Posts Tagged ‘self directed ira’

Control your Investments With a Checkbook IRA

Monday, October 9th, 2017

 

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.

Self-Directed IRA Rules and IRS Regulations

Monday, September 11th, 2017

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.

A Beginner’s Guide to Investing in Gold

Monday, January 18th, 2016

beginning gold - square

Only 18 days into 2016, and we can already say that it’s been a rocky year. The world is going through rough times in many ways; the second episode of the Chinese stock market crash last week has spooked stock investors across the globe. Bond yield spreads are rising, adding to investors’ fears of bigger defaults in the bond markets. And at the same time, leaving cash idle in the bank isn’t earning savers anything. With interest rates under one percent and inflation close to two percent, investors who are stashing cash stand to lose all of its worth in real terms.

In times like these, gold bullion might be looking like the next best alternative for your investment portfolio.

Bullion investing is basically gaining financial exposure to precious metals—primarily, gold, silver, platinum, and palladium. Of these, gold offers the most liquidity.

1. Physical Gold

The simplest and most direct form of gold investing is in buying gold jewelry, gold bars, with an IRA, or gold coins—jewelry from a jewelry store, bars from a bank or a dealer, through your self-directed IRA administrator, or coins from a dealer.

Coins are the most commonly held form of physical gold, after, of course, jewelry. The best options are the American Eagle, American Buffalo, and Canadian Gold Maple Leaf coins.

When looking for a coin dealer, always seek one who offers the best bargain value. Albeit small, dealers charge premiums on coins above the spot gold price, meaning that you’ll be buying these coins at a price higher than the current market price of gold. In order for you to make money on your investment, the spot price of gold must increase enough to cover the premium you paid. This is why you should look for a dealer who is selling coins for the lowest premium.

2. Gold ETFs

If you don’t want to buy physical gold, you may gain indirect exposure to gold through exchange-traded funds (ETFs).

ETFs indirectly track the price of a basket of assets. Gold ETFs, in particular, come in three forms: 1) those backed by physical gold, meaning they track gold’s spot price; 2) those backed by gold miners’ stocks, such that they track the stock prices of a handful of prominent gold mining companies; and 3) those backed by gold futures, meaning they track the prices of derivative contracts that speculate the future price of gold.

3. Gold Stocks

The third possible way to add gold to your investment portfolio is to buy gold stocks. By “gold stocks,” I mean companies that are involved in the mining, exploration, development, and production of gold.

The risk involved here is that like any other listed company, gold stocks are exposed to stock market fluctuations. The same rules of investment will apply here that apply to any stock on the stock market, in that you’ll have to weigh the financials and fundamentals before jumping into any of these stocks.

4. Gold Derivatives

Finally, gold options and gold futures contracts are an indirect way to invest in gold—but a very risky one. Experts say that gold derivatives should be the last investment resort for any novice investor.

Unlike the spot gold market, where the prices are listed as they are, the futures market trades contracts on future price speculations. Because of the risks involved and the level of sophistication required, investors should strike this option off their radar if they’re not a seasoned trader.

To wrap it all up, gold derivatives, gold stocks, and gold ETFs that are not physically backed by gold are some of the riskier investments. On the other end of the risk spectrum, there’s physical gold and gold-backed ETFs, which are relatively simpler, safer investments.

IRA Q&A: is it Possible to Contribute to an IRA Without a Job?

Thursday, January 14th, 2016

without a job - square

Here’s a question that popped into my head just the other day: Can you put money in an IRA or a Roth IRA if you don’t have wage income?

And the answer I found is that Individual Retirement Accounts (IRAs) were introduced in the mid-70s to help employees save for retirement and reduce their taxable income. So it stands to reason that to make a contribution—and get the tax benefit—you’d have to have income from a job. And, in fact, contributions to both traditional and Roth IRAs can only be made from what the IRS determines to be “earned income.” However, wages aren’t the only form of earned income. So let’s start by looking at the definition.

What’s considered earned income

You don’t have to work for someone else to have taxable earned income. You can also work for yourself. Compensation from either type of employment would be considered earned income. But the complete definition is a bit broader. According to the IRS, taxable earned income includes:

  • Wages, salaries and tips
  • Union strike benefits
  • Long-term disability benefits received prior to minimum retirement age
  • Net earnings from self-employment

In terms of an IRA contribution, the amount of your earned income is also important. The maximum contribution you can make for 2011 is $5,000 ($6,000 if you’re over 50). But if your taxable income is less than the maximum contribution, you can only contribute up to the actual dollar amount of your earned income for the year. In other words, you can’t contribute more to your IRA than you earn.

What about unearned income?

Because there are other ways to make money, it’s probably equally important to understand what’s not considered to be earned income. Things such as interest and dividends from investments, pensions, Social Security benefits, unemployment benefits, and child support—even though they may factor significantly in your monthly bottom line—aren’t considered earned income for tax and IRA contribution purposes.

The Spousal IRA exception

Fortunately for married couples, there is one way to make a contribution to an IRA if you don’t have wages—a Spousal IRA. This is a tax-advantaged retirement account designed specifically to allow a working spouse to make contributions on behalf of a nonworking spouse. Under current laws, if you’re married filing jointly, you can contribute the maximum into an IRA for each spouse—even if one of you has no earned income—as long as the working spouse has income equal to both contributions.

So let’s say both you and your spouse are over 50 and want to contribute the maximum of $6,000 to each of your IRAs. Whichever one of you is working would have to have earned income of $12,000 or more to cover both contributions.

Another good thing about the Spousal IRA is that, should the non-working spouse go back to work, he or she can contribute to the same IRA. That’s because, once opened, a Spousal IRA is an Individual Retirement Account like any other.

Making retirement top priority no matter what

Even if you don’t qualify for the tax advantages of an IRA or other type of retirement account, if you have income from other sources besides wages, I advise you to save for retirement—and save consistently. Open an investment account or other type of savings account, earmark it for retirement and direct a percentage of your income to that account each month. Ideally, you could set up an automatic transfer from your online checking account into your savings account to make it easier on yourself. Then, should your earnings situation change and you find you’re able to contribute to an IRA or participate in an employer-sponsored plan, you’ll be ahead of the game.