Jan 17

Will Unconventional Assets Doom Your Retirement Or Save It?

Here’s an article written by Forbes.com contributor Ashlea Ebeling about alternate investing in a Self-Directed IRA:

At least half a million retirement accounts – worth $50 billion – hold unconventional assets including real estate, private equity and hedge funds, according to a new GAO report aiming to quantify the prevalence of these accounts and determine what risks account owners face. Other investments include energy investments, equipment leasing, foreign exchange currency, farming interests, precious metals, promissory notes, church bonds, tax liens, private placements — even Bitcoin. So much for index funds.

Retirement savers choosing these unconventional assets in self-directed individual retirement accounts and solo 401(k)s face big risks and need hand holding, according to a new GAO report, Improved Guidance Could Help Account Owners Understand the Risks of Investing in Unconventional Assets.

“Some view the self-directed IRA world as the wild west,” says Ryan Carey, a staffer for Sen. Ron Wyden (D-OR) who called for the report as a sequel to a 2014 GAO report that dropped the bombshell that 314 taxpayers have IRAs averaging $258 million each. Investing in unconventional assets can supercharge your retirement kitty—especially if it’s a Roth account where all growth is tax-free–but at the same time, the strategy can doom it.

The danger for individual investors is that investing in unconventional assets may jeopardize the accounts’ tax-favored status, placing their retirement security at risk. Tricky tax rules regarding prohibited transactions, unrelated business income tax and valuation issues all trip up investors. The punishment for “prohibited transactions” is brutal: Your entire IRA is disqualified, and its assets are considered distributed and taxable as of Jan. 1 of the year of the forbidden transaction.

In its latest report, the GAO got data from 17 custodians of self-directed IRAs and solo 401(k)s, interviewed experts like Warren Baker, a tax lawyer who has built a practice around advising owners of these accounts (see IRAs Gone Wild), and reviewed hundreds of investor complaints filed with federal agencies and watchdog organizations.

Account owners (that is the individual taxpayers) who invest in unconventional assets are responsible for account management and compliance—and they bear the consequences of any mistakes. It’s the account owner who has to determine the appropriateness of an asset, review for potential prohibited transactions, and arrange for the purchase. Ongoing duties include monitoring the account for possible unrelated business income tax liability, preparing Form 990-T to report taxes, directing the custodian to disburse funds to pay tax liability, providing the custodian with an annual fair market value update for all hard to value assets in the account, and determining the amount of any required minimum distributions.

A lot can go wrong. The difficulty in verifying fair market value can expose account owners to fraud and allow losses to remain undetected for some time, the report says. (The SEC issued an investor alert on self-directed IRAs and the risk of fraud back in 2011.) Some account owners mistakenly expect the custodian to provide due diligence, monitor investments, or compensate them for investment losses, the report says. In one case, an account owner lost contact with the company in which he had invested $46,000 in private stock. Unable to retrieve his investment from the company, he expected the custodian return the full amount of the investment. In another case, an account owner expressed concern when the company from which he purchased private stock stopped providing updated valuations, and he thought the custodian could transfer his original investment amount back to his previous custodian.

Investors also face distribution problems. In several cases cited, a custodian initiates the in-kind distribution of the asset to the account owner for failure to pay account fees or failure to provide the custodian with the fair market value of the asset. The custodian uses the last known fair market value, triggering tax liability for a worthless asset. One case involved a $140,000 private stock investment; another case a $25,000 real estate investment.

There are also challenges with liquidating assets when you need retirement income—or have to take mandated required distributions once you reach 70 1/2. In one complaint a widow tried unsuccessfully to obtain income from her late husband’s account, but the investment sponsor said it was illiquid. Another potential trap: you may have to accept in-kind distributions of unconventional assets rather than cash as your RMDs but you’ll still owe income taxes on the distributions.

