Posts Tagged ‘self directed 401k’

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.

Author:

Q3-2012 Precious Metals Self Directed IRA Update

Sunday, October 21st, 2012

The World Gold Council just released their Q3-2012 Gold update. We thought that we would review some of the highlights.

Q3 Summary

  • Gold (US$/oz) returned 11.1% in the third quarter as investors responded to further central bank measures aimed at stimulating the economy. Volatility decreased during the period, with gold prices experiencing little movement in the first half of the quarter; correlations to other assets, generally low, remained similar to those seen in Q2.
  • Central banks announced a continuation of their unconventional monetary policy1 programmes in Q3.
  • Central banks have numerous rationales for undertaking unconventional monetary policy, including lowering borrowing costs and supporting financial markets.
  • Financial assets have responded to central bank policy announcements, but gold’s reaction has been the strongest.
  • There is a consensus that these policies drive investment into gold purely due to inflation-risk impact. We believe that there is not one but four principal factors that provide further support to the investment case for gold:
    • Inflation risk
    • Medium-term tail-risk from imbalances
    • Currency debasement and uncertainty
    • Low real rates and emerging market real rate differential

Source: World Gold Council Q3 Report

If you want to see more of the details we recommend you click on this link World Gold Council Q3 Report to read more.

What this means for self directed IRAs

The report shows that if our recommendations for buying and holding gold over the last quarter, you would have realized a 11.1% return on investment. The report supports our commentaries regarding central banks, QE and inflation concerns. These trends are not reversing, but continuing and strengthening.

Those self directed IRA accounts with precious metals have been positioned well and have seen significant returns. For those self directed IRA investors not holding metals or not holding a balanced portfolio of metals, should take note.

Self Directed IRA recommendations for precious metals IRAs

We still recommend buying and accumulating metals in your self directed IRA. You should check your portfolio balance and exposure to precious metals to insure a proper allocation.

For those of you with the correct balance of metal, we recommend to continue holding your metals positions.

Disclaimer: 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.

Inflation Shows Its Taking Hold And What This Means For Self Directed IRAs

Sunday, October 14th, 2012

Wholesale inflation shows that prices increased by 4.7% for energy related goods and 0.2% for food. That is a total of 4.9% annual increase in the price of energy and foods. Core inflation (what the good ‘ol Fed and government uses) shows around 2.3%.

What does this mean?

What these numbers reflect is:

1. Inflation that the average Joe lunch bucket experiences is much higher than what the government tells us.

2. Inflation is quite large and significant

The Fed and the President continue to attempt to tell us that they are implementing policies that are going to fix the economy (a/k/a jobs, employment). Yet, they report false, misleading numbers that do not match what we see and experience when we engage in the economy (buying goods and services – getting stuff).

The numbers show that inflation is running at something like 6-7% per year when you factor energy and food. For some inexplicable reason, the government does not think those things count when measuring inflation. However, consumers are experiencing these levels of inflation. Additionally, incomes are not anywhere near these annual levels of increases. Compound this with the fact that savers (low risk investors, retired people,, etc) cannot even make 1/2% of interest in their savings due to the government’s low interest policies.

Self Directed IRA investment recommendations

Despite what many on Wall Street and the government tell you, precious metals continue to be a must have in your self directed IRA account. Metals are the ultimate inflation hedge.

Hard assets in your self directed IRA are also critical. We continue to recommend that people hold tangible investments such as loans, real estate, tax liens, deeds of trust, or small business ownership. These assets will be held away from the direct manipulation of Wall Street and the government. These are investments that you know and understand.

Disclaimer: 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.

The Sept Jobs Number – Self Directed IRA Update

Sunday, October 7th, 2012

The Sept 2012 jobs numbers came out and shows a decline in unemployment to 7.8% — down from 8.1%. Really? Does this seem plausible. The net number of new jobs created was 114,000. That is a very low, weak number and is not even enough to maintain steady state for the overall economy.

So what’s going on here?

There is much in the way of speculation, commentary, and conspiracy theory regarding this number. Seems politically convenient from a timing perspective as it relates to presidents re-election. However, we are not going to go so far as to say that there is a conspiracy here on the part of the president or the government. What we are going to say is that the BLS (Bureau of Labor Statistics) is using inconsistent and poor methods in their month to month reporting.

The BLS is altering assumptions and methods on a monthly basis. Because of these practices, and their associated adjustments, you can see significant swings in the numbers on any given month.

