Posts Tagged ‘Individual Retirement Accounts’

Self Directed IRA Accounts – Roth IRA

Friday, February 14th, 2014

Roth IRA

With more than one retirement account option it can be hard to know which account would be best for you. If you are setting up your first or fifth retirement account it can be hard to know which is best for you. The main types of retirement accounts are: Traditional IRA, Roth IRA, 401K plans, 403B plans, SIMPLE IRA plans, SEP plans. Understanding the differences between these types of accounts will help you decide which is right for you. It is also important to know how each one of these differs when you are setting up a self directed IRA or a self directed 401k. Today we will be talking about the basics of a Roth IRA.

Roth IRA Basics

A Roth IRA gives you the ability to save and invest your after-tax dollars, let the investment grow completely tax free, and withdraw your principal and earnings tax-free if the Roth has existed for at least five years. For certain reasons you may be subject to a 10 percent penalty on the earnings if taken before age 59 ½. In other words, once your after-tax dollars go into the Roth, neither those dollars nor any future earnings on the dollars are ever taxed again, a very powerful feature. And, unlike the Traditional IRA, there is no 70-½ years age limit on making contributions, you may make contributions at any age. One thing to remember is that you must have income in order to contribute.  You can’t contribute more than you make nor more than the maximum contribution limit.


The deadline to contribute to a Roth IRA for a particular tax year is generally April 15 of the following year. When this date occurs on a weekend or a legal holiday, the following business day becomes the deadline. Tax return extensions do not extend this deadline, it’s always April 15th of the following year. When an individual makes a contribution to his or her Roth between January 1 and April 15, for the previous tax year, this is frequently referred to as a “carryback contribution”. See the page 4 topic “Contribution Rules For Both Roth and Traditional IRAs” for contribution limits.

Withdrawals a.k.a. Distributions

You may make tax-free and penalty-free withdrawals from your Roth IRA if you meet two conditions. First, your Roth IRA must have been open for a minimum of five years. Second, the withdrawal must be made because of the occurrence of one of the following events:
  • You have reached age 59-½
  • The only other way you can take any withdrawls is if you meet the IRS provision which allows partial withdrawals to begin at almost any age and to continue for a specific time frame. This provision is called a 72(t). Some of the exceptions are
    • Your death
    • A disability you incur
    • Your first home purchase
Check out the IRS website for more information about a 72(t)
Distributions or withdrawals that meet the above requirements are referred to as “qualified distributions”. While you may take distributions from your Roth IRA at any time, distributions which are not qualified distributions may be subject to taxes (and in some cases early distribution penalties) to the extent they exceed your combined contributions to the Roth IRA.
You are not required to take withdrawals at age 70-½ or any other age as you are with a Traditional IRA, another very powerful feature. You can leave everything in the Roth, continuing to grow tax free, and pass the Roth after your death on to your heirs also income tax free. However, the amount left in the Roth after death will be subject to estate or other death taxes if the estate is large enough to hit the taxable minimums.

Author: , Self Directed IRA Professional
[email protected]

Self-Directed IRA Rules – Indirect Benefit

Friday, February 7th, 2014

Indirect Benefit

Investing in a Self-Directed IRA is a great alternative to investing in traditional investments such as stocks, bonds, and mutual funds. Through a Self-Directed IRA, you can invest in more non-traditional investments such as real estate, private placements, gold and silver, loans, and other hard assets.

Many individuals shy away from investing in Self-Directed IRAs because they don’t understand basic self-directed ira rules, don’t know what they can invest in, think the fees are too high or have been discouraged by their financial advisor.

Most clients understand with a Self-Directed IRA that they cannot invest with a related party. To learn more about related parties read more at, Disqualified Persons in Regards to Self-Directed IRAs and 401ks.  One self-directed IRA rule which is less understood and can be difficult to consult on is receiving or giving an indirect benefit from your IRA.

