Jul 29

The Self-Directed SEP IRA

A Self-Directed IRA is a type of IRA structure that allows the IRA holder (you) to have more control over your retirement funds. Unknown to some, not all Self-Directed IRAs are the same. It is well known that the IRS allows you to use your IRA to make traditional investments, such as stocks and mutual funds. It is not as well known that the IRS also allows you to use IRA funds to make investments such as real estate, precious metals, tax liens, private business and much more tax-free and penalty free!

The SEP IRA in a Nutshell

A Simplified Employee Pension (SEP) plan provides business owners with a simplified method to contribute toward their employees’ retirement, as well as their own retirement savings. A SEP is essentially an employer-sponsored profit-sharing plan. Contributions are made to a retirement account or annuity set up for each plan participant.

A SEP IRA account is a traditional IRA and follows the same investment, distribution, and rollover rules as traditional IRAs. Employees must be included in the SEP plan if they have

  • attained age twenty-one,
  • received at least $550 in compensation from your business for the year, and
  • worked for your business for at least three of the past five years.

The three-of-five eligibility rule means you must include any employee in your plan who has worked for you in any three of the past five years as long as the employee has satisfied the other plan eligibility requirements. This is the most restrictive eligibility requirement allowable. You can choose to use less restrictive participation rules in your plan, such as allowing employees to participate immediately after they start work or after a shorter period of employment. If you use the three-of-five rule, you must count any work, no matter how little, in each of the prior five years. Use plan years (often the calendar year), not years based on the date the employee started working for you.

The contributions you make to each employee’s SEP IRA each year cannot exceed the lesser of

  • 25 percent of compensation; or
  • $53,000 for 2015.

There are no catch-up contributions for a SEP IRA as there are for a 401(k) plan. These limits apply to contributions you make for your employees to all defined contribution plans, which includes SEPs. Up to $265,000 in 2015 of an employee’s compensation may be considered. Also, contributions must be made in cash, and you cannot contribute property.

Types of Self-Directed SEP IRA Accounts

There are essentially three types of Self-Directed SEP IRAs:

1. Financial Institution Offered Self-Directed SEP IRA

The most popular Self-Directed SEP IRA account offered is the financial institution Self-Directed SEP IRA. The reason that this type of Self-Directed SEP IRA is so popular is because it is generally offered by the major financial institutions, such as Bank of America, Wells Fargo, Fidelity, Vanguard, etc. With this type of Self-Directed SEP IRA, the SEP IRA holder is generally able to only make SEP IRA investments offered by the financial institution which typically only includes financial related investments, such as stocks, mutual funds, and ETFs. Even though these types of IRA accounts are called “Self-Directed IRA” accounts that are very limited in their investment scope and do not allow IRA investors to make any non-traditional investments, such as real estate.

Why do the financial institutions limit the investment options available?

A financial institution that offers IRA accounts is not required to offer its IRA investors with the opportunity to make all allowable types of IRA investments. For example, even though real estate is an IRS approved investment, an IRA custodian is not required or obligated to offer that investment option. Accordingly, most financial institutions offering SEP IRA accounts will restrict the SEP IRA investment option to financial products offered by the financial institution. The reason behind this is quite clear – a financial institution earns fees from the sale of financial products, not by allowing its clients to pull money out of the IRA account to buy real estate from a third-party.

2. Custodian Controlled Self-Directed SEP IRA

IRA Financial Trust Company offers Self-Directed SEP IRA investors full IRA custodial services for traditional and alternative asset investments, such as real estate. All IRA funds will be held with Northern Trust, an FDIC insured global banking leader for over 125 years, before the client directs the funds for investment.

Until a 1996 court case, the custodian controlled Self-Directed SEP IRA was the only way one was able to use IRA funds to make a non-traditional investment, such as real estate. In essence, with a custodian controlled Self-Directed SEP IRA, every step a SEP IRA holder wanted to make had to be carried out through a custodian, such as IRA Financial Trust Company. In other words, the SEP IRA holder directs the IRA custodian, IRA Financial Trust, to make the investment directly. All transaction related activity, such as paying expenses or depositing checks, must be paid by the IRA custodian.

