Oct 21

The Most Common IRA Prohibited Transactions

Categories of Prohibited Transactions

In general, the type of transactions that could fall under the prohibited transaction rules pursuant to Code Section 4975 can be viewed in the context of three unofficial categories:

Direct Prohibited Transactions

4975(c)(1)(A): The direct or indirect Sale, exchange, or leasing of property between an IRA and a “disqualified person”

  • Ben leases an interest in a piece of property owned by his Self Directed IRA to his son
  • Jen sells real estate owned by her Self-Directed IRA to her father
  • Todd sells real estate he owns personally to his Self-Directed IRA
  • Carl transfers property he owns personally to his Self-Directed IRA
  • Mary Purchases real estate with her IRA funds and leases it to her mother
  • Kevin uses his Self-Directed IRA funds to purchase an interest in an entity owned by his wife
  • Peter Transfers property he owns personally subject to a mortgage to his Self-Directed IRA.
  • Tracy uses personal funds to pay expenses related to her Self Directed IRA real estate investment
  • Lara uses personal funds to pay taxes and expenses related to her Self-Directed IRA real estate investment

4975(c)(1)(B): The direct or indirect lending of money or other extension of credit between an IRA and a “disqualified person”

  • Keith lends his son $4,000 from his IRA
  • Joe Uses the assets of his Self-Directed IRA as security for a loan
  • Mr. Peek and Mr. Fleck personally guarantee a business loan owned by their self-directed IRA
  • Tammy personally guarantees a bank loan to her Self-Directed IRA
  • Bill uses his personal assets as security for an Self-Directed IRA investment
  • Allan uses Self-Directed IRA funds to lend an entity owned and controlled by his father $25,000
  • Terry acquires a credit card for his Self-Directed IRA LLC bank account

4975(c)(1)(C): The direct or indirect furnishing of goods, services, or facilities between an IRA and a “disqualified person”

  • Dan purchases real estate with his Self-Directed IRA funds and personally makes repairs on the property
  • Larry purchases a condo with his Self-Directed IRA funds and paints the walls without receiving a fee
  • Kris buys a piece of property with his Self-Directed IRA funds and hires his son to work on the property
  • Karen buys a home with her Self-Directed IRA funds and her son makes repairs for free
  • Lisa owns an office building with her Self-Directed IRA and hires her son to manage the property for a fee
  • Shari owns an apartment building with her Self-Directed IRA funds and has her father manage the property for free
  • Joe receives compensation from his Self-Directed IRA for investment advice
  • Troy acts as the real estate agent for his Self Directed IRA

4975(c)(1)(D): The direct or indirect transfer to a “disqualified person” of income or assets of an IRA

  • Steve uses a house owned by his Self Directed IRA for personal uses
  • Tim deposits Self-Directed IRA funds in to his personal bank account
  • Pat is in a financial jam and takes $12,000 from his Self-Directed IRA to pay a personal debt
  • Mark buys precious metals using his Self-Directed IRA funds and uses them for personal gain
  • Jack purchases a vacation home with his Self-Directed Self Directed IRA funds and stays in the home on occasion
  • Amy buys a cottage on the lake using her Self Directed IRA and rents it out to her daughter and son-in-law
  • Sylvia purchases a condo on the beach with her Self Directed IRA funds and lets her son use it for free
  • Richard uses his Self-Directed IRA to purchase a rental property and hires his friend to manage the property. The friend then enters into a contract with Richard and transfers those funds back to Richard
  • Pam invests her Self-Directed IRA funds in an investment fund and then receives a salary for managing the fund.
  • Charles uses his Self-Directed IRA funds to purchase real estate and earns a commission as the real estate agent on the sale
  • Keith uses his Self-Directed IRA funds to lend money to a company he owns and controls
  • John invests his Self-Directed IRA funds into a business he owns 75% of and manages

Self-Dealing Prohibited Transactions

4975(c)(1)(E): The direct or indirect act by a “Disqualified Person” who is a fiduciary whereby he/she deals with income or assets of the IRA in his/her own interest or for his/her own account

  • Sara makes an investment using her Self-Directed IRA funds into a company she controls which will benefit her personally
  • Jason uses his Self-Directed IRA funds to invest in a partnership with himself personally in which he and his family will own greater than 50% of the partnership
  • Helen uses her Self-Directed IRA funds to invest in a business she and her husband own and operates and her and her husband earns compensation from the business
  • Steve uses his Self-Directed IRA funds to lend money to a business in which he controls and manages
  • Victor invests his Self-Directed IRA funds in a trust in which Victor and his wife would gain a personal benefit
  • Brenda uses her Self-Directed IRA funds to invest in a real estate fund managed by her Son. Brenda’s son receives a bonus for securing her investment.
  • Frank invests his Self-Directed IRA funds into a real estate project that his development company will be involved in order to secure the contract
  • Ryan uses his Self-Directed IRA funds to invest in his son’s business that is in financial trouble
  • David uses his Self-Directed IRA funds to buy a note on a piece of property for which he is the debtor personally

