Posts Tagged ‘Investing’

Not your Average 401K: Self-Directed 401K Q&A

Monday, September 17th, 2018

SD401K - normPut simply, a 401K plan is a retirement plan that meets the standards set by the Internal Revenue Code for tax-favored status. If offered by their company, an employee can contribute a percentage of their wages either Traditional before tax plan or a Roth after-tax plan, depending on the options offered by their employer. In some plans, the employer also makes contributions known as matching contributions, and the match is generally based on contribution percentages that the employee has made themselves.

Now, a self-directed 401K plan operates on similarly to a Traditional or Roth 401K plan that was mentioned above, but the difference is that you, as the owner of the 401K can choose to direct where your 401K funds are invested. You’re no longer restricted to the list that’s set by the plan provider, like mutual funds and stock options, you can now invest your money outside of traditional investments and diversify your portfolio.

Q: What can I invest in with a self-directed 401K?

Since your 401K is now self-directed, you’re able to invest in an array of assets. Most common investments are:

  • Real estate (residential, commercial, farmland)
  • Trust deeds
  • Precious metals
  • Private notes and loans
  • Small businesses
  • And much more!

Q: I haven’t heard of a self-directed 401K before, why is that?

Whether a custodian, broker or your company holds your 401K, you may not have heard of the self-directed option because they may not offer it. There are a lot of hoops that brokers, custodians, and employers have to jump through to be IRS compliant, and a lot of companies decide that it’s just not worth their time, since they won’t make much money off of them.

Q: Do I really get total control of my 401K?

Yes, with Accuplan, your self-directed 401K is truly self-directed. No strings attached.

Q: Can I roll my current 401K into a self-directed one?

That all kind of depends. If you have the 401K through a custodian or broker, then yes, but if your 401K is held by your company, then most likely not, since that company owns the 401K. Consult the provider for a thorough answer.

Q: What are the downsides?

A self-directed 401K takes a lot of know-how and patience. You’re not managing your money, so you have to be prepared to invest, and shoulder the responsibility of making decisions for your financial well-being. It’s definitely not for everyone, but at Accuplan Benefits Services, we are here to guide you and help you reach your potential.

What you Didn’t Know was Possible with your IRA

Monday, September 10th, 2018

It’s not difficult to imagine that the majority of U.S citizens have heard of an IRA. It’s equally imaginable that most have not heard of a self-directed IRA. A self-directed retirement account gives you the ability to invest in non-traditional investments. In all reality, though a self-directed IRA is the same thing as a regular account. Because they are the same thing and the only real difference is what your custodian allows I wanted to explain a few things that you need to know about an IRA that you may not have known.

You can invest in so much more

Most retirement accounts are invested in stocks and bonds, but they don’t have to be. What most don’t know is that a self-directed IRA is really just a custodian that allows you to take full advantage of your retirement account and invest how you want with you. Most custodians only allow for certain types of investments, like stocks and bonds. Why is that? More than likely it is because they make more money by pushing other investments. Or it could simply be because it is not in their wheelhouse. The truth is though with an IRA you can invest in just about anything. You can invest in real estate, gold or even private placements.

You can pay for college

You can without penalty withdrawal funds from your IRA to cover the cost of tuition. There are a few issues to be aware of when doing this though and that is why it is important to talk to a tax attorney or CPA when dealing with this.

Whether this information is new to you or not you can gain from this knowledge. What you can gain from this is that you can do more with your individual retirement account than you probably are doing. If that means using your funds for things like education or if it means investing in things other than stocks and bonds. You can find a way to maximize your IRA for what works for you.

Your IRA and Unintended UBTI

Monday, August 13th, 2018

UBTI stands for unrelated business taxable income. It’s the tax placed on the income earned from an unrelated business, regardless of the tax filing status.

How UBTI works

For our example, say an investor were to use their IRA to fund and start up a small business like a yoga studio. A yoga studio is a business not necessarily related to the primary principle of a traditional IRA. UBTI comes in at this point because the income earned from that yoga studio is considered unrelated business taxable income. Regardless of the fact that funds piping in are going into a tax-deferred, or tax-free account.

If an investor is qualified for a business loan through their IRA, any income or earnings that come as a result of the debt financing is also taxable. There are also certain tax deductions that can apply to UBTI, accordingly reducing tax liability. Eligibility for deductions has limits. The purpose of UBTI is to prevent tax-exempt accounts engaging with a business that is unrelated to their purpose. It includes most business operations’ income and excludes interest, dividends and capital gains from the sale or exchange of capital assets.

It’s important to note that UBTI isn’t illegal. You’re not breaking any laws if your IRA incurs UBTI, your IRA will just have to pay extra taxes. Investors everywhere miss out on opportunities because they don’t take their time to fully understand what UBTI is.

UBTI is reported on IRS Schedule K-1 and sent to investors once a  year. Say an investor were to receive more than $1,000 of UBTI in one year. They generally must file additional paperwork with the IRS. On top of proving or disproving the intent of the retirement account investor, and whether or not the person was intending to engage in an active trade or business.

Self-Directed IRA Rules and IRS Regulations

Monday, July 23rd, 2018

If you’re new to the retirement world, you may be feeling overwhelmed by the amount of jargon and rules. If you familiarize yourself with the essential rules, you can avoid penalties, and reach your retirement goals.

Disqualified persons

One of the easier ways someone can violate self-directed IRA rules is by not understanding who exactly is a disqualified person. These people include the IRA owner’s parents, spouse, their children, and grandchildren. These people are excluded from benefitting from the IRA owner’s investments, for example, if the IRA owner’s adult child needs a home to rent, and the IRA owner has property in their IRA, their child cannot stay in that investment property.

Investment Types

The first thing you learn about self-directed IRA rules is that you, as the owner, are allowed to invest in pretty much anything you’d like. For the most part, that’s true, but there are limitations and exclusions to keep in mind. The IRS has a handful of basic assets that aren’t allowed:

  • Life insurance
  • Collectible items (like paintings, antiques)
  • Gems and coins

Borrowing and lending money

Borrowing and lending in a self-directed IRA gives the owner the ability to loan their IRA money to non-disqualified persons. How it works is that if pre-agreed to, an IRA can receive a certain amount of principal and interest, just like a bank would. What’s appealing is that the IRA holder chooses who to lend to, the interest rate, the principal amount, length of the loan, payment amount, and frequency, and whether the loan is secured by collateral or not.