3. “Checkbook Control” Self-Directed SEP IRA LLC

IRA Financial Trust is proud to offer Checkbook IRA custodial services along with its full service IRA administration services, all for one low price without any transaction or asset valuation fees. IRA Trust Company is one of the few full-service IRA custodians who specialize in establishing Checkbook Control IRA LLC accounts.

IRA Financial Trust Company is a regulated, non-banking financial institution that is made up of retirement tax specialists committed to helping you make Self-Directed retirement investments quickly while minimizing annual fees. IRA Financial Trust Company was founded by tax attorneys who worked at some of the largest law form in the world, including White & Case LLP and Dewey and LeBoeuf LLP and have helped over 12000 clients self-direct their retirement funds through their ownership in the IRA Financial Group LLC. Our experience working with Checkbook Control IRA LLC structures is unmatched in the industry.

In the 1996 case of Swanson vs. Commissioner, 106 T.C. 76 (1996), the tax court gave its blessing to a new type of Self-Directed IRA structure — the Self-Directed SEP IRA LLC also known as the Checkbook SEP IRA— that is much simpler than investing through a regular custodial controlled Self-Directed IRA account.

The Self-Directed SEP IRAWith a “Checkbook Control” Self-Directed SEP IRA, the SEP IRA holder (you) will have total control over your SEP IRA funds. You will no longer have to get each investment approved by the IRA custodian of your account like in a custodian controlled Self-Directed SEP IRA. Instead, with IRA Financial Trust Company’s Checkbook Control SEP IRA account, all decisions are truly yours. When you find an investment that you want to make with your SEP IRA funds, simply write a check or wire the funds straight from your Self-Directed SEP IRA LLC bank account to make the investment.

Under the Checkbook SEP IRA format, the Checkbook Control SEP IRA is set up as a Self-Directed account with IRA Financial Trust that’s capitalized by funds rolled over from your current retirement account. The funds are deposited with Northern Trust who serves as IRA Financial Trust Company’s banking partner. Then, a Limited Liability Company (“LLC”) is created in which your new SEP IRA purchases all the membership units/interests. Now, your money is held in an LLC and you are ready to invest at your discretion. A “Checkbook Control” Self-Directed SEP IRA allows you to eliminate the delays, IRA custodian transaction fees, and IRA account annual valuation fees, enabling you to act quickly when the right investment opportunity presents itself.

With a Self-Directed SEP IRA, when you find an investment that you want to make with your SEP IRA funds, simply write a check or wire the funds straight from your Self-Directed SEP IRA LLC bank account to make the investment. The Self-Directed SEP IRA allows you to eliminate the delays associated with an IRA custodian, enabling you to act quickly when the right investment opportunity presents itself.

IRA Financial Trust offers one low, flat fee IRA Custodian fee without any transaction fees and annual account valuation fees. We believe that Self-Directed SEP IRA investing should be affordable and simple. IRA Financial Trust is committed to helping all our clients build their retirement wealth through Self-Directed IRA investments without the high costs and complexities.

To learn more about what type of Self-Directed SEP IRA account will best suit your retirement and investment needs, please contact a Self-Directed retirement expert at 1-800-472-1043.

Jul 26

Adam Bergman, IRA Financial Group Partner, Interviewed on Miami Business Radio About Self-Directed IRAs

On July 14, 2016, Adam Bergman, a partner with the IRA Financial Group, was interviewed on WZAB 880 – The Biz – the Fried on Business Show, discussing self-directed IRAs and Solo 401(k) Plans. Mr. Bergman spoke about how the self-directed IRA and Solo 401(k) plans work, its advantages, and the type of investments one can make using IRA and 401(k) pans funds. Mr. Bergman also commented on the topic of tax-deferral and the power of the Roth IRA. “I was really excited about having the opportunity to be a guest on the Fried on Business Show and discuss the many advantages of using a self-directed IRA to make real estate and other investments without tax,” stated Mr. Bergman.

