Posts Tagged ‘IRA’

Unique Types of Properties to Invest in With an IRA

Thursday, December 31st, 2015

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Flexibility is one of the main reasons savers and investors use self-directed IRAs for real estate transactions. A property can be acquired quickly, with the required fees and costs being directly paid for from the IRA, and in turn, any profits will funnel straight back into the self-directed IRA account.

Commercial Property

The inconsistent performance of the stock market in recent years, and the ever-growing threat of a Federal rate hike has made commercial real estate a prime target for investors. This shift in investment focus has helped fuel the commercial real estate market. That’s because investors who use their IRAs to purchase commercial properties that generate excellent cash flow and appreciation can gain a number of awesome tax benefits. For instance, in the case of a Roth IRA, which is funded with after-tax money, investments are not taxed while growing, and are tax-free upon distribution. Roth IRAs also have no minimum distribution, so savers can decide when and how much to take as distributions. Traditional IRAs are funded with pre-tax money and are taxed at the time of distribution, which is the main difference between the two plans.

Real Estate Overseas

The most common investments made with a self-directed IRA are in real estate, but only a small percentage is invested in real estate overseas. Throughout most of the world, it’s not really possible for a foreign buyer to just borrow money from a local bank and use that money to buy real estate. This is where your self-directed IRA comes into play.
Using the property as a rental property, think how Airbnb does it, where a property is rented out, maybe by someone new almost every week (if not every night), makes it easy to remotely operate from anywhere.
You can purchase real estate, but just as it is with property you own in the US, once you move in, or make use of the property yourself, the total value becomes taxable as a distribution under the terms of your retirement account, and your entire IRA account could get hit with repercussions from the IRS.

Farms

Who knew that you could invest in a farm without owning farmland? Well you can with a self-directed IRA! There are a few more options like REITs, or mutual funds, or ETFs, but today, we’re just going to talk about self-directed IRAs.
Farmland can help your IRA grow in a few ways as an agricultural investment. A farm that produces crops ranging from fruits and vegetables to cotton and other raw materials for manufacturing tend to be the most profitable because these crops, of course, produce income when they are sold (and most regrow annually). In addition, the value of the land may increase, resulting in a capital gain. Before your IRA can buy anything with an IRA, you have to fund it. As of 2015, you can contribute up to $5,500 a year to an IRA, or a $6,500 catch-up limit if you are 50 and older. Keep in mind that you can also rollover money from another retirement plan to buy a farm, and another funding option is to buy partial ownership of the property, and have other investors.

Getting a Head Start on Your 2016 Taxes

Monday, December 21st, 2015

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Whether you’re pre-distribution or post-distribution age and have an IRA, tax-wise, things can get complicated fast. There’s a lot that goes into getting taxes ready for some of us, so why not save yourself the panic in April and get prepared now?

Is a Roth IRA for you?

With a traditional IRA, contributions are made up of pre-tax dollars, but you’ll pay taxes on future withdrawals, and traditional IRAs are subject to required minimum distribution, or RMD. In a Roth IRA, contributions are made with post-tax dollars, but future withdrawals are tax free and aren’t subjected to required minimum distribution rules.
If you hold an asset in your IRA that could have significant growth potential, like real estate or a startup, it might make sense to convert to a Roth IRA. You will pay taxes on the amount you convert, but your earnings will then grow tax free indefinitely.​

Don’t forget about your business

Contributions to SEP-IRAs, SIMPLE IRAs and solo 401Ks reduce your tax bill now and help you rack up tax-deferred investment gains for later. For example, in the 2014 tax year, you could feasibly contribute as much as $17,500 in deferred salary ($23,000 if you were 50 or older) plus another 25% of your net self-employment earnings after deducting one-half of self-employment tax and contributions for yourself, up to a maximum of $52,000 total for both contribution categories, with a self-employed 401K, for example. Contribution limits vary by plan type and the IRS adjusts the maximums annually. Just this year, for example, the solo 401(k) contribution limit increased to $53,000.

