Posts Tagged ‘self directed ira’

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.

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.

Control your Investments With a Checkbook IRA

Friday, July 6th, 2018

 

Do you have an IRA or a 401K? According to the Federal Reserve’s Survey of Consumer Finances, in 2013, about 45 percent of households aged 25 to 64 had balances in retirement accounts. Do those 45 percent of Americans know what their retirement accounts are invested in? Most likely not, and that doesn’t bother most people, but if you need more out of your retirement account, then a checkbook IRA might be for you. The freedom that comes with a checkbook IRA allows you to invest in real estate, precious metals, and other hard assets. So how does it all work?

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. You would then 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.

Setting up

Another name for a checkbook IRA is a self-directed IRA LLC with checkbook control. It’s called this because to establish a checkbook IRA, you must establish a limited liability company (LLC) that is owned by the IRA, and managed by you, the account owner. 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. Thus, cutting out the middleman.

With a checkbook IRA, you’re able to invest in the things you want without hassle or waiting for someone else to do as you’re asking. You’re in control, so you have the power over what you’re investing in, and the owner of a truly self-directed IRA.

Rules and Limitations for Owning Real Estate Through an IRA

Monday, April 9th, 2018

real estate and IRA long

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 a real estate IRA is all the rules and confusion that comes along with it. It can be a meticulous task, but well worth it.

Self-Directed Real Estate 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 the 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 a 50 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 IRA 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.