The IRS says it agrees with the GAO’s recommendations to improve guidance for retirement account owners with unconventional assets. It says it will add updates to Publication 590-A on IRAs, cautioning IRA owners about the possibility of unrelated business taxable income. In addition, the IRS will recommend that the Treasury include guidance to IRA owners and custodians on valuation issues as part of IRA guidance currently on the 2016-2017 priority guidance plan. And the IRS will modify its model custodial agreement for self-directed IRAs to make it clear that only certain articles have been pre-approved by the IRS.

Separately, the IRS is also ramping up its current information collecting efforts on unconventional assets in IRAs. Starting this past season (for tax year 2015), the IRS makes IRA custodians report whether IRAs own non-publicly traded assets on new boxes on Form 5498, an annual form filed with the IRS. That’s in addition to reporting the value of the IRA. So there’s an easy way for the IRS to target high value IRAs with non-publicly traded assets and look for overvaluation or self-dealing issues. There are also new boxes on Form 1099-R, so the IRS can track IRA distributions and theoretically check whether IRA owners are underreporting taxes by undervaluing the distribution amount.

In 2015, the IRS added an explicit caution to IRA owners in Publications 590-A and 590-B about the heightened risk of engaging in a prohibited transaction—but it hasn’t compiled data yet to help provide targeted outreach to those holding nonconventional assets. The IRS did say it could refine its outreach to using the new asset type data once compiled electronically, the GAO report says.

There are likely many more than the 500,000 accounts identified in the report as trust companies and other financial services providers accommodate high-net-worth clients who wish to invest in unconventional assets. Also, some individuals with solo 401(k)s act as trustee and don’t use a custodian, so these accounts aren’t reflected in the data. Also not included are employer-sponsored plans that use IRAs such as Saving Incentive Match Plans for Employees or a Simplified Employee Pension, which may also allow account owners to invest in unconventional assets.

The GAO report notes that solo 401(k)s are generally not required to report their investment holdings; they’re required to report only total plan assets, and aren’t required to identify or report separately on investment in unconventional assets. And if the solo 401(k) assets are less than $250,000, there is no reporting requirement.

This article shows that while alternate investing is valuable strategy, it’s best to have a trusted person handling your money.  Please contact one of the IRA Experts at the IRA Financial Group for more info!

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Jan 12

Why Choose IRA Financial Trust as Your Self-Directed IRA Custodian

The IRA Financial Trust Difference

The IRA Financial Trust Company was founded by tax attorneys who worked at some of the largest law firms in the world, including White & Case LLP and Dewey and LeBoeuf LLP, and have helped over 12,000 clients Self-Direct their retirement funds through their ownership in the IRA Financial Group LLC.

IRA Financial Trust Company is a regulated financial institution that is made up of retirement tax specialists committed to helping you make Self-Directed retirement investments quickly while minimizing annual fees.

The IRA Financial Trust Advantage

  • One low annual fee
  • No transaction or annual account asset fees
  • Our Northern Trust Company relationship
  • IRA Financial Group has helped over 12,000 clients establish Self-Directed retirement accounts totaling nearly 4 billion dollars since 2010
  • Work with Self-Directed IRA experts
  • Experience our Continuing Retirement Education (CRE) Platform
  • Invest in what you know and understand from the comfort of a local bank
  • Specializing in Checkbook Control Self-Directed IRAs

The IRA Financial Trust DifferenceEstablish a Self-Directed IRA or a Self-Directed IRA LLC with Checkbook Control with retirement experts who can help you navigate all the IRS rules and regulations while leveraging the reassurance of Northern Trust, a global banking leader for over 125 years.

The retirement experts at IRA Financial Trust will help you establish your Self-Directed IRA or Checkbook Control IRA in minutes.  We are the nation’s first IRA custodian that has established an application process specifically for the Checkbook Control IRA LLC.  Once your new Self-Directed IRA account has been established with IRA Financial Trust, we will assist you in rolling over your current retirement funds or make IRA contributions to your account.  All rollover and IRA contributions will be held with the Northern Trust, where they will receive FDIC protection of up to $250,000, before they are invested in traditional or alternative assets at the client’s direction.

Getting started is quick and easy.