Your RMD’s

If you’re turning 70½ this year, you have to take your 2015 required minimum distribution (or RMD) by April 1 of 2016, and you also have to take your 2016 RMD by the end of the year, Dec. 31, 2016. That means you could be taking two RMDs in 2016, which might result in a higher tax bill. It is best to consult with a tax planning professional to determine how best to approach your RMD this tax season.

If you’re 70½ or older this year, you must take a 2015 required minimum distribution by Dec. 31, 2015. Remember, there are significant penalties for not taking your RMD during the correct timeframe, including potentially having the undistributed portion taxed at 50%.

Rules and Limitations for Owning Real Estate Through an IRA

Monday, November 9th, 2015

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Buying real estate through your IRA is a lucrative and competitive business. It can substantially increase the return on your IRA’s investment, and make for a big, cushiony retirement nest egg. One of the biggest reasons that more people don’t take advantage of owning real estate through their IRA is all the rules and confusion that comes along with it. It can be a meticulous task, but well worth it.

Self-Directed IRA

Although IRS rules permit IRA funds to be invested in real estate, IRS rules do not require an IRA trustee to offer real estate as an investment option. Most trustees who offer traditional IRA investments, such as depository banks, do not allow an IRA owner to invest in real estate because of the extra administrative burden of real estate management. As a result, if you want to invest your IRA funds in real estate, you will most likely have to convert your traditional IRA to a self-directed IRA, which is an IRA that requires you to decide what investments to make, such as real estate.

Prohibited Transactions

IRS rules require IRA-owned real estate to be for investment purposes only. This requirement places several prohibitions on how the real estate can be purchased and used, the key to understanding the prohibitions is the term “disqualified persons”. This term is used in the IRS rules regarding IRA-owned real estate to refer to the IRA owner and related persons–that is, the IRA owner and spouse, ancestors (mother, father, grandparents) and descendants (children, grandchildren and their spouses). The term disqualified person also includes the IRAs investment advisers, including a trustee of the IRA funds, and any business in which a disqualified person has a5 0 percent or greater interest. IRS rules prohibit the use of IRA funds to purchase real estate from a disqualified person, the rules also prohibit a disqualified person from using any real estate purchased with IRA funds, either as a home or business. These rules even preclude you from purchasing a vacation home that is only partly for personal use and otherwise rented to others.

Tax Consequences

If you violate the IRS rules regarding prohibited transactions, the IRS will consider the IRA funds used in the transaction as a distribution of your IRA. You will be taxed on the funds from the first year in which the transaction occurred, with penalties and interest included. Depending on your age, you may also incur an additional penalty for taking an early distribution.

Author: Tanya

Using Your IRA to Invest in Precious Metals: Q&A

Thursday, October 29th, 2015

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You most certainly do not have to work on Wall Street to know that things have been rocky the last few months for the U.S stock market. It seems that it’s an everyday occurrence that there’s mass hysteria on whether or not the Fed will raise rates, and if you’re like most Americans with an IRA, pension or 401k, you pay attention, because your retirement could be at stake. When the market crashed in 2008, it was said that retirement savers lost $2 trillion in the stock market, and there was nothing that could be done to get those funds back. It left millions of hard-working Americans with depleted accounts and no answers.

Today, I’d like to think that we’re smarter with our money, that we’ve self-educated, and that we now know how to make the market work for us. The answer is diversification. And today, we’re going to specifically talk about diversification with a gold-backed IRA.

Q: What Type of Precious Metals and Coins are Approved Investments?

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A: Only gold coins that are legal tender with 0.9999 fineness are allowed in an IRA, with the exception of the American Gold Eagle, which has a fineness of 0.9167% fineness. Other gold coins allowed to be put into an IRA include the American Buffalo, Canadian Gold Maple Leaf, and Australian Gold Nugget. The popular South African Krugerrand is not permitted to be included in an American IRA because it’s fineness is only 0.9167%
The regulations that govern gold contributions to IRAs call for a minimum purity of only 0.995%, most gold bullion bars are 0.9999% pure.