Conflict of Interest Prohibited Transactions

Subject to the exemptions under Internal Revenue Code Section 4975(d), a “Conflict of Interest Prohibited Transaction” generally involves one of the following:

4975(c)(i)(F): Receipt of any consideration by a “Disqualified Person” who is a fiduciary for his/her own account from any party dealing with the IRA in connection with a transaction involving income or assets of the IRA

  • Jay invests his Self-Directed IRA funds into a corporation in which he manages and controls but owns a small interest in
  • Betty uses her Self-Directed IRA funds to loan money to a company she owns a small interest in but manages and controls the daily operations of the company
  • Sally uses her Self-Directed IRA to lend money to a business that she works for in order to secure a promotion
  • Lance uses his Self-Directed IRA funds to invest in a real estate fund that he manages and where his management fee is based on the total value of the fund’s assets.

For more information on prohibited transactions, please contact an IRA Expert at 800-472-0646.

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Oct 20

Back to Basics – What is a Roth IRA?

In 1997, Congress created a new form of IRA, called a Roth IRA. No deduction is allowed for contributions to a Roth IRA, but qualified distributions are excluded from gross income. This no-deduction, no-income regime is the opposite of that for traditional IRAs, contributions to which are deductible (within limits), but distributions from which are fully taxed.

A Roth IRA is an IRA that the owner designates as a Roth IRA. A Roth IRA is generally subject to the rules for IRAs. For example, traditional and Roth IRAs and their owners are identically affected by the rules treating an IRA as distributing its assets if the IRA engages in a prohibited transaction or the owner borrows against it. The reporting requirements for IRAs also apply to Roth IRAs.

Back to Basics - What is a Roth IRA?In a lot of respects, a Roth IRA looks a lot like a traditional contributory IRA because annual contribution limits are the same. However, the Roth IRA differs from a traditional IRA in a number of important areas. Firstly, none of the contributions to your Roth IRA are ever deductible on your tax return. Moreover, your ability to make a Roth IRA contribution for 2014 begins to phase out when your adjusted gross income (AGI) exceeds $181,000 (for joint filers) and $114,000 for single filers. In addition, you are not permitted to make a contribution at all when your AGI exceeds $191,000 (for joint filers) or $129,000 (for single filers).

Note: with a traditional IRA you may make a contribution even if your income is high and you are covered by an employer’s plan. However, you may not be able to deduct the contribution on your return.

The main advantage of a Roth IRA is that if you qualify to make contributions, all distributions from the IRA are tax free. Furthermore, unlike traditional IRAs, you may contribute to a Roth IRA for as long as you continue to have earned income (for a traditional IRA – you can’t make any contributions after you reach age 70 and 1/2).

Please contact one of our Roth IRA Experts at 800-472-0646 for more information.

Oct 17

Making an Investment with a Self-Directed IRA Loan

The Self-Directed IRA is a retirement solution that will unlock a world of investment opportunities. The Self-Directed IRA is a retirement investment vehicle that allows one to use their retirement funds to make traditional as well as non-traditional investments, such as real estate tax-free and without custodian consent. In most instances, investors using retirement funds to make an investment will use cash to make the investment. Whether the investment is in the form of stocks, precious metals, or real estate most investors using retirement funds to make the investment will not borrow any funds to make the investment. In other words, most investors using retirement funds will use cash to make the investment. One significant reason why retirement account investors will generally not borrow money (also called debt or leverage) as part of an investment of real estate acquisition is the Internal Revenue Code Section 4975 prohibits the IRA holder (you) from personally guaranteeing a loan made to the IRA. Pursuant to Internal Revenue Code Section 4975(c)(1)(B), a disqualified person (i.e. the IRA holder) cannot lend money or use any other extension of credit with respect to an IRA. In other words, the IRA holder cannot personally guarantee a loan made to his or her IRA. As a result, in the case of a Self-Directed IRA, one could not use a standard loan or mortgage loan as part of an IRA transaction since that would trigger a prohibited transaction pursuant to Code Section 4975. This type of loan is often referred to as a recourse loan since the bank can seek recourse or payback from the individual guaranteeing the loan. These loans are generally the most common types of loans offered by banks and financial institutions. Thus, in the case of a Self-Directed IRA, a recourse loan cannot be used. This leaves the Self-Directed IRA investor with only one financing option – a nonrecourse loan. A nonrecourse loan is a loan that is not guaranteed by anyone. In essence, the lender is securing the loan by the underlying asset or property that the loan will be used for. Therefore, if the borrower is unable to repay the loan, the lender’s only recourse is against the underlying asset (i.e. the real estate) not the individual – hence the term nonrecourse. In general, nonrecourse loans are far more difficult to secure than a traditional recourse loan or mortgage. There are a number of reputable nonrecourse lenders, however, the rate on a nonrecourse loan are typically less attractive than a traditional recourse loan.