Work with IRA Financial Trust and Northern Trust to establish your Self-Directed IRA or Checkbook IRA account today!

To learn more about opening a Self-Directed IRA account with the IRA Financial Trust Company, please contact an IRA retirement expert at 1-800-472-1043.

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Jan 10

Why You Need a Self-Directed Roth IRA in 2017!

Use your retirement funds to invest in real estate, precious metals, private businesses and much more tax-free!

The Self-Directed Roth IRA Structure has been in use for some 35 years. The Tax Court and the IRS have firmly established that the funding of a new entity by an IRA for self-directing assets was a permitted transaction and not prohibited pursuant to Code Section 4975. In fact, the IRS, in an advisory memorandum to audit agents, confirmed that a newly established entity owned by an IRA and managed by the IRA owner may make investments using IRA funds without violating the prohibited transaction rules under Internal Revenue Code Section 4975.

The Roth IRA

In 1997, Congress, under the Taxpayer Relief Act, introduced the Roth IRA to be like a traditional IRA, but with a few attractive modifications. The big advantage of a Roth IRA is that if you qualify to make contributions, all distributions from the Roth IRA are tax-free – even the investment returns – as long as the distributions meet certain requirements. In addition, unlike traditional IRAs, you may contribute to a Roth IRA for as long as you continue to have earned income (in the case of a traditional IRA, you can’t make contributions after you reach age 70 and 1/2). The rules for the Roth IRA are found in the Internal Revenue Code under Section 408A.

What is a Roth IRA?

A Roth IRA is an IRA that the owner designates as a Roth IRA. ASelf Directed IRA LLC Roth IRA is generally subject to the rules for Traditional 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. However, several rules, described below, apply uniquely to Roth IRAs.

The most attractive feature of the Roth IRA is that even though contributions are not deductible, all distributions, including the earnings and appreciation on all Roth contributions, are tax-free if certain conditions are met.

Roth IRA Characteristics

The following is an overview of the tax characteristics of the Roth IRA

  • Contributions are not Tax-Deductible: Unlike a Traditional IRA, an individual is not permitted to take an income tax deduction for their Roth IRA contributions. All Roth IRA contributions are made with after-tax dollars. What this means is that the amount of the contribution is treated as basis in the IRA.
  • Earnings are Tax-Deferred: Earnings and gains from a Roth IRA are tax-deferred and may be tax-exempt if certain conditions are met. What this means is that all income and gains generated by a Roth IRA investment are not subject to income tax.
  • Tax-Free Earnings: The attraction to the Roth IRA is based on the fact that qualified distributions of Roth earnings are tax-free. As long as certain conditions are met and the distribution is a qualified distribution (the Roth IRA has been established for greater than five years and the Roth IRA owner is over the age of 59 and 1/2), the Roth IRA owner will never pay tax on any Roth distributions received.

The Self-Directed Roth IRA LLC structure has become a popular choice for gaining total investment control (“checkbook control”) over IRA funds and making investments tax-free. In each case, a limited liability company (“LLC”) is established that is owned by the IRA account and managed by the IRA account holder. The IRA Holder’s IRA funds are then transferred by the Custodian to the LLC’s bank account providing the IRA holder with “checkbook control” over his or her IRA funds.

The IRA Financial Group was founded by a group of top law firm tax and ERISA professionals who have worked at some of the largest law firms in the United States, including White & Case LLP and Dewey & LeBoeuf LLP. We have helped thousands of clients take back control over their retirement funds while gaining the ability to invest in almost any type of investments.