Our interpretation of the labor numbers

Bottom line, any one with common sense and who is a participant on our labor market and economy intuitively knows that we did not magically see some major improvement in labor or the economy last month. The reality is that labor participation is the lowest since WWII. Its is estimated that 25% of the labor force is no longer engaged in the work force .

What this means for your self directed IRA

Labor is weak. Economic growth is anemic (sub 2%). Inflation is taking hold – just ask people in California who are seeing $5-$6 gasoline. These latest jobs/unemployment figures are not true and accurate and will only mislead you. We do not see any statistically significant changes or improvements in the economic outlook.

We continue to recommend holding physical precious metals in your self directed IRA. We still believe that there are good, significant real estate investment opportunities developing in key markets and that these should be included in self directed IRAs.

Disclaimer: 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.

Inflation Outlook Update & Its Impact on Self Directed IRAs

Sunday, September 30th, 2012

The Fed just recently announced that it will continue investing/printing $40B per month until the jobs picture improves. Two points about this :

1. This is confirmation that the programs and policies of the Fed and the current administration have not worked.

2. The basic prescription is that we should all continue to be punished for not spending more and therefore, the government is going to make us all take on more debt per person, via government printing, until our attitudes improve.

We believe that this approach falls into the the old adage of the definition of insanity is doing the same thing over and over again expecting a different result. That’s what the Fed and the administration are doing. They are going to continue to engage in the same practices of printing money and deficit spending thinking that at some point its going to work, even though it has not worked to date. For those of you who would argue that there has been improvement, I will contend that the improvement is in spite of government intervention and the fact that the Fed is engaging in a new, more aggressive program because of their actual statement of a very poor jobs market it evidence and an admission that it is not working.

What this means for inflation

To date, the Fed continues to report that inflation is in check and well within reasonable boundaries. We contend that inflation is not in check and is not within reasonable boundaries. Our reasoning is that the Fed continues to incorrectly factor the cost of energy into their equation. Secondly, they are ignoring the fact that many people are now working for lesser salaries than they were in 2008. Thirdly, most families net worth has shrunk by 10-20% of the pre-2008 levels. Fourthly, most peoples incomes are not even growing at the rate of inflation, and lastly, most people cannot invest and make 1-2% of of savings per year.

This all boils down to the fact that inflation is higher than the Fed tells us and peoples incomes are shrinking or not growing. This all has the affect of making goods and services more expensive for the average consumer. Therefore, we do have real inflation.

The coming flood and potential for hyperinflation

The Government has created $16T of debt. The government wants to spend another $40B per month. The government wants to continue printing and forcing money into the economy because things are not improving. At some point this money will start working its way into the economy and there is a lot of it. Once that starts happening, people will start holding that money in the form of debt and spending. This will lead us to think that happy days are here again. That spending activity will translate into price inflation for goods and services as all of these excess Fed dollars start chasing fewer goods and services. Its simple math and economics to see that prices could and will likely result in hyper inflationary levels.

Self Directed IRA recommendation

We foresee continued inflationary pressure on prices in the near and long term. Most of this price inflation will likely take hold mid 2013 and into 2014. We are already seeing the spike in gold and silver in response to the latest fed actions.

We see the prices for real estate to continue to stabilize. As the excess Fed dollars and low interest rates start to finally take effect, we think you will see more price stability and maybe higher than expected price increases in real estate.

We continue to see sluggishness in the job market, despite the Fed printing. 25% of the work force is not working. They have aged. They have not developed new skills. These structural disconnects will make it difficult to get people back to work and the ones that do, will not necessarily be coming back into high paying jobs like the pre-2008 levels. This will continue to make these people more oriented towards being savers and renters as there has been a permanent mind shift in the American public as a result of this recession.

Our recommendations

1. Continue to invest and hold precious metals in your Self Directed IRA.

2. Real estate will continue to look attractive for rental income and price appreciation may take hold. Its not clear to what extent price appreciation could materialize. You should be looking for real estate investment opportunities with your Self Directed IRA.

3. Private lending will continue to be a good opportunity for Self Directed IRAs. Despite the flood of Fed dollars, price inflation will be problematic for people, and they will continue to be under financial pressure due to be held in lower paying jobs with higher inflation. They will struggle to get lending from institutions. However, these same people will be more conservative than pre-2008. There will be good lending opportunities if you look, and qualify the right candidates.

Overall inflation risk is high. Hard asset investing in Self Directed IRAs is still critical to your overall portfolio strategy.

Disclaimer: 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.