Using a Self-Directed Loan to make an investmentThe IRS allows IRA and 401(k) plans to use nonrecourse financing only. The rules covering the use of nonrecourse financing by an IRA can be found in Internal Revenue Code Section 514. Code Section 514 requires debt-financed income to be included in unrelated business taxable income (UBTI or UBIT), which generally triggers a 35% tax. In general, if nonrecourse debt financing is used, the portion of the income or gains generated by the debt-financed asset will be subject to the UBTI tax, which is generally 35%. Thus for example, if an individual invests 70% IRA funds and borrows 30% on a nonrecourse basis, 30% of the income or gains generated by the debt financed investment would be subject to the UBTI tax. For example, if a Self-Directed IRA investor invests $70,000 and borrows $30,000 on a nonrecourse basis (the IRA holder is not personally liable for the loan) – 70/30 equity to debt finance ratio, and the IRA investment generates $1,000 of income annually, 30% of the income or $300 would be subject to the UBTI tax. Note – the $300 tax base could be reduced by any pro rata portion of deduction/depreciation associated the debt-financed property. The rationale behind this is that since the IRS is treating the IRA, which is typically treated as tax-exempt pursuant to IRC 408, as a taxpayer by imposing a tax on the debt-financed portion, the IRS will allow the investor to allocate proportionally any asset expenses or depreciation in order to reduce the tax base. The IRS Form 990-T is the form where the UBTI must be disclosed to the IRS.

Interestingly, by investing in real estate through a Solo 401K Plan, if one uses nonrecourse financing, the Solo 401K plan will escape the UBTI/UBIT tax due to an exception to the Unrelated Debt Financed Income (UDFI) rules found under IRC 514(c)(9). This is one reason why the Solo 401K Plan is such an attractive investment vehicle.

To learn more about the rules surrounding using a loan with a Self-Directed IRA to make an investment please contact a Self-Directed IRA Expert at 800-472-0646.

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Oct 16

How to Use a Self-Directed Roth IRA LLC to Purchase Real Estate

Most people mistakenly believe that their Roth IRA must be invested in bank CDs, the stock market, or mutual funds. Few Investors realize that the IRS has always permitted real estate to be held inside IRA retirement accounts. Investments in real estate with a Self-Directed Roth IRA LLC are fully permissible under the Employee Retirement Income Security Act of 1974 (ERISA). IRS rules permit you to engage in almost any type of real estate investment, aside generally from any investment involving a disqualified person.

In addition, the IRS states the following on their website: “…..IRA law does not prohibit investing in real estate but trustees are not required to offer real estate as an option.”

Advantages of Using a Self-Directed Roth IRA LLC to Purchase Real Estate

Income or gains generated by a Roth IRA generate tax-free profits. Using a Self-Directed Roth IRA LLC to purchase real estate allows Using a Self Directed Roth IRA LLC To Purchase Real Estatethe Roth IRA to earn tax-free income/gains and never pay taxes on any future date, rather than in the year the investment produces income.

With a Self-Directed IRA Roth LLC, you can invest tax-free and not have to pay taxes ever! All the income or gains from your real estate deals flow though to your Roth IRA tax-free!

Types of Real Estate Investments

Below is a partial list of domestic and foreign real estate-related investments that you can make with a Self-Directed Roth IRA LLC:

  • Raw land
  • Residential homes
  • Commercial property
  • Apartments
  • Duplexes
  • Condos/townhomes
  • Mobile homes
  • Real estate notes
  • Real estate purchase options
  • Tax liens certificates
  • Tax deeds
  • Farm land
  • Any domestic or foreign real property

Investing in Real Estate with a Self-Directed Roth IRA LLC is Quick & Easy!

Purchasing real estate with a Self-Directed Roth IRA LLC is essentially the same as purchasing real estate personally.

  • Set-up a Self-Directed Roth IRA LLC with the IRA Financial Group
  • Identify the investment property
  • Purchase the investment property with the Self-Directed Roth IRA LLC. As manager of the Self-Directed Roth IRA LLC, you will not be required to seek the consent of the custodian to make a real estate investment providing you with “checkbook control” over your Roth IRA funds.
  • Title to the investment property and all transaction documents should be in the name of the Roth IRA LLC. Documents pertaining to the property investment must be signed by the LLC manager (you).
  • All expenses paid from the investment property go through the Self-Directed Roth IRA LLC. Likewise, all rental income checks must be deposited directly in to the Self-Directed Roth IRA LLC bank account. No Roth IRA related investment checks should be deposited into your personal accounts and no Roth IRA funds should be deposited into your personal account.
  • All income or gains from the investment flow through to the Roth IRA tax-free!