With IRA Financial Group’s Self-Directed Roth IRA LLC Structure – you now can:

  • Use your retirement funds to invest in real estate and much more tax-free!
  • Take advantage of great investment opportunities in real estate, tax liens, precious metals, private businesses, and much more!
  • Gain control of your retirement funds!
  • Pay no tax on distributions
  • Purchase a home and move in tax-free at 59 and 1/2
  • Diversify your retirement portfolio!
  • Access your retirement funds to make the investments you want when you want!
  • Help grow your retirement funds tax-free!
  • Make investments quickly without delay!
  • Make investment decisions without requiring custodian consent!
  • Save on high annual custodian fees
  • Enjoy tax benefits generated by using a Self-Directed Roth IRA LLC
  • Work directly with our retirement tax professionals to establish an IRS compliant structure that works best for you and your investment goals

Our Self-Directed Roth IRA LLC Establishment Service Includes

  • Free tax consultation with our IRA Specialists
  • Setup your LLC in the State of your choice
  • Prepare and file the Articles of Organization with the State
  • Generate a special purpose, attorney-reviewed Self-Directed Roth IRA LLC Operating Agreement
  • Generate a special purpose, attorney-reviewed Subscription Agreement
  • Obtain the EIN from the IRS
  • Co-ordinate setup with the Custodian of your Choice
  • Free tax and IRA support
  • Direct access to our on-site retirement tax professionals
  • No annual fees
  • Satisfaction Guaranteed!

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 retirement tax experts 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.

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

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Jan 03

There’s Still Time to Cut Your 2016 Tax Bill

Although we’ve rung in a new year, there’s still time to cut your taxes for 2016.  If you already have an individual retirement account (IRA), you have until Tax Day to make contributions.  Contributions made to a traditional plan are usually tax-deductible, though there are income limits if your employer offers a retirement plan, such as a 401(k).  Although Roth plans are not tax-deductible, there’s still huge benefits to max out your 2016 plan, including tax-free withdrawals come retirement.

What are the maximum contribution limits?

The maximum contribution limit for an IRA for 2016 (and 2017) is $5,500 or $6,500 if you’re age 50 or older, or your taxable compensation for the year, if less. Contributions to a Roth IRA may be limited based on your filing status and income.

There's Still Time to Cut Your 2016 Tax BillIs my IRA contribution deductible on my tax return?

If neither you nor your spouse is covered by an employer retirement plan, such as a 401(k), your deduction is allowed in full.

For contributions to a traditional IRA, the amount you can deduct may be limited if you or your spouse is covered by a retirement plan at work and your income exceeds certain levels. In the case of a Roth IRA, contributions aren’t deductible.

Can I contribute to a traditional or Roth IRA if I’m covered by a retirement plan at work?

Yes, you can contribute to a traditional and/or Roth IRA even if you participate in an employer-sponsored retirement plan (including a SEP or SIMPLE IRA plan). If you or your spouse is covered by an employer-sponsored retirement plan, such as a 401(k) plan and your income exceeds certain levels, you may not be able to deduct your entire contribution.

Can I establish an IRA if only one spouse has earned income for the year?

Yes. If you file a joint return, you and your spouse can each make IRA contributions even if only one of you has taxable compensation. The amount of your combined contributions can’t be more than the taxable compensation reported on your joint return and cannot exceed the maximum IRA contributions for the year (for 2017 $5500 or $6500 if over the age of 50). It doesn’t matter which spouse earned the compensation.

How can I make a Roth IRA contribution if I earned too much money in 2017?

For 2017, if your modified adjusted gross income is below $181,000 and you file a joint return, you can make a Roth IRA contribution. For those who earned greater than $181,000 during the year, the IRS provides a formula, which will set forth the reduced maximum amount of Roth IRA contributions permitted for the year, if any.

One way to circumvent the Roth IRA income threshold rules, if to simply make an after-tax traditional IRA contribution and then convert the Traditional IRA into a Roth IRA. Since the Traditional IRA contribution was made after-tax there would be no tax on the Roth IRA conversion. This tactic was made possible when the IRS removed the income level restrictions for making Roth conversions in 2010.

Can I Make IRA contributions after age 70½

You can’t make regular contributions to a traditional IRA in the year you reach 70½ and older. However, you can still contribute to a Roth IRA and make rollover contributions to a Roth or traditional IRA regardless of your age.

To learn more about the IRA contribution rules, please contact an IRA tax expert at 800-472-0646.

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Dec 28

Are Distributions that Consist of my Roth IRA Contributions Ever Subject to Income Tax?

