Posts Tagged ‘checkbook control ira’

Top 10 Self Directed IRA/401k Mistakes – #7 IRA owner uses personal assets or “Sweat Equity” for the benefit of the IRA

Sunday, November 22nd, 2009

A self directed IRA owner is clearly allowed to guide and manage the investments of the self directed IRA. The management can be relatively involved and substantial. As an example, the self directed IRA owner (or even the self directed IRA LLC manager – the account owner), could potentially expend considerable effort in finding the right real estate investment for the self directed IRA. This effort could likely be in the form of visiting many properties, speaking with many real estate advisors and experts, crunching numbers, etc.

However, a prohibited transaction or indirect benefit line could be crossed if the self directed IRA owner (or as the IRA LLC manager) were to use their personal tools and equipment to improve the property (e.g. use your saws, materials, truck, employees, to add a new roof). Another potential mistake is the self directed IRA owner provides all of the labor for making the improvements.

The general rule of thumb is that you are allowed to provide the necessary care and management of the self directed IRA’s assets, but you should draw the line at providing “sweat equity” or use and benefit of your personal assets.

To learn more about self directed IRAs go to:

www.nafep.com

www.iracentral.com


Top 10 Self Directed IRA/401k Mistakes – #6 Two or more IRA owners agree to “loan” each other money to avoid prohibited transactions

Sunday, November 22nd, 2009

Interacting with your IRA is considered a prohibited transaction. So, unrelated, self directed IRA owners will attempt to enter into a reciprocal agreement to loan each others self directed IRA money so that the IRA owners can indirectly tap their funds for personal use.

This is a flawed design and approach. Even though the parties are not automatically on the disqualified list for prohibited transactions, the indirect benefit rule would come into play.

As a self directed IRA owner, you are not allowed to receive any benefit directly or indirectly from your IRA. The entering into a reciprocal arrangement with a third party which results in monies into your own pocket (i.e. the other person’s IRA funds) clearly conveys an indirect personal benefit to you.

To learn more about self directed IRAs go to:

www.nafep.com

www.iracentral.com

Top 10 Self Directed IRA/401k Mistakes – #4 – No Rules Can Be Violated When Dealing With A non-Disqualified Party

Thursday, November 19th, 2009

One of the key tenets of self directed IRAs is there is a specific list of persons and entities which are prohibited from interacting with your IRA. This leads people to believe that if you are not on the “list” (IRC 4975), then any transaction would be allowed, but is not really the case.

As the IRA owner you have a fiduciary responsibility to act in the IRAs best interest. Therefore, giving a loan to a friend or brother or sister below market rates, or with no interest or terms could be deemed a prohibited transaction.

Siblings are not automatically on the disqualified list, but entering into a transaction that would cause a conflict of interest due to the close relationship, could be deemed a prohibited transaction.

Additionally, agreeing to enter into a transaction due to coercion (e.g. sister tells you that she is going to tell your parents to change their Will if you do not give her a loan) could be deemed a prohibited transaction if your IRA engaged in the transaction.

Agreeing to enter into a transaction with an unrelated, non-disqualified party, in exchange for some personal benefit (e.g. agree to a loan or to fund a business and agree to receive some personal stake or interest for making the loan), can be a indirect benefit and could be deemed a prohibited transaction.

Not acting in the best interest of the plan could result in a prohibited transaction regardless of who you are dealing with

To learn more about self directed IRAs or IRA custodial services go to:

www.nafep.com

www.iracentral.com

Top 10 Self Directed IRA/401k Mistakes – #3 – Active Business Investment Is Not Subject To UBTI

Sunday, November 15th, 2009

Unrelated Business Taxable Income (UBTI) is generated when an Self Directed IRA engages in active business.  A business activity would be one in which the business is buying and/or selling goods and services. A good example would be if you purchased interest in a restaurant , oil and gas exploration, or even a apartment complex. If such income is generated, the IRA has to pay Unrelated Business Income Tax or UBTI.  It is common for self directed IRA owners to invest in some entity such as a LLC  or partnership. If that LLC or partnership conducts business, then the self directed IRA would be subject to the UBTI. UBTI is designed to make the playing field level when a non-taxed entity engages in a business activity against other tax paying businesses.

To learn more about self directed IRAs and self directed IRa custodial services go to:

www.nafep.com

www.iracentral.com

Top 10 Self Directed IRA/401k Mistakes – #2 – Making Contribution To The IRA LLC

Saturday, November 14th, 2009

The Self Directed IRA owner makes their annual contribution directly into the bank account of the LLC rather than with the custodian of the  Self Directed IRA. In this case, you are personally interacting with your ICO (IRA-LLC).  That is considered a prohibited transaction. Additionally, an IRA contribution is only considered valid when it has been received by the custodian.

To learn more about self directed IRA or IRA custodial services go to:

www.nafep.com

ww.iracentral.com