Adam Bergman is a partner with the IRA Financial Group, LLC, the markets leading provider of Self-Directed IRA LLC and Solo 401(k) plans. Mr. Bergman is also the President of the IRA Financial Trust Company, a self-directed IRA custodian. In addition, Mr. Bergman is a recognized expert on IRAs and 401(k) Plans and is the founder of the BergmanIRAReport.com and the Bergman401KReport.com. Mr. Bergman is the author of the book titled, Going Solo: America’s Best Kept Retirement Secret For the Self-Employed, available on Amazon, and is a frequent contributor to Forbes. Mr. Bergman has advised over 10,000 clients on the self-directed IRA LLC and Solo 401(k) Plan solutions.

Mr. Bergman has written three other books on the topic of self-directed retirement plans, including The Checkbook IRA, Turning Retirement Funds into Start-Up Dreams, and In God We Trust In Roth We Prosper.

Prior to joining the IRA Financial Group, LLC, Mr. Bergman worked as a tax and ERISA attorney at White & Case LLP, Dewey LeBoeuf LLP, and Thelen LLP, three of the most prominent corporate law firms in the world. Throughout his career, Mr. Bergman has advised thousands of clients on a wide range of tax and ERISA matters involving limited liability companies and retirement plans. Mr. Bergman received his B.A. (with distinction) from McGill University and his law degree (cum laude) from Syracuse University College of Law. Mr. Bergman also received his Masters of Taxation (LL.M.) from New York University School of Law.

IRA Financial Group is the market’s leading provider of self-directed retirement plans. 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.

The IRA Financial Trust Company, a self-directed IRA custodian, was founded by Adam Bergman, a partner with the IRA Financial Group.

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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Jul 19

How to Use the Rollover Business Start-up (ROBS) with Your IRA

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 volatile 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?

With IRA Financial Group’s Business Acquisition structure (also known as the Rollover Business Start-up), 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.

How to Use the Rollover Business Start-up (ROBS) with Your IRATherefore, 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.

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

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Jul 18

IRA Financial Group Introduces the Self-Directed IRA 72(t) Election Strategy for Receiving Penalty Free IRA Distributions

IRC 72(t) election strategy is being used by self-directed IRA investors seeking to take IRA distributions prior to age 59 1/2 without penalty

IRA Financial Group, the leading provider of self-directed IRA LLC and Solo 401(k) plan solutions introduces the Self-Directed IRA 72(t) election strategy for IRA investors looking to receive IRA distributions prior to the age of 59 1/2 without paying a 10% early distribution penalty. Individual Retirement Accounts (“IRAs”) were intended by the IRS to be long-term savings vehicles to fund your retirement. To discourage early withdrawals, the federal government generally imposes an additional tax of 10% on withdrawals made before age 59 1/2 in addition to any income tax owed on these distributions.

According to Adam Bergman, a partner with the IRA Financial Group, the federal government has recognized that individuals may need to tap their retirement funds before age 591/2 and, in certain limited instances, permit premature withdrawals without the 10% tax penalty, such as (i) Disability or death of the IRA owner, (ii) Payment of certain medical expenses that exceed 7.5% of your Adjusted Gross Income, (iii) Payment of health insurance premiums if you’ve been unemployed for at least 12 weeks, (iv) Payment of qualified higher education expenses, (v) Purchase of a first home (There is a $10,000 lifetime limit on these withdrawals.), (vi)Payment of IRS tax levies, and (vii) Series of Substantially Equal Periodic Payments. The series of “substantially equal periodic payments” are commonly referred to as 72(t) distributions. Under this provision, you can take regular withdrawals from your IRA before age 591/2 under one of three distribution methods approved by the IRS without incurring the 10% early distribution penalty.