Tax Advantages of Using a Self-Directed Roth IRA LLC!

Using a Self-Directed Roth IRA LLC to make real estate investments presents a number of exciting tax planning opportunities.

The primary advantage of using a Self-Directed Roth IRA LLC to make real estate investments is that all income and gains associated with the Roth IRA real estate investment grow tax-free and will not be subject to tax upon withdrawal or distribution. This is because unlike traditional IRAs, you are generally not subject to any tax upon taking Roth IRA distributions once you reach the age of 59 1/2.

Structuring the Purchase of Real Estate with a Self-Directed Roth IRA LLC

When using a Self-Directed Roth IRA LLC to make a real estate investment there are a number of ways you can structure the transaction:

1. Use your Self-Directed Roth IRA LLC funds to make 100% of the investment

If you have enough funds in your Self-Directed Roth IRA LLC to cover the entire real estate purchase, including closing costs, taxes, fees, insurance, you may make the purchase outright using your Self-Directed Roth IRA LLC. All ongoing expenses relating to the real estate investment must be paid out of your Self-Directed Roth IRA LLC bank account. In addition, all income or gains relating to your real estate investment must be returned to your Self-Directed Roth IRA LLC bank account.

2. Partner with Family, Friends, Colleagues

If you don’t have sufficient funds in your Self-Directed Roth IRA LLC to make a real estate purchase outright, your Self-Directed Roth IRA LLC can purchase an interest in the property along with a family member (non-disqualified person – any family member other than a parent, child, spouse, daughter-in-law, son-in–law), friend, or colleague. The investment would not be made into an entity owned by the IRA owner, but instead would be invested directly into the property.

For example, your Self-Directed Roth IRA LLC could partner with a family member (non disqualified person – any family member other than a parent, child, spouse, daughter-in-law, son-in–law), friend, or colleague to purchase a piece of property for $150,000. Your Self-Directed Roth IRA LLC could purchase an interest in the property (i.e. 50% for $75,000) and your family member, friend, or colleague could purchase the remaining interest (i.e. 50% for $75,000).

All income or gain from the property would be allocated to the parties in relation to their percentage of ownership in the property. Likewise, all property expenses must be paid in relation to the parties’ percentage of ownership in the property. Based on the above example, for a $2,000 property tax bill, the Self-Directed Roth IRA LLC would be responsible for 50% of the bill ($1000) and the family member, friend, or colleague would be responsible for the remaining $1000 (50%).

Isn’t Partnering with a family member in a Real Estate Transaction a Prohibited Transaction?

Likely no if it the transaction is structured correctly. Investing in an investment entity with a family member and investing in an investment property directly are two different transaction structures that impact whether the transaction will be prohibited under Code Section 4975. The different tax treatment is based on who currently owns the investment. Using a Self-Directed Roth IRA LLC to invest in an entity that is owned by a family member who is a disqualified person will likely be treated as a prohibited transaction. However, partnering with a family member that is a disqualified person directly into an investment property would likely not be a prohibited transaction. Note: If you, a family member, or other disqualified person already owns a property, then investing in that property with your Self-Directed Roth IRA LLC would be prohibited.

3. Borrow Money for your Self-Directed Roth IRA LLC

You may obtain financing through a loan or mortgage to finance a real estate purchase using a Self-Directed Roth IRA LLC. However, two important points must be considered when selecting this option: Real Estate IRA LLC

  • Loan must be non-recourse – A “prohibited transaction” is a transaction that, directly or indirectly involves the loan of money or other extension of credit between a plan and a disqualified person. Normally, when an individual purchases real estate with a mortgage, the traditional loan provides for recourse against the borrower (i.e., personal liability for the mortgage). However, if the IRA purchases real estate and secures a mortgage for the purchase, the loan must be non-recourse; otherwise this will be a prohibited transaction. A non-recourse loan only uses the property for collateral. In the event of default, the lender can collect only the property and cannot go after the IRA itself.
  • Tax is due on profits from leveraged real estate – Pursuant to Code Section 514, if your Self-Directed Roth IRA LLC uses non-recourse debt financing (i.e., a loan) on a real estate investment, some portion of each item of gross income from the property are subject to Unrelated Business Income Tax (UBIT). Debt-financed property” refers to borrowing money to purchase the real estate (i.e., a leveraged asset that is held to produce income). In such cases, only the income attributable to the financed portion of the property is taxed; gain on the profit from the sale of the leveraged assets is also UDFI (unless the debt is paid off more than 12 months before the property is sold). There are some important exceptions from UBIT: those exclusions relate to the central importance of investment in real estate – dividends, interest, annuities, royalties, most rentals from real estate, and gains/losses from the sale of real estate. However, rental income generated from real estate that is “debt financed” loses the exclusion, and that portion of the income becomes subject to UBIT. Thus, if the IRA borrows money to finance the purchase of real estate, the portion of the rental income attributable to that debt will be taxable as UBIT.

