Mar 28

New Self-Directed Real Estate IRA Can Be Funded By IRA or 401(k) Plan Rollovers from All Major