The IRS has made it clear that they do not want you to receive or give a direct or indirect benefit from or from your IRA.  A direct benefit that you could receive from your Self-Directed IRA could be living in the property that your IRA owns or receiving a salary from the management of your IRA assets.  Examples of providing a direct benefit to your IRA could be providing “sweat equity” to fix up a property when normally that work would be hired out.  Indirect benefits could be a number of different benefits.  Below, I will list some of the indirect benefits you could receive from your IRA that would be prohibited:

  1. You may not be living in a property that your IRA owns but if you use that property for personal use, even for a short period of time, it could be disqualified
  2. Leasing out space to another customer and then having that customer sub-lease part of the space back to you
  3. Buying raw land and using that land for your own personal use (i.e. hunting on land your IRA owns)
  4. If you want to invest in an investment that requires a certain initial amount (i.e. $100,000) and you don’t have enough personal funds to invest in that investment but with the combination of personal and IRA funds you do have enough money, it could be disqualified
  5. You cannot personally pay for expenses that your IRA should be paying for, this would be an indirect benefit you would be providing your IRA
  6. If you are buying real estate and are personally going to get a loan for a portion of the property, you cannot have the bank collateralize the IRA’s portion that it owns.  The bank can only collateralize your portion of the property
  7. You cannot loan funds to an unrelated party and then have that person turn around and loan the funds back to you

If you have any more questions about Self-Directed IRA Rules or if you think you could be entering into a prohibited transaction feel free to call, email or comment below. We are here to help you invest in the retirement you have always wanted. Set up an account today.

Author: , Self-Directed IRA Professional
[email protected]

Take Control of Your Retirement Investments with a Checkbook IRA

Thursday, January 30th, 2014

Checkbook IRA

Do you know what your retirement accounts are currently invested in? The likelihood is that you probably don't. You are not alone because many people have no idea what their IRA or 401k are invested in. This may or may not bother you. If it does bother you and you would like to take control of your retirement and investments there is a great option available to you. A checkbook IRA will allow you to take control of your retirement so that you can invest in the things you wish. You may want to purchase real estate, gold or some other type of investment that suits you. You can do it all with a checkbook IRA.

What is a Checkbook IRA?

A checkbook IRA is the same thing as a regular IRA except that the custodian allows you to take control of the checkbook for the IRA. What does that exactly mean? With a regular IRA you have to go through your custodian when making any investments for your IRA. If you wanted to purchase gold with your IRA you would have to contact your custodian and let them know what you are wanting to do. Then you would have to work with them to finalize the investment. If you have a checkbook IRA, instead of going to the custodian to make the investment happen, you do it yourself.   It means that you will not have to seek the consent of a custodian to make an investment. Typically you won't be subjected to excessive fees because of different transactions that were made.

Time is Money

Many times when investing time is curcial. If you know of a real estate investment that is going up for auction you may not have the time to consult your custodian in order to make the purchase happen. With you the checkbook IRA you skip the custodian step and can make things happen very fast.

How Are Checkbook IRAs Set Up?

Another popular name for a checkbook IRA is a self directed IRA LLC with checkbook control. It is called this because to establish a checkbook IRA you must establish a liimited liability company (LLC) that is owned by the IRA and managed by you the account owner (you). Then the IRA owner's funds can be transferred by the custodian to the new IRA LLC bank account. Because you are the manager of the IRA LLC, you will have the authority to make investment decisions on behalf of the IRA. With this authority you then have the ability to write checks from the IRA LLC bank account for your investments.

If you haven't heard of a checkbook IRA then hopefully you have learened a thing or two. If you still have questions or are interested in a checkbook IRA feel free to contact us for account set up or questions.


Disqualified Persons in Regards to Self-Directed IRAs and 401ks

Thursday, January 16th, 2014

You will want to set up a self-directed IRA account if you plan to invest in gold, real estate or other businesses with an IRA. Setting up an account is fast and easy, but when it comes to investing in your self-directed IRA or 401k it can be a bit trickier. You have to make sure you are doing everything correctly to avoid any disqualification of your IRA or 401k.

One basic rule to self-directed IRA investing that you need to be aware of pertains to disqualified persons. In regards to disqualified persons you cannot lend money to them through your IRA, invest in their businesses through your IRA or let them live in a real estate property that you purchased through your IRA. The following is directly from the IRS website and explains what constitutes someone as a disqualified person.