For example, if the average acquisition indebtedness is $50 and the average adjusted basis is $100, 50 percent of each item of gross income from the property is included in UBTI.

The IRA Financial Group will take care of the entire setup of your Self-Directed Roth IRA LLC “Checkbook Control” structure. The whole process can be handled by phone, email, fax, or mail and typically takes between 7-21 days to complete, the timing largely depending on the state of formation and the custodian holding your retirement funds. Our IRA experts and tax and ERISA professionals are onsite greatly reducing the setup time and cost. Most importantly, each client of the IRA Financial Group is assigned a retirement tax professional to help with the establishment of the Self-Directed Roth IRA LLC “Checkbook Control” structure. You will find that our fee for this service is significantly less than other companies that perform the same or similar services.

To learn more about using a Self-Directed Roth IRA LLC to invest in real estate, please contact one of our Self-Directed Roth IRA Experts at 800-472-0646 for more information.

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Oct 15

Self-Directed IRA Retirement Investors Riding Strong Real Estate Market in 2014

Self-Directed IRA investors with cash looking to take advantage of a rising U.S. real estate market

IRA Financial Group, the leading provider of “checkbook control” of self-directed IRA LLC solutions has seen a surge in demand from retirement investors looking to establish a self-directed IRA retirement plan to take advantage of a strong real estate market. “In light of a difficult credit market for a large number of individual home buyers, many self-directed IRA investors have been able to take advantage of attractive real estate market across the United States,” stated Jacky Ospina, a retirement tax specialist with the IRA Financial Group. “The “Checkbook Control” Self-Directed IRA has helped our retirement clients purchase real estate in many attractive markets, including Florida, New York, California, Nevada, and Arizona and take advantage of markets on the move”, stated Ms. Ospina.

The main advantage of using a Self Directed IRA LLC to make investments, such as real estate, is that an investment can be made by simply writing a check. In addition, all income and gains associated with the IRA investment grow tax-deferred and return to the IRA LLC.

Self-Directed IRA Retirement Investors Riding Strong Real Estate Market in 2014With IRA Financial Group’s self directed IRA LLC solution, traditional IRA or Roth IRA funds can be used to buy real estate throughout the United States and globally in a tax-deferred account by simply writing a check and without the need of custodian consent or high custodian fees. “Retirement account holders are helping to fill to a void left by Americans facing issues like affordable credit and high mortgage premium costs, “ stated Ms. Ospina.

IRA Financial Group’s Self-Directed IRA LLC for real estate investors, also called a real estate IRA with checkbook control or a Self-Directed real estate IRA, is an IRS approved structure that allows one to use their retirement funds to make real estate and other investments tax-free and without custodian consent. The Self-Directed IRA LLC involves the establishment of a limited liability company (“LLC”) that is owned by the IRA (care of the Roth IRA custodian) and managed by the IRA holder or any third-party. As a result, the Self-Directed IRA LLC provides the retirement account holder with greater control over his or her retirement assets allowing the individual to make traditional as well as non-traditional investments, such as using an IRA to buy real estate tax-deferred and with much lower annual fees.

The IRA Financial Group was founded by a group of top law firm tax and ERISA lawyers who have worked at some of the largest law firms in the United States, such as White & Case LLP, Dewey & LeBoeuf LLP, and Thelen LLP.

IRA Financial Group is the market’s leading “checkbook control Self Directed IRA and Solo 401(k) Plan provider. IRA Financial Group has helped over 8000 clients take back control over their retirement funds while gaining the ability to invest in almost any type of investment, including real estate without custodian consent.

To learn more about the IRA Financial Group please visit our website at http://www.irafinancialgroup.com or call 800-472-0646.

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Oct 13

Rules for a Real Estate IRA

A Self-Directed IRA LLC offers one the ability to use his or her retirement funds to make almost any type of investment on their own without requiring the consent of any custodian or person. The IRS and Department of Labor only describe the types of investments that are prohibited, which are very few.

The basis of the prohibited transaction rules are based on the premise that investments involving IRA and related parties are handled in a way that benefits the retirement account and not the IRA owner. The rules prohibit transactions between the IRA and certain individuals known as “disqualified persons”. These rules can be found in Internal Revenue Code Section 4975. In general, the definition of a “disqualified person” (Internal Revenue Code Section 4975(e)(2)) extends into a variety of related party scenarios, but generally includes the IRA holder, any ancestors or lineal descendants of the IRA holder, and entities in which the IRA holder holds a controlling equity or management interest.