IRA Financial Group Introduces the Self-Directed IRA 72(t) Election Strategy for Receiving Penalty Free IRA DistributionsThe primary advantage of using a Self Directed IRA to make investments is that all income and gains associated with the IRA investment grow tax-deferred. “We have seen a strong interest in self-directed IRA investors under the age of 59 1/2 looking to use the 72(t) election take IRA distributions over a period of years and escape the 10% early distribution penalty.” Stated Mr. Bergman. “The IRC 72(t) election strategy is certainly more beneficial for individuals under the age of 59 1/2 looking to take penalty free self-directed IRA distributions.” Stated Mr. Bergman.

IRA Financial Group is the market’s leading provider of “checkbook control” Self Directed IRA and Solo 401(k) plans. 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 tax and for one low flat fee.

The IRA Financial Trust Company, a self-directed IRA custodian, was founded by Adam Bergman, a partner with the IRA Financial Group.

To learn more about the IRA Financial Group please visit our website at http://www.irafinancialgroup.com or call 800-472-0646. To learn more about establishing a self-directed IRA account with the IRA Financial Trust Company please visit http://www.irafinancialtrust.com or call 800-472-1043.

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Jul 14

The IRA Financial Group Business Acquisition Flow Chart

THE BUSINESS ACQUISITION & COMPLIANCE SOLUTION STRUCTURE (BACSS)

(Click the image below to view the chart)

Business Acquisition Solution

Contact us today at 800-472-0646 to learn more about how you can use your IRA funds to start a new business or grow an existing business tax-free, in full IRS compliance, and without penalties!

Jul 12

Adam Bergman – IRA Financial Group Partner –To Release Three New Books on Self-Directed Retirement in 2016

New three book Nutshell series will be become available in August 2016 on self-directed IRA, Solo 401(k) Plan, and ROBS structure

Adam Bergman, tax attorney and IRA Financial Group partner, announces the coming release of a three-part book series on self-directed retirement plans. The new nutshell series will offer a comprehensive overview of the self-directed IRA, Solo 401(k), and Rollover Business Start-Up or ROBS solution in three separate books. “I hope the three new nutshell books will offer a clear and concise overview of the self-directed IRA,, Solo 401(k) plan, and ROBS solution,” stated Adam Bergman. The first book, “The Solo 401(k) in a Nutshell”, will be available on Amazon and Barnes and Nobles in August 2016.

According to Mr. Bergman, the self-directed nutshell book series will finally offer high-level advice that laypeople can use regarding the self-directed IRA, Solo 401(k) plan, and the ROBS solution.

Adam Bergman is a partner with the IRA Financial Group, LLC, the markets leading provider of Self-Directed IRA LLC and Solo 401(k) plans. Mr. Bergman is also the President of the IRA Financial Trust Company, a self-directed IRA custodian. In addition, Mr. Bergman is a recognized expert on IRAs and 401(k) Plans and is the founder of the BergmanIRAReport.com and the Bergman401KReport.com. Mr. Bergman is a frequent contributor to Forbes. Mr. Bergman has advised over 10,000 clients on the self-directed IRA LLC and Solo 401(k) Plan solutions.

Mr. Bergman has written four other books on the topic of self-directed retirement plans, including “The Checkbook IRA”, “Going Solo”,  “Turning Retirement Funds into Start-Up Dreams” and “In God We Trust, In Roth We Prosper”.

Prior to joining the IRA Financial Group, LLC, Mr. Bergman worked as a tax and ERISA attorney at White & Case LLP, Dewey LeBoeuf LLP, and Thelen LLP, three of the most prominent corporate law firms in the world. Throughout his career, Mr. Bergman has advised thousands of clients on a wide range of tax and ERISA matters involving limited liability companies and retirement plans. Mr. Bergman received his B.A. (with distinction) from McGill University and his law degree (cum laude) from Syracuse University College of Law. Mr. Bergman also received his Masters of Taxation (LL.M.) from New York University School of Law.