No, the portion of your Roth IRA that consists of your contributions is never subject to income tax when it comes out – even if you take it out the day you made the contribution. That is because all contribution you made were nondeductible – meaning you already paid tax on the money. In addition, any distribution you take from a Roth IRA is presumed to be a return of your contributions until you have withdrawn all contributions you made to it over the years. In other words, all contributions all recovered before earnings before earnings are recovered.

If I establish a Roth IRA is there a certain amount of time I am not allowed to take tax-free distributions of investment returns?

Are Distributions that Consist of my Roth IRA Contributions Ever Subject to Income Tax?In general, you should not take a distribution of your investment returns for five years. A distribution within five calendar years of when you first establish a Roth IRA can never be a qualified distribution. Thus, counting the year of your first contribution as year one, you will satisfy the five-year requirement if you wait until the sixth year before withdrawing any earnings.

However, simply satisfying the five-year requirement will not automatically make a distribution qualified. It must also be at least one of the following:

  • A distribution you take after reaching 59 and 1/2
  • A distribution you take after becoming disabled
  • A distribution to your beneficiary or your estate after your death
  • A distribution you take to purchase a first home (up to a lifetime withdrawal limit of $10,000)

Therefore, if your distribution satisfies the five-year requirement and falls into one of the above categories, it will be qualified and, hence, entirely tax-free.

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

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Dec 21

The Unrelated Business Taxable Income Rule And Flipping Real Estate With IRA Funds

Since the creation of individual retirement accounts (“IRAs”) the Internal Revenue Service (“IRS”) has always permitted an IRA or other retirement account to purchase, hold, or flip real estate.   In fact, it states it right on the IRS website. By using a Self-Directed IRA, one will gain the ability to buy real estate, such as raw land, residential or commercial property, flip homes, and much more without paying tax.  One of the major advantages of flipping homes with a retirement account is that all gains are tax-deferred until a distribution is taken (Traditional IRA distributions are not required until the IRA owner turns 70 1/2). In the case of a Roth IRA, all gains are tax-free.

When engaging in real estate transaction, such as a house flipping transaction, one must keep in mind the Unrelated Business Taxable Income Rules (also known as UBTI or UBIT) which can be found in Internal Revenue Code Section 512.

The Unrelated Business Taxable Income Rule And Flipping Real Estate With IRA FundsThe purpose of the UBTI rules is to treat tax-exempt entities, such as charities, IRAs, and 401(k) plans as a for-profit business when they invest in an active trade or business operated through a pass-through entity, such as an LLC or partnership (a C corporation would block the application of the UBTI tax rules) or use leverage (there is an exemption to the UBTI rules for 401(k) plans who use nonrecourse leverage).  The tax imposed by triggering the UBTI rules is quite steep and can go as high as 40 percent.

In general, most passive investments that a retirement account might invest in are exempt from the UBTI rules. Some examples of exempt types of income include: interest from loans, dividends, annuities, royalties, most rentals from real estate, and gains/losses from the sale of real estate.

However, for real estate investors looking to buy and sell multiple real estate properties in a year or use leverage, one must be conscious of the application of the UBTI tax rules.  The key point when determining whether a retirement account real estate transaction or series of transactions rises to the level of a trade or business are based on the facts and circumstances.  In Mauldin v. Comr. 195 F.2d 714 (10th Cir. 1952), the court explained that there is no fixed formula or rule of thumb for determining whether property sold by a taxpayer was held by him primarily for sale to customers in the ordinary course of his trade or business. Each case must rest upon its own facts. The court identified a number of helpful factors to point the way, among which are the purposes for which the property was acquired, whether for sale or investment; and, continuity and frequency of sales as opposed to isolated transactions.  In addition, in Adam v. Comr. 60 T.C. 996 (1973), acq., 1974-1 C.B. 1., the Tax Court analyzed the following factors in determining whether the taxpayer was engaged in the operation of a trade or business:

  • The purpose for which the asset was acquired
  • The frequency, continuity, and size of the sales
  • The extent of improvements made to the property
  • The proximity of sale to purchase

