Posts Tagged ‘IRA-LLC’

Roadblocks That are Preventing a Economic Recovery and how to Position a Self-Directed IRA

Friday, May 18th, 2012

As we continue to see the bogus numbers coming out of Washington, and the political rhetoric that comes from the President’s reelection, we thought we would look at what stands in the way of a solid recovery, and compare that to what the government is actually doing.

Issue 1 – The National Debt

We are currently running a debt rate of 360% of GDP. This means that we are spending way more than we generate in the total economy which also means that we are not saving anything. This debt level is more the 100 points higher than the high water mark of 1928. So, on relative terms we have way more debt than we did prior to the great depression.

We all know that you cannot continue to maintain such massive amounts of debt without some negative impact. The current projections show that the government debt will continue to increase in 2012 and 2013.

Why is this important? Because at some point, the government has to continue printing money and attempting to borrow to pay for this debt. This eventually reaches a point where the government cannot borrow anymore. This in turn leads to a crisis where the government has to cut back drastically, miss payments, tax more, etc. It becomes very severe austerity.

Issue 2 – Worldwide debt

There is a lot of attention and focus on Europe and their financial crisis. This is because their debt situation is worse than the US debt crisis. Currently, we have about $55 trillion in debt and we have $15 trillion of GDP or a debt ratio of about 360. In the 17 countries that are in the euro, they have about $68 trillion of dollar-equivalent debt and only $14 trillion of GDP, so Europe is even more heavily indebted.

Why does this matter? Because the Europeans will and are implementing austerity measures. This is leading to a shrinking economy and social unrest. Countries in this shape of not consumers and great trading partners which means that we are not exchanging our goods and services with them. This leads to economic contraction in the US.

Issue 3 – Printing Money

When the government engages in quantitative easing (a/k/a printing money), it injects more liquidity into the system. One of the effects of this is that its shifts the demand curve for goods and services because there is more money in the system. This causes the price for goods and services to increase. So, the average Joe or Jane Lunch Bucket is seeing a 2% annual increase in wages during QE2, but because of printing, prices went up 4%.

So, in reality the regular person is getting worse off because price increases, due to printing or QE, is eroding their purchasing power. Therefore, people start cutting back on spending. Consumer spending is 2/3 of the spending, so reductions in this component leads to slower economic growth and actual shrinking of GDP.

What’s ironic about this printing of money is that you have the President out running around demonizing the wealthy, saying the he is for the little guy, but the reality is that his economic policies (and Bernake), actually makes the wealth gap larger and hurts the average American. So, the average American is getting worse off due to a loss of purchasing power as a result of money printing. This will only lead to economic slowing or contraction.

Issue 4 – The Required Solution May Be Too Hard

If the money printing is going to be turned off, the government is going to have to:

  1. Get social security and medicare under control
  2. Get the tax system under control

These are two big drivers of the government debt and obligation. The willpower that may be required to correct this may b a very tall order and not feasible. If these two issues do not get addressed, then we are looking at some very difficult economic conditions.

How does this impact my Self Directed IRA?

As we’ve discussed in previous blog posts, we firmly believe that every retirement portfolio needs to be properly balanced with some assets that deal with real estate, precious metals, or other tangible assets that are out of the direct manipulation and control of Wall Street and the Federal government.

With the current national and global debt issues, current and pending austerity, and total lack of political action and willpower, it only makes sense to have a self directed IRA with loans, metals, real estate, private stock, etc. The interesting thing about assets such as real estate, private stock, small business, etc., is that they become desirable in both good and bad times.

The information provided is for educational purposes only and are not a solicitation or offering of an investment, investment advice, or tax advice. You should consult with your tax, legal or financial advisor to determine the suitability of any investments made with a self directed IRA account.

Where The Economy Going and How Will Your Self-Directed IRA be Impacted

Sunday, May 13th, 2012

So where is this economy going? This is a question that we ask ourselves everyday. So, in order to make sure that we help you understand how to properly manage your self directed Ira and be best prepared for self directed ira investments, we will go through some data to try and help give you some guidance.

One thing that we see for certain is that things are not going well economically speaking, and that we may be in for even harder times. The following is a list of problems or threats to our economy:

  • Real GDP is -2%. The government and media would have you believe that we have a 2% GDP, but through the magic of numbers and politics, that figure is reported as 2%. The -2%  value means that our economy is shrinking and has been shrinking – not growing as you’ve been told. We recommend that you visit to understand how these numbers are calculated.
  • Real Unemployment is 21%. The current government figures and the one that the president wants you to believe shows 8.1%. But as is true with so many numbers, the devil is in the detail. Here again we recommend that you visit to understand the source for these figures. This shows that people are not working, which means that they are not spending or investing or paying taxes. This is a contractionary situation for GDP.
  • US Debt is 380% of GDP. This is the number published by the US government. What person or business can survive for long with that much debt. One thing that is for certain, this number will drive the government to engage in policies that will be inflationary, and anti-business, high tax, removal of freedoms and liberties. Bottom line is the government is going to print more money to deal with unemployment and reduced taxes.
  • Personal, corporate and government debt is $40 TRILLION! That much debt can and does put a big drag on an economy. Currently, the Fed is restraining interest rates, but at some point it will not be able to keep that in place. So, when interest rates go up, the drag from the debt will increase as the interest payments increase that debt.
  • The world’s major economies are all in trouble simultaneously. The events of Europe, US, a slowing China, struggling South American countries, is almost a perfect storm of economic chaos. Every major country in the world is facing deficits of major proportions. Everyone is printing money. Everyone is reducing spending. There is nothing positive or indicative of growth in any major world economy. The problems facing most of these countries will take years to correct themselves assuming that they make the right decisions now and implement them now. That’s a big IF!