A disqualified person is any of the following:

(1)  a fiduciary of the plan;

(2)  a person providing services to the plan;

(3)  an employer, any of whose employees are covered by the plan;

(4)  an employee organization, any of whose members are covered by
the plan;

(5)  any direct or indirect owner of 50% or more of any of the following:

  • the combined voting power of all classes of stock entitled to vote, or the total value of shares of all classes of stock of a corporation that is an employer or employee organization described in (3) or (4);
  • the capital interest or profits interest of a partnership that is an employer or employee organization described in (3) or (4); or
  • the beneficial interest of a trust or unincorporated enterprise that is an employer or an employee organization described in (3) or (4);

(6)  a member of the family of any individual described in (1), (2), (3), or
(4) (i.e., the individual’s spouse, ancestor, lineal descendant, or any
spouse of a lineal descendant);

(7)  a corporation, partnership, trust, or estate of which (or in which) any
direct or indirect owner described in (1) through (5) holds 50% or
more of any of the following:

  • the combined voting power of all classes of stock entitled to vote or the total value of shares of all classes of stock of a corporation;
  • the capital interest or profits interest of a partnership; or
  • the beneficial interest of a trust or estate;

(8)  an officer, director (or an individual having powers or responsibilities
similar to those of officers or directors), a 10% or more shareholder,
or highly compensated employee (earning 10% or more of the yearly
wages of an employer) of a person described in (3), (4), (5), or (7);

(9)  a 10% or more (in capital or profits) partner or joint venture of a
person described in (3), (4), (5), or (7); or

(10)  any disqualified person, as described in (1) through (9) above, who
is a disqualified person with respect to any plan to which a
multiemployer plan trust is permitted to make payments under
section 4223 of ERISA.

For additional information, see Publication 560 on the IRS website.

The below infographic shows disqualified persons. The infographic is a general rule and different situations could deem others as disqualified persons or not a disqualified person. Talk to a professional to know if your specific situation involves anyone that would be considered a disqualified person.

Click on the image for a bigger view.
Disqualified Persons

Contact us or comment below with any questions or to learn more about self-directed IRAs.


Private Placements Investing inside of an IRA

Wednesday, January 15th, 2014

Invest in a business

Investing through a Self-Directed IRA is a great alternative strategy to diversifying your investment portfolio.  Through a self-directed IRA, you can invest in multiple investments, including real estate, physical gold and silver, private placements, loans, and other non-traditional investment vehicles.

One investment vehicle that could have a big pay out is private placements. In short, a private placement is an ownership in a privately held business that is not traded on the stock exchange. Private placements can be LLC or corporations.
With a private placement, they do not have the normal disclosure laws that a publically traded company is required to report.  There are benefits and disadvantages to this.  The disadvantage is that you need to do your own homework on the company, as to ensure that the company is legit and that investing in the company will be a good move.  The advantage is that by doing your own homework and getting into an investment early, you can hit the jackpot on a good investment that can pay out in large dividends.

If you are interested in investing in a private placement you need to align yourself with an IRA custodian that will allow you to do this type of transaction. Most IRA custodians only allow you to invest in a publically traded stock. Our company allows you to take your IRA and put it in private placements investing.

Below are some other benefits of investing in a private placement:

  • Allows for greater balance in your portfolio because of diversification in your IRA
  • Control over the investment options, because you’re not bound by a custodian that only allows for stock and bonds
  • If you have knowledge of a new startup company, you can get in early enough to make large profits
  • Any growth or dividends grow tax deferred or tax-free if you have a Roth IRA
  • Your IRA is also able to diversify into Limited Liability Companies, Limited Liability Partnership, C-Corporations, and other non-traditional start-up companies

Below are some general rules to follow when investing in a startup company:

  • Due to the tax nature of S Corps, your IRA cannot have any ownership in an S Corp. That’s because S Corps can only be owned by a natural person
  • Your earnings could be subject to UBIT Tax (Unrelated Business Income Tax). For more information read What are UBIT and UDFI Taxes Associated with Self-Directed IRAs.
  • You cannot invest in a private placement that you already own
  • Ownership in the private placements needs to read as the following: NAME OF CUSTODIAN FBO___________clients name.  You cannot have the ownership read your name individually
  • There can also be restrictions if you are employed by the company or are a manager for the company
  • And lastly, all income or dividend payments must go back to the IRA, not to you personally

If you would like more information on private placements investing inside of an IRA, feel free to contact me or comment below.

Author: , Self-Directed IRA Professional
[email protected]