Generally one or two real estate transactions in a year would not rise to the level of a trade or business and trigger the UBTI tax rules. The question then becomes what happens if your retirement account engages in three, four, or even ten flipping transactions in a year – would that be considered an active trade or business and, hence, trigger the UBTI tax?  Again, one must examine all the facts and circumstances surrounding the multiple house flipping transactions in order to determine whether the transactions in the aggregate would constitute an active trade or business. The burden falls on the retirement account holder to make the determination of whether the retirement account engaged in a trade or business and, if so, file the IRS Form 990-T. Therefore, it is important to work with a tax professional who can help one evaluate the transaction to determine whether the flipping transaction will trigger the UBTI tax.

For more information about the UBTI rule and real estate transactions within your IRA, please contact us @ 800.472.0646.

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Dec 19

How You Can Use a Loan with Your Self Directed IRA to Invest

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.

How You Can Use a Loan with Your Self Directed IRA to InvestThe 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 close to a 40% tax for 2016. 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 40% for 2016. 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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Dec 14

Bitcoin Exchanger Receives Summons – Using Self Directed IRA to Invest Becomes More Attractive

In a petition filed November 17, 2016 with the U.S. District Court for the Northern District of California, the U.S. Department of Justice (DOJ) asked the court for a John Doe summons to be issued on bitcoin exchanger Coinbase Inc.

The John Doe summons would require Coinbase Inc., the largest bitcoin exchanger in the U.S., to provide the DOJ with information related to all bitcoin transactions it processed between 2013 and 2015. The DOJ would then share the information received with the Internal Revenue Service to be matched against filed tax returns. The IRS would be looking for bitcoin transactions that have the potential for successful criminal investigation and prosecution.

The IRS has previously stated a position that virtual currency transactions, such as bitcoin, are property on which gain can be realized.  In Notice 2014-21, the IRS stated that it would tax digital money such as bitcoin like property, not currency. The IRS also believes bitcoin transactions provide an opportunity for tax evasion. In fact, according to the IRS, the potential for tax evasion is enhanced via bitcoin transactions, “because there is no third-party reporting of virtual currency transactions for tax purposes … and the likelihood of under-reporting is significant.”

Bitcoin Exchanger Receives Summons - Using Self Directed IRA to Invest Becomes More AttractiveAlthough IRS Notice 2014-21 did not address whether bitcoins would be considered an approved investment for retirement purposes, the fact that the Notice is treating bitcoins as property, like stock, and not as a collectible, it should be clear bitcoin is an approved investment for IRAs and would not violate IRC 408(m). If bitcoins were purchased using retirement funds, such as a self-directed IRA, there would generally be no tax on the gains from the purchase or sale of bitcoins.  The tax ramifications of purchasing bitcoins with retirement funds could get somewhat complex, especially if the retirement account investor is considered to be in the active business of trading bitcoins, which could generate a tax called the Unrelated Business Taxable Income tax (UBTI), which can go as high as 40%.

Anyone engaging in bitcoin transactions, particularly those transactions utilizing the exchange services of Coinbase Inc. during the 2013 to 2015 time frame, should take note of the DOJ summons.

If there are any bitcoin transactions that may be of concern, now is the time to consult with a tax professional and consider all your options, including voluntary disclosure.

Investing in bitcoins is perfectly legal, however, there are income tax implications for buying and selling bitcoins, which many taxpayers seem to be unaware of.  Using a self-directed IRA  to buy bitcoins could prove to be highly tax efficient, especially in light of the IRS’s recent scrutiny into bitcoin investments.

For more information about investing in Bitcoin, please contact us @ 800.472.0646.

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Dec 12

Using Your IRA to Start a Business

Leaving your job or thinking of leaving your job and have an IRA? Why not use your IRA to invest in yourself instead of a fluctuating stock market? Why put your hard earned retirement funds in the hands of Wall Street when you can use your IRA funds on a business you can run, manage, and even earn a salary from?