IRA Financial Group is the market’s leading provider of self-directed retirement plans. 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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Jul 11

The IRS Prohibited Transaction Rules Explained

The Internal Revenue Code does not describe what a Self-Directed IRA can invest in, only what it cannot invest in. Internal Revenue Code Sections 408 & 4975 prohibits Disqualified Persons from engaging in certain type of transactions. The purpose of these rules is to encourage the use of IRAs for accumulation of retirement savings and to prohibit those in control of IRAs from taking advantage of the tax benefits for their personal account.

The foundation 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”.

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

Categories of Prohibited Transactions

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

The IRS Prohibited Transaction Rules Explained 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 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

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)(1)(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

It is highly advisable to consult with a tax attorney or tax professional, specifically one with a strong understanding of the IRS prohibited transaction rules, before using a Self-Directed IRA to invest in a private business.

To learn more about using the IRS prohibited transaction rules, please contact a Self-Directed retirement expert at 1-800-472-1043.

Jul 08

Can You Invest in Gold with a Self Directed IRA?

Yes. Under Internal Revenue Code Section 408, the acquisition by a Self Directed IRA or an individually-directed account under a qualified retirement plan of any collectible is treated as a distribution from the IRA or account in an amount equal to the cost to the IRA or account of the collectible (Code Sec. 408(m)(1)). A collectible is any work of art, rug or antique, metal or gem, stamp or coin, alcoholic beverage, or any other tangible personal property specified by IRS for this purpose (Code Sec. 408(m)(2)). However, the following are not considered collectibles for this purpose:

Can You Invest in Gold with a Self Directed IRA?

  • one, one-half, one-quarter or one-tenth ounce U.S. gold coins (American Gold Eagle coins are the only gold coins specifically approved for IRAs. Other gold coins, to be eligible as IRA investments, must be at least .995 fine (99.5% pure);
  • one ounce silver coins minted by the Treasury Department;
  • any coin issued under the laws of any state;
  • a platinum coin described in 31 USCS 5112(k) ; and
  • gold, silver, platinum or palladium bullion (other than bullion that is made into a coin) of a certain fineness that is in the physical possession of a trustee that meets the requirements for IRA trustees under Code Sec. 408(a).

To learn more about investing in gold (and other precious metals) please click here.

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

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Jul 07

Tampa Ranked Top 10 for IRA Real Estate Investments

Do you live in or around Tampa?  Are you looking to invest in real estate?  Did you know you can use your retirement funds to invest in almost anything, including real estate, tax free?  If you currently have a retirement plan at a traditional financial institution, you may not know this.  That’s because they want to push the investments they’re familiar with, such as stocks, bonds and mutual funds.  With an IRA Financial Group Self-Directed IRA LLC, you can invest in almost anything without the consent of your custodian.  Further, with checkbook control, you can make an investment by simply writing a check.  Now is the time to invest in the Tamps area.  In a recent client survey, Tampa ranked in the Top 10 for real estate investments.  Continue reading to see how to use your retirement funds to invest.

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

Income or gains generated by an IRA generate tax-deferred/tax-free profits. Using a Self-Directed IRA LLC to purchase real estate Using a Self Directed IRA LLC To Purchase Real Estateallows the IRA to earn tax-free income/gains and pay taxes at a future date (in the case of a Roth IRA the income/gains are always tax-free), rather than in the year the investment produces income.

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

Why Buy Real Estate Using a Self-Directed IRA LLC

  • Gains are tax free
  • Positive cash flow is tax free
  • No time limit for holding property
  • IRA can borrow money – Leverage your investment with non-recourse financing
  • Potential to earn a larger rate of return on invested capital

Tax Advantages of Buying Real estate with a Self-Directed IRA LLC

When purchasing real estate with a Self-Directed IRA LLC, in general, all income and gains generated by your pre-tax retirement account investment would generally flow back into the retirement account tax-free. Instead of paying tax on the returns of a real estate investment, tax is paid only at a later date, leaving the real estate investment to grow unhindered. Generally, self-directed IRA real estate investments are usually made when a person is earning higher income and is taxed at a higher tax rate. Withdrawals are made from an investment account when a person is earning little or no income and is taxed at a lower rate.