The bottom line here is that mathematically we are dealing with extremely large problems that cannot be changed or solved in a very short time. You compound that with the politics, hidden agendas, political gridlock, central planning mentality, self serving politicians, and it starts to look like no one will solve the problem. One thing that seems to be clear is that we are not hearing about solutions to fix these problems.

So, its our opinion that we may be heading for a brick wall at 100 mph. If that’s the case then what does this mean? Well we believe that the smart money will be in solid, tangible assets such as metals, real estate, small businesses, loans, trust deeds, and any other asset that is not controlled by Wall Street or the federal government.

Timing of this crash. As all things in life there are no guarantees or certainties, but it looks scary out there, and its best to be prepared. There is a theory known as chaos theory  and fingers of instability. So as not to belabor the topic, suffice it to say catastrophes are hard to predict. Its the pile of sand scenario. You keep adding sand to the pile, but at some point its that last grain of sand causes the pile to collapse along those fingers of instability. Our economy is much the same way. We know that we’ve piled  alot of sand on, and we are starting to see some cracking and shifting, but at what point the pile collapses is unknown. We could get really smart really fast, and quit adding to the problem and start removing the sand, or we could continue down some path that has varying levels of new sand added. We believe we are on the adding more sand and not getting smart path. This means that we may likely see major events over the next 12-24 months.

So what should you do?

We believe that the self directed IRA is a mission critical tool for your retirement planning because that is the only place where regular people can hold the right types of asset classes to protect themselves from the economic storm on the horizon. This means its time to take action. So, if you have not setup that self directed IRA account, then now is the time. Its time to look at metals, real estate or some other non-traditional asset class that you know and understand. Its time to act and protect yourself.

Disclaimer: The above information is for educational purposes only and is not intended to be investment, tax or legal advice. You should consult with your own advisors before making any self directed IRA investments.

Is It Time For Rental Property In Your Self-Directed IRA

Saturday, May 5th, 2012

The housing crisis and global economic shock has and will forever change the psyche of the average American for decades to come. No longer is the thought of renting seen as a shortcoming for not striving or attaining the American dream. Renting is now a necessity for many and a financial practicality.

Home ownership is down from 69% in 2006 (the peak for all history) to 65.4% today. Much of this is due to foreclosures. But, we also see that by late 2011, according to Moodys, it was cheaper to rent versus own in 72% of the American metro areas. Additionally, building starts for structures with 5 or more units were up 60% in 2011 versus single family starts of 16.7%.

Its simple math to see that for many people renting saves them money and prevents them from getting into financial trouble. Hence, you see a major migration towards renting versus owning. We should not forget the fact that some people just cannot get a loan no matter what these days.

We Need Renters. In order to be a more healthy economy, we need people who can rent. Renters obviously generate income for the property owners, but more importantly, renters are more mobile and flexible. If you are an unemployed construction worker in Las Vegas (12% unemployment), that rents, its much easier for you to pick up and go to North Dakota (3% unemployment), to get a job. This is good for the economy as renting allows the skills and needs to easily find each other in the market place.

So, what does this mean for your self directed IRA? This all adds up to an opportunity to hold real estate in your self directed IRA. The demand for rental property is up significantly. The mind set for the average American will be that renting is OK, and financially wise. Property prices are way down (I know, you still have to be careful). These are all positive signs that maybe its time to take the initiative and secure rental properties in your self directed IRA.

NEW! Self-Directed IRA Video!

Tuesday, June 1st, 2010

This is our latest educational/promotional video detailing the Self-Directed IRA.
Offering a simple diagram explanation of how the Self Directed IRA with Checkbook Control works and provides a simple example of an SDIRA Real Estate Transaction.

Self Directed IRA – Unrelated Debt Finance Income (UDFI)

Sunday, February 7th, 2010

A subset of UBIT is the Unrelated Debt-Financed Income (UDFI) tax. Under IRC § 514, the IRS will assess a tax on any income that is derived from the use of “acquisition indebtedness” in passive Self Directed IRA investments. For example, if your Self Directed IRA uses $30,000 of its own funds and also borrows $70,000 (using a non-recourse note, of course) to purchase a $100,000 rental property that generates $10,000 annual rent, the IRS would assess UDFI tax on about $7,000 of the profit (since 70% of the investment came from leverage). It is “about $7,000” because it is not simply a one-time fraction of loan-to-value. When calculating your UDFI tax percentage, you use the average indebtedness of the past 12 months and divide that by the adjusted basis in the property (typically, the original purchase price). So, as you pay down the mortgage each year, the UDFI tax percentage becomes less. One year after paying your final mortgage payment, the UDFI tax disappears altogether. When selling passive investments for a profit, the UDFI fraction will determine the taxable amount. Then, appropriate capital gains rates are applied to that amount (trust rates for short-term gains; capital gain rates for long-term gains. [See IRS Pub. 598.]

Remember that UDFI rules apply only to passive investments. If your IRA makes an investment, regardless of leverage, in an active (pass-through) business, including any active real estate business (flipping, rehabbing, developing raw land, etc), then the net income (above $1,000) is subject to UBIT.


This brief discussion of prohibited transactions and UBIT/UDFI is not intended to be relied upon as legal or tax advice. It is very general information and is designed only to make you aware of some issues you might not have thought of and may need to discuss with your advisors. These rules can be very complex. Some of the rules have exceptions (and even exceptions to the exceptions!) and rules can and do change