Using Your IRA to Start a BusinessWith IRA Financial Group’s Business Acquisition Structure, a new C Corporation is formed which will adopt a 401(k) Qualified Plan. Your existing retirement funds can then be rolled into the newly adopted 401(k) Plan tax-free. The 401(k) Plan will then purchase the stock of the new corporation. The new corporation will then use those funds to purchase a new business or franchise tax-free!

With the IRS compliant Business Acquisition Structure, you can earn a reasonable salary from your new business or franchise. You can also use your new 401(k) Plan to make high tax-deductible contributions – $53,000 ($59,000 if you are over the age of 50) or even borrow up to $50,000 for any purpose.

What does the IRS Say about this?

The Internal revenue Code explicitly permits the purchase of corporate stock by a 401(k) Qualified Plan. The IRS has repeatedly confirmed that the structure is legal but has expressed some concern about the potential for abuse by individuals not being properly advised by tax professionals. For example, the IRS has documented the following instances of abuse when it comes to using retirement funds to invest in a business: (i) employees of the business are not properly informed that a 401(k) qualified plan has been adopted by the business and that they are eligible to participate, (ii) the structure is established with no intention to use for business purpose and the sole purpose for establishment was to get access to the retirement funds without penalty, or (iii) the structure is being used to purchase assets for personal use with the retirement funds.

Therefore, the IRS has stressed that it is imperative that when using IRA funds to establish a new business or finance an existing one, it is important to work with qualified tax professionals who have experience in this area and could make sure the structure is established in full compliance with IRS and ERISA rules and procedures. Work with IRA Financial Group’s in-house tax professionals to help establish your IRS compliant Business Acquisition Solution.

IRA Financial Group’s Business Acquisition structure is IRS compliant and is the only legal structure that one can use to invest retirement funds into a business they will operate and be employed by. With a self-directed IRA LLC, an individual can invest retirement funds in a private business, but not a business that he or she would be involved in – that would be considered a prohibited transaction pursuant to Internal Revenue Code 4975. While, with a Solo 401K, an individual could only borrow up to $50,000 or 50% of his or her account value whichever is less and use that loan for any purpose, including starting or financing a business. However, if an individual requires more than $50,000 for a business, then the Business Acquisition structure is the only solution that will allow one to use their retirement funds to start or finance a business tax-free and without penalty!

To learn more about the advantages of using a Business Acquisition Structure to start or finance a business using retirement funds, please contact a retirement expert at 800-472-0646.

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Dec 09

What’s the Difference Between a Self-Directed IRA with Checkbook Control and a Regular IRA?

An Individual Retirement Account (IRA) is a tax-deferred retirement account for an individual that permits individuals to set aside money each year, with earnings tax-deferred until withdrawals begin at age 59 1/2 or later (or earlier, with a 10% penalty).

The Difference Between a Traditional IRA and a Checkbook Control Self Directed IRAMany “traditional IRA” custodians advertise themselves as offering a Self Directed IRA with “checkbook control”, but what that really means is that you can direct your IRA as long as you direct into one of their offerings. In other words, in a “traditional IRA” with no “checkbook control”, you are generally only permitted to invest your IRA funds in investments in equities, mutual funds, bonds or investments offered by the custodian. Whereas, in the case of a “truly” Self Directed IRA LLC with “checkbook control”, a limited liability company (“LLC”) is established that is owned by the IRA account and managed by the IRA account holder. The IRA Holder’s IRA funds are then transferred by the Custodian to the LLC’s bank account providing the IRA holder with a “truly” Self Directed IRA LLC.

With a “truly” Self Directed IRA LLC, you will have total control over your IRA funds and you will no longer have to get each investment approved by the custodian of your account like in a “traditional IRA”. Instead, all decisions are truly yours. When you find an investment that you want to make with your IRA funds, simply write a check or wire the funds straight from your Self Directed IRA LLC bank account to make the investment. A “truly” Self Directed IRA allows you to eliminate the delays associated with an IRA custodian, enabling you to act quickly when the right investment opportunity presents itself.

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

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