For example, if Joe established a Self-Directed IRA LLC with $100,000 to purchase real estate and make other investments. Assume Joe kept his Self-Directed IRA LLC open for 20 years. Further assume that Joe was able to generate an average annual pre-tax rate of return of 8% and the average tax rate was 25%. By using a tax-deferred Self-Directed IRA LLC strategy, after 20 years Joe’s $100,000 investment would be worth $466,098 – a whopping $349,572 after taxes on the earnings. Whereas, if Joe made the investments with taxable funds (non-retirement funds) Joe would have only accumulated $320,714 after 20 years.

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

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

  • Set-up a Self-Directed IRA LLC with the IRA Financial GroupSelf Directed IRA LLC
  • Identify the investment property
  • Purchase the investment property with the Self-Directed IRA LLC – no need to seek the consent of the custodian with a Self-Directed IRA LLC with “Checkbook Control
  • Title to the investment property and all transaction documents should be in the name of the Self-Directed IRA LLC. Documents pertaining to the property investment must be signed by the LLC manager
  • All expenses paid from the investment property go through the Self-Directed IRA LLC. Likewise, all rental income checks must be deposited directly in to the Self-Directed IRA LLC bank account. No IRA related investment checks should be deposited into your personal accounts.
  • All income or gains from the investment flow through to the IRA tax-free!

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

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

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

If you have enough funds in your Self-Directed 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 IRA LLC. All ongoing expenses relating to the real estate investment must be paid out of your Self-Directed IRA LLC bank account. In addition, all income or gains relating to your real estate investment must be returned to your Self-Directed IRA LLC bank account.

2. Partner with Family, Friends, Colleagues

If you don’t have sufficient funds in your Self-Directed IRA LLC to make a real estate purchase outright, your Self-Directed 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 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 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 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 not if 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 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 non-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 IRA LLC would be prohibited.

3. Borrow Money for your Self-Directed IRA LLC

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

  • 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 there 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 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 (UBTI). “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 UBTI: 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 UBTI. 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 UBTI.

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.

A Self-Directed IRA LLC subject to UBTI is taxed at the trust tax rate because an IRA is considered a trust. For 2016, a Self-Directed IRA LLC subject to UBTI is taxed at the following rates:

  • $0 – $2,500 = 15% of taxable income
  • $2,501 – $5,900 = $375 + 25% of the amount over $2500
  • $5,901 – $9,050 = $1,225 + 28% of the amount over $5,900
  • $9,051 – $12,300 = $2,107 + 33% of the amount over $9,050
  • $12,300 + = $3,179.50 + 39.6% of the amount over $12,300

Why Work With the IRA Financial Group?

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. Over the years, we have helped thousands of clients establish IRS compliant Self-Directed IRA LLC solutions. With our work experience at some of the largest law firms in the country, our retirement tax professionals’ tax and real estate IRA knowledge in this area is unmatched.

For more information about using your Self-Directed IRA LLC to invest in real estate in Tampa, please contact an IRA Expert at the IRA Financial Group @ 800.472.0646.

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Jul 05

Deductions You can Take from IRA Contributions if You Are Covered by a Retirement Plan at Work

For 2016, if you were covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced/phased out if your modified Adjusted Gross Income (“AGI”) is:

  • More than $98,000 but less than $118,000 for a married couple filing a joint return.
  • More than $61,000 but less than $71,000 for a single individual or head of household.
  • Less than $10,000 for a married individual filing a separate return.

Deductions You can Take from IRA Contributions if You Are Covered by a Retirement Plan at Work

If you either lived with your spouse or file a joint return and your spouse was covered by a retirement plan at work, but you were not, your deduction is phased out if your modified AGI is more than $184,000 but less than $194,000 or more.

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

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