Rules for a Real Estate IRAThe IRS permits using a Self-Directed IRA LLC to purchase real estate or raw land. Since you are the manager of the Self-Directed IRA LLC, making a real estate investment is as simple as writing a check from your Self-Directed IRA bank account. The advantage of purchasing real estate with your Self-Directed IRA LLC is that all gains are tax-deferred until a distribution is taken. In the case of a Roth Self-Directed IRA, all gains are tax-free.

For example, if you purchased a piece of property with your Self-Directed IRA LLC for $100,000 and you later sold the property for $300,000, the $200,000 of gain appreciation would generally be tax-deferred. Whereas, if you purchased the property using personal funds (non-retirement funds), the gain would be subject to federal income tax and in most cases state income tax.

When it comes to using a self-directed IRA to purchase real estate, there are a number of rules that should be followed in order to make sure the real estate IRA investment does not violate any of the IRS prohibited transaction rules.

  • The deposit and purchase price for the real estate property should be paid using Self-Directed IRA LLC funds or funds from a non-disqualified third-party
  • No personal funds or funds from a “disqualified person” should be used
  • All expenses, repairs, taxes incurred in connection with the Self-Directed IRA real estate investment should be paid using retirement funds – no personal funds should be used
  • If additional funds are required for improvements or other matters involving the real estate investments, all funds should come from the Self-Directed IRA or from a non “disqualified person”
  • If financing is needed for a real estate transaction, only nonrecourse financing should be used. A nonrecourse loan is a loan that is not personally guaranteed and whereby the lender’s only recourse is against the property and not against the borrower.
  • The IRA holder or “disqualified person” in connection with the real estate investment should perform no services in connection with the use of self-directed IRA LLC. In general, other than standard management type of services (necessary and required tasks in connection with the maintenance of the LLC), no active services should be performed by the LLC manager or a “disqualified person” with respect to the real estate transaction.
  • Title of the real estate purchased should be in the name of the Self-Directed IRA LLC. For example, if Joe Smith established a Self-Directed IRA LLC and named the LLC XYZ, LLC, title to real estate purchased by Joe’s Self-Directed IRA LLC would be as follows: XYZ LLC
  • Although the use of a nonrecourse loan is permitted with a self-directed IRA when buying real estate, the use of a nonrecourse loan would impose a tax pursuant to IRC 514 on a percentage of the income generated by the IRA investment based off a percentage of the debt used in proportion to the amount of cash invested.
  • Keep good records of income and expenses generated by the real estate investment
  • All income, gains or losses from the Self-Directed IRA LLC real estate investment should be allocated to the IRA and be returned to the IRA LLC bank account
  • Make sure you perform adequate diligence on the property you will be purchasing especially if it is in a state you do not live in
  • Make sure you will not be engaging in any self-dealing real estate transaction which would involve buying or selling real estate that will personally benefit you or a “disqualified person”
  • If you need to make additional IRA contributions to your self-directed IRA, the contribution should be made to the IRA custodian/administrator and then the funds will be transferred to the IRA LLC.

Using a self-directed IRA LLC to buy real estate is quick and easy, however, there are a number of IRS rules and potential tax issues that must be addressed before making the self-directed IRA real estate investment.

For more information on using a self-directed IRA LLC to buy real estate, please contact a tax professional at 800-472-0646.

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Oct 10

The Mission of the IRA Financial Group

The Mission of IRA Financial Group is:

  • to create exceptional value for our customers by harmoniously blending professionalism; quality and efficiency;
  • to deliver highly customized client services at an affordable price;
  • to adhere to the highest ethical standards;
  • to exceed our clients’ expectations.

Because of our core values our clients have come to rely on our self-directed retirement services, year after year.

At IRA Financial Group, we never forget that this is a client-service business, and that our highest and best use is measured by the satisfaction we bring to those who call on us for self-directed retirement solutions.

Our clients are our top priority, and their interests come first.

There are 5 Client Service Principles that guide our business.

Practice Excellence – We demand excellence from ourselves, and are committed to providing our clients with top-tier customized self-directed retirement solutions

Value – We strive to offer our clients customized professional services at a fair and reasonable price

Act with Integrity – We are guided by the rules of ethical conduct in all that we do. Our relationships with clients are built on trust, respect, and confidentiality.

Innovate – We anticipate the changing tax and financial needs of our clients and creatively adapt our services to address them.

Deliver Results – We are committed to our clients’ satisfaction and strive to meet and exceed our clients’ expectations.

