third party be the manager. As manager of the LLC, you simply open an LLC account at a bank and obtain check writing privileges. You do not need a custodian to approve every transaction. Since you are the manager of the LLC, this gives you wiring authority and checkbook control. Your IRA purchases your LLC as a security. You fund the LLC with the proceeds of your IRA in any amount that you choose up to 100% of your IRA. The IRA holds a position in the account which is your new LLC. The LLC position is treated as a security in your IRA.

For example, if you had $200,000 in stocks, bonds and cash in your IRA and you use the whole $200,000 to fund your LLC, then your IRA would own a new security, the LLC, which is now worth $200,000. This is a non-taxable transaction because it is done within your IRA.

When you are ready to purchase the real estate property, you simply wire the funds to the escrow agent from the LLC. Since you purchased property with the proceeds of your IRA that are now in your LLC, you now have an accurate valuation for your LLC security in your IRA account. This information can be provided to the bank for whom you have the LLC account and they will list the value of the real estate as the total all in price you paid for it. Of course it is a good idea to have an annual appraisal done for valuation purposes. It is mandatory when a distribution is made.

Growth of the real estate owned by the IRA via the LLC is tax deferred and just like if you were holding any other investments, you are required to start taking a distribution by April 1st of the year following when you turn 70 1/2. Of course, you can take withdrawals any time after your turn 59 1/2, too without the 10% early withdrawal penalty.

There are a few things to understand when purchasing real estate in an IRA. One is that you cannot deduct your real estate taxes from your tax return. Nor can you deduct your home mortgage interest if this is your second home. Further, you cannot take any depreciation on the property either. Lastly, you do not have a cost basis in your IRA when you start to pull things out. Everything that comes out is taxed as ordinary income. However, if you had $200,000 in stocks and bonds today in your IRA and you purchased $200,000 worth of real estate with an LLC Real Estate IRA, then you would be in the same boat from a tax perspective.

If you think of this in terms of holding one stock worth $200,000 in your IRA and selling it and buying another stock worth $200,000, then there is no tax consequences, because it is done within the IRA. It is the same concept with the real estate purchase. All you are doing is selling the stock for $200,000 and buying the LLC inside your IRA for $200,000 to replace it.

Real Estate Roth IRA LLC

You may be thinking... "What about a Self Directed Roth IRA LLC?" You would be thinking correctly. It would be better to buy real estate with the proceeds of your Roth IRA. Of course this is assuming that you have enough funds in your Roth IRA to make such a purchase. However, there are ways to solve this dilemma if you have a larger IRA that you can convert to a Roth IRA. Of course, when you convert your IRA, then you have to pay taxes. Fear not! There are ways to do this without feeling the entire tax bite all at once. Let me explain.

When you convert for example, $200,000 to a Roth IRA, then you add the $200,000 to your AGI and you are taxed on that figure. So, let's assume that you are taxed at the 33% rate. This means that you would owe roughly an additional $66,000 in income taxes. However, if you have a Home Equity Line of Credit (HELOC), you can borrow $66,000 and pay the taxes. This allows the full $200,000 to be used in our now new Roth IRA account. So, instead of having an Roth IRA worth $133,000, you have a Roth IRA worth $200,000 with a Home Equity Line of Credit obligation for $66,000. You can buy more real estate with $200,000 than you can with $133,000.

The interest on the Home Equity Line of Credit is typically interest only, so you only pay the interest on the $66,000. Suppose this interest was 5%, then you would owe $3,300 in annual interest. The strategy is to pay the HELOC interest for 5 years, then pay it off from the growth of the real estate in your Roth IRA LLC.

You see, once you converted the $200,000 IRA to a Roth IRA for $200,000, then the entire $200,000 is considered your Roth IRA cost basis. You can withdraw cost basis from a Roth IRA without penalty. After 5 years, with a wise real estate purchase or purchases, you can sell the property for a profit and use some of the proceeds to pay off the HELOC without any penalty or taxes due. The choice is to pay $66,000 in taxes in the beginning all at once, or use the growth of your Roth IRA to pay off the $66,000, thus only costing you the annual HELOC interest of $3,300 for 5 years.

You are using the bank's HELOC money instead of your IRA money!

Instead of paying $66,000 and kicking you up into a higher tax bracket, you leverage the HELOC and pay $16,500 ($3,300 x's 5 years.) You would stay in your current tax bracket which may be 28% or 25% which will save you in taxes if you do this instead of paying the taxes all at once on a conversion to the Roth IRA.

It doesn't take a smart person to figure out that $16,500 is much better than $66,000. Plus, do not forget to factor in the savings in taxes which could be another 8% on your current income that you had to pay because you paid for the IRA to Roth IRA conversion in one lick.

Does you financial advisor or for that matter, your real estate agent know this stuff?

This obviously works better if you are successful at flipping houses during that five years. See the next section on that subject.

House Flipping

You may be thinking..."What if I wanted to flip houses?" Not a problem. If you are successful at flipping houses, then you should be able to pay off the HELOC even quicker than 5 years. You would simply buy a property, flip it, receive the proceeds, then buy your next flip property. Each time you do a successful flip, the profit stays in your IRA or Roth IRA and gives you more money to flip with and pay off your HELOC sooner via a perfectly legal cost basis withdrawal.

There are some rules around contributing your own personal labor to the flip that can cause problems, so it is best to fully understand the rules around flipping houses and contributing yourself as "free labor" or the free labor of a disqualified person. The IRS could look at it as a business and not a security in your IRA or Roth IRA. If they do that, then you risk the whole account being disqualified. The best way to do flips is to hire out all labor and contractors and keep good records, then you will be fine.