Q: Can I Take Distributions of Physical Metal Instead of Cash?

A: Yes, distributions from an IRA can be cash or non-cash. The only issue will be that the distribution will usually be taxable to you (except for a Roth IRA), which would mean that you would either have to liquidate enough metals to pay the taxes, or you would have to use cash from your personal accounts to pay the taxes.

Q: Are There Monthly Storage Fees?

A: Asset value of metals:

fees metals

Q: How is the Metal Held and Stored?

A: Here at Accuplan, all precious metals are stored in our secured vault with Brinks in Salt Lake City. Tax laws require that a licensed custodian hold precious metals for your IRA. All metals are counted and verified upon receipt in the Brinks vault, and you will receive an email notification along with a certificate of ownership when the metals are verified at the vault.

There are many ways to help protect yourself in your day-to-day activities, so why not also protect yourself from a financial crisis as well with a gold-backed IRA?

Author: Tanya

When Withdrawing Funds from your IRA are Penalty-Free

Monday, October 26th, 2015

IRA withdrawal

It’s not uncommon that contributions that workers make to their IRA are prematurely withdrawn. An IRA is intended to supplement income in retirement years, but as the future and some circumstances are often out of our control, an IRA is sometimes used in other ways than retirement.

Should workers need to take funds from their IRA, the money that’s withdrawn may be subject to federal and state taxes, and if the person withdrawing the money is under age 59.5 when this occurs, another early-distribution penalty of 10% may be incurred. The reason the IRS imposes these fees is to deter workers from taking distributions from their IRA early, but there are situations where the IRS will waive early-distribution penalty fees.

Health Insurance

If you lose your job, and subsequently your health insurance (unless your insurance is purchased through HealthCare.gov, or have a private plan outside of the market) and are unemployed for 12 weeks or more, you may use your IRA to pay for purchasing health insurance for yourself, your spouse, or your dependents.

Medical Expenses

If you do not have health insurance and something like an accident or medical emergency should happen, the expenses that go along with a hospital can be financially devastating. You’re able to take distributions from your IRA if your medical expenses are more than your insurance will cover for the year, or if you have no insurance at all.
You’re also eligible to pull money out of your IRA and have medical expenses covered if you have unreimbursed medical expenses that are more than 7.5 percent of your adjusted gross income. These exemptions allow you to pull the money out of your IRA without likely incurring the 10-percent early withdrawal penalty.

Your First Home

A penalty-free withdrawal of up to $10,000 ($20,000 for couples) can be taken from your IRA when you’re buying or building your first home. The funds can be used to pay for a down payment, closing costs, taxes, and other fees that go into buying a home.
The IRS sees this home as your first home only if you or your spouse have not owned a home in the last two years. It’s also important to note that this $10,000 is a lifetime limit per individual, meaning that you can’t make this withdrawal every time you buy a house. The $10,000 mark is the absolute limit for the penalty-free homebuyer provision.

College Costs

IRA distributions are allowed to pay for college costs like tuition, fees, books and supplies, and yourself, your spouse, your children or your grandchildren are eligible. Room and board expenses can also be covered for part-time students. It’s important to note that IRA withdrawals for this purpose could possibly reduce eligibility for financial aid for some students, as the IRA funds can be considered income, therefore possibly disqualifying aid. Waiting until the student is in their final year at college reduces the risk of financial aid being withdrawn.

Disability

If a doctor can determine that due to a mental or physical disability, that you’re unable to find work or stay employed, you are eligible for penalty-free distributions from your IRA. One factor though is that the disability must be expected to last the duration of your life, or result in your death. The funds can be withdrawn for any purpose in this circumstance, but make sure that you check with your IRA custodian regarding their policies for handling distributions due to disability.

In the end, most retirement advisors don’t like the idea of early distribution, but there’s no doubt it can be a life-saver in many situations. Even though the above situations are exempt from early-distribution penalties, they still may be subject to federal and state taxes. Speak with your tax professional to determine whether or not certain amounts are taxable.

Author: Tanya