 

Self Directed IRA LLC, Solo 401K, Business Acquisition Solution

 

Please contact one of our IRA Experts at 800-472-0646 for more information.

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Oct 09

Back to Basics – What is an Individual Retirement Account?

Individual Retirement Accounts (IRAs) exist in many forms. The most common type is the IRA or individual retirement annuity to which any person with earnings from employment may contribute. These type of IRA plans are referred to as contributory IRAs. IRAs that are used to receive assets distributed from other retirement plans are called rollover IRAs. Roth IRAs combine the features of a regular IRA and a savings plan to produce a hybrid that adheres to its own set of rules. Whereas, SEPs and SIMPLE IRAs are technically IRAs even though their rules are quite similar to those of qualified plans.

What is an Individual Retirement AccountAn IRA, like the trust under an employer’s qualified plan, is exempt from tax pursuant to Internal Revenue Code Section 408(e)(i), and an individual maintaining an IRA usually is not taxed on principal or earnings of the account or annuity until they are distributed by the trustee, custodian, or insurance company. A deductible contribution to an IRA thus offers the same tax advantage as an employer’s contribution to a qualified plan: deferral of taxation of the contributed funds and investment returns thereon until the funds are withdrawn at retirement.

What is a Traditional Contributory IRA?

Enacted in 1974 and expanded and curtailed by successive legislative changes over the ensuing years, the IRA rules were designed by Congress to stimulate savings by employees not covered by qualified plans of their employers.

In general, if you have income from working for yourself or someone else, you may establish and contribute to an IRA. The IRA can be a special account that you can set up with a bank, brokerage firm, or other institutional custodian. Alternatively, it can be an individual retirement annuity that you can purchase from an insurance company.

You may contribute a maximum of $5500 each year or $6500 if you will reach the age of 50 by the end of the year. If you are not covered by an employer’s retirement plan, you may take a deduction on your tax return for your contribution. However, if you are covered by an employer’s plan, your IRA may be fully deductible, partly deductible, or not deductible at all depending on how much gross income you have.

For example, in 2014, if you are single and covered by an employer’s plan, your contribution is fully deductible if your adjusted gross income (AGI) is less than $60,000 and not deductible at all when your AGI reaches $70,000. Between $60,000 and $70,000 the deduction is gradually phased out. For married individuals, the phaseout range is from $96,000 to $116,000, if the IRA participant is covered by an employer plan. For an IRA participant who is not covered by a plan but whose spouse is covered, the phaseout range is $181,000 to $191,000.

The comparatively low ceiling on IRA deductions is probably intended to keep IRAs from becoming a serious alternative to qualified plans for highly compensated employees. With a higher ceiling, shareholder-employees and other highly compensated employees of closely held enterprises could arrange for higher salaries and establish their own retirement programs, thus reducing the company’s incentive to create a nondiscriminatory qualified plan covering rank and file employees as well as insiders.

IRAs can be invested in securities, real estate, or virtually any other asset except life insurance, art works, precious metals, and other collectibles. An IRA, however, is subject to the Unrelated Business Income Tax (UBIT) if it engages in a trade or business, and an IRA contributor is subject to some of the prohibited transaction rules of Internal Revenue Code Section 4975, imposing excise taxes on self-dealing transactions.

IRAs must generally be nontransferable, but a transfer of an individual’s interest to a former spouse under a divorce decree or written instrument incident thereto is permitted, is not a taxable event, and the transferred asset is treated thereafter as maintained for the benefit of the transferee spouse.

Please contact one of our IRA Experts at 800-472-0646 for more information.

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Oct 07

Strong Rental Market Helping to Generate Strong Returns for Self-Directed Real Estate IRA Investors

Apartment rents are rising steadily and quickly triggering increased attention for real estate self-directed IRA investors

IRA Financial Group, the leading provider of “checkbook control” self-directed IRA LLC solutions, has seen a large percentage of self-directed IRA and solo 401(k) plan clients that had purchased rental real estate properties between 2010-2013 experienced strong returns from their real estate rental investments. Renal rates have increased over 1% for the last quarter contributing to the strong rental income market. Because of the strong demand for rental properties and the ability to generate tax-deferred income using a self-directed IRA, many retirement investors are looking to use of clients interested in using the retirement funds to purchase rental properties and generate tax-deferred rental income. “I have heard many of our self-directed IRA and solo 401(k) clients who have been able to generate 10-15% tax-deferred returns from the self-directed rental investment,“ stated Jacky Ospina, a retirement tax specialist with the IRA Financial Group.

Strong Rental Market Helping to Generate Strong Returns for Self-Directed Real Estate IRA InvestorsWith apartment rents rising nationally for 23 straight quarters and are approximately 15% higher than they were at the end of the recession in 2009, using a self-directed IRA to purchase rental real estate has been a boom for our self-directed IRA clients. “There has been an increasing number of self-directed IRA purchasing rental properties as a means of taking advantage of a strong rental market as well as generating a strong income stream, “ stated Adam Bergman, a tax partner of the IRA Financial Group.