Buying Real Estate with both an LLC IRA and an LLC Roth IRA

You may also be thinking... "What if I wanted my IRA and my Roth IRA to both own the real estate?" Not a problem, either. You would simply have two LLC members. The IRA would own a percentage of the real estate property and the Roth IRA would own the balance of the property. This is especially advantageous when you have a large IRA (and you do not want to convert it) and a smaller Roth IRA. However, when you add the total of the two, then you have enough to purchase the real estate in question.

Special Allocations with two LLC members

You can actually have special allocations built into your LLC operating agreements. For example, the IRA LLC member could get the Applicable Federal Rates (AFR) 130% of Mid-term rate which today is 1.44% interest for the entire time the property was held, then the smaller Roth IRA LLC member would get to split the balance with the larger IRA LLC member 50/50 after that. Wow! Wait a minute. Please explain more.

Suppose your IRA LLC was a member who contributed 75% of the funds to purchase the real estate and the Roth IRA LLC member who contributed 25% of the funds to purchase the real estate. Since the IRA LLC member contributed the most, they get a 1.44% interest contribution for the entire time the property was held before the Roth IRA LLC member gets a dime. However, once the 1.44% interest is paid to the IRA LLC member, then the Special Allocation says that everything is split 50/50.

Let's look at an example. The property purchased by the two member LLC's is worth $200,000. The IRA LLC member contributes $150,000 and the Roth IRA LLC member contributes $50,000. The property appreciates to $300,000 five years later and is sold. The IRA LLC member gets their original principal back plus the 1.44% interest on his $150,000 contribution for those 5 years, or $11,115.55 in interest, before the Roth IRA LLC member gets a dime. This operating agreement stipulates that the LLC members share 50/50 after that. So, for a $300,000 sales price, minus the 1.44% figure of $11,115.55 paid to the IRA LLC member, this leaves $88,884.45 to be split 50/50. So, an additional $44.442.23 goes to the IRA LLC member and then the remaining 50% share of $44,442.23 plus their original $50,000 goes to the Roth IRA LLC member.

Now let's look at how this benefits the each member. The IRA LLC member gets their original principal of $150,000 plus the 1.44% ($11,115.55) plus the 50% special allocation share of $44,442.23 for a grand total of $205,557.78. This is a 5.33% annualized return. Not bad!

The Roth IRA LLC member gets their original investment back of $50,000, plus the 50/50 split amount of $44,442.23 for a grand total of $94,442.23. This is a 13.56% return!

Without the special allocations wording in the LLC operating agreement, this would not have been possible. The ratio for future purchases between the two LLC members is now 69% to the IRA LLC member and 31% to the Roth IRA LLC member. The special allocation has allowed the Roth IRA LLC member a slight advantage.

Of course this is all contingent on good real estate purchases, but I think you can see the idea of how special allocations can allow you to leverage up your Roth IRA to get a little extra kick as opposed to a straight 75/25 split where the Roth IRA LLC member would have only gotten $75,000 instead of the $94,442.23 they could get with a properly drafted special allocation clause in the LLC operating agreement. The special allocations allowed an extra $19,442.23 to go to the Roth IRA LLC member.

This is why I recommend these experienced tax attorneys who know how to properly draft LLC operating agreements taking into account special allocations.

LLC with a Solo 401(k) for the Self Employed (Real Estate Agents)

You may be further thinking..."What if I wanted to buy a new business, a franchise or an existing business?" This is also permissible as long as you were not buying it from yourself or a disqualified person. It has to be an arms length transaction with an unaffiliated party. However, when you want to buy a business, a franchise or an existing business, then will want to have an existing LLC business, or new one where you establish a Solo 401(k) with a Designated Roth 401(k) account. Further, you want to be self employed with less than 5 employees, preferably however, it is much easier if it is just one, like a real estate agent!

You have to have both a pre-tax 401(k) and an after tax Roth 401(k) account in the plan documents, but our tax attorney firm will prepare all this for you. You have to have both the pre-tax and after tax feature, but you can allocate 100% of the contributions to one or the other, or split the contributions any way you like.

Once you fund your Solo 401(k), then you do something similar to above and establish an LLC that the Solo 401(k) owns. You fund the LLC with proceeds from your Solo 401(k) and Designated Roth 401(k) account, then purchase the new business, franchise or existing business.

Funding your Solo 401(k) in a hurry

You may be thinking... "What if I do not have that much in my Solo 401(k) at first?" If you rolled over a previous 401(k) to a Rollover IRA, then you can re-roll it right back into your new Solo 401(k). Depending on your eligibility, this can get you there in a hurry. Secondarily, you can make up to 100% of your income and put it in a Solo 401(k) up to about $56,500 for 2013. In other words, if your business paid you a salary of $60,000, then you could contribute $56,500 of that and put it in your Solo 401(k). You income would be reduced to $3,500 and you would owe no taxes and probably get a refund with deductions and exemptions.

Creditor and Bankruptcy Protection

Another benefit of the Solo 401(k) is that it has creditor protection in Florida. Further, it qualifies for full bankruptcy protection.

What's my angle in this?

I am a licensed real estate agent and can earn either normal real estate commissions for property purchased within an Real Estate IRA LLC or Real Estate Roth IRA LLC or a Solo 401(k) used to buy real estate. Further, if you prefer to use your own real estate agent, then I would charge a flat fee for each transaction, typically $1,000 or less either as a real estate referral fee or an investment advisory fee, one or the other.

Obviously, there is a lot more to these topics and I am sure that you might have some questions. Please feel free to contact me at 904-547-2913. I am here to help.