IRA Financial Group’s Self-Directed IRA for real estate investors, also called a real estate IRA with checkbook control, is an IRS approved structure that allows one to use their retirement funds to make real estate and other investments tax-free and without custodian consent. The Self-Directed IRA LLC involves the establishment of a limited liability company (“LLC”) that is owned by the IRA (care of the Roth IRA custodian) and managed by the IRA holder or any third-party. As manager of the IRA LLC, the IRA owner will have control over the IRA assets to make the investments he or she wants and understands

The IRS has always permitted one to use retirement assets to purchase real estate rental properties. “With IRA Financial Group’s self-directed IRA LLC solution, investors can make real estate purchases and generate tax-deferred rental income or tax-free rental income in the case of a self-directed Roth IRA. “One major advantage of buying rental properties with a Self-Directed real estate IRA is that all rental income generated by the property is tax-distribution until a distribution is taken, “ stated Mr. Bergman.

Instead of buying real estate with personal funds and being subject to tax on the income or upon the disposition of the asset, a Self Directed IRA real estate LLC with Checkbook Control will allow one to buy real estate, including rental properties without paying tax immediately.

The IRA Financial Group was founded by a group of top law firm tax and ERISA lawyers who have worked at some of the largest law firms in the United States, such as White & Case LLP, Dewey & LeBoeuf LLP, and Thelen LLP.

IRA Financial Group is the market’s leading “checkbook control” Self Directed IRA Facilitator. IRA Financial Group has helped thousands of clients take back control over their retirement funds while gaining the ability to invest in almost any type of investment, including real estate without custodian consent.

To learn more about the IRA Financial Group please visit our website at http://www.irafinancialgroup.com or call 800-472-0646.

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Oct 06

Roth IRA Conversions Made Easy

If you don’t know what a Roth IRA is and/or are not utilizing one, you are missing out on one of the best retirement saving strategies.  For those not in the know, a Roth IRA is a retirement account that is funded with after-tax money (unlike a traditional IRA that uses pre-tax money).  Furthermore, all qualified withdrawals are tax-free!  The biggest catch of contributing to a Roth are the income limits.  If you earn more than $129,000 for 2014 (or $191,000 as a couple), you cannot directly fund a Roth IRA.  However, you may convert traditional funds to a Roth IRA regardless of your income.

Regardless of the type of IRA you contribute to, you may only sock away up to $5,500 ($6,500 if you are age 50+) for the year.  However, there is no maximum on any conversions to a Roth IRA.  You are allowed to convert any pre-tax IRA to a Roth, including SIMPLE and SEP IRAs, spousal IRAs and Rollover IRAs.  Also, you can convert a traditional 401(k) to an IRA and then convert that.

Roth IRA Conversions Made EasyIf you have a substantial amount you would like to convert, be careful of the tax implications on the conversion.  Any amount you convert is treated as taxable income and all taxes are due.  This is especially important when it comes to your tax bracket.  For example, the 25% tax bracket ranges from $73,801 to $148,850.  If you earned $125,000 this year and converted $24,000 to a Roth IRA, that would bump you up to the next tax bracket.  On the other hand, if you convert $23,850, you remain in the same bracket.

Another consideration is if you have enough money outside of your retirement accounts to pay the taxes due.  It’s never a smart idea to use your retirement funds to pay the taxes on a conversion.  Retirement money should not be touched until you need it when you retire.  Paying off the taxes with it defeats the purpose of converting.  You don’t need to convert all of your traditional assets to a Roth in one shot.  You can convert enough to max out your tax bracket or convert only the amount in which you can pay the taxes without dipping into your nest egg.

Furthermore, required minimum distributions should be considered as well.  Once you reach age 70 1/2, you must start taking RMDs from tax-deferred accounts, whether you need the money or not!  The less you have in traditional accounts, the less your RMD will be.  Since RMDs are not required with Roth accounts, they make for a great estate planning tool that can be left to your children once you pass.

Lastly, you have until October 15 each year to re-characterize or “undo” a Roth conversion.  This is quite helpful for two reasons.  First, if your account takes a big loss due to a bad market, you can re-characterize and and not owe taxes on the full conversion.  Secondly, if your earned income for the year is larger than you were planning, and the conversion would put you into a higher tax bracket, you can undo all or part of it so you remain in your current tax bracket.

It’s always best to be properly diversified when saving for retirement.  A Roth IRA gives you the flexibility to do just that.  For more information, please contact an IRA Expert at the IRA Financial Group @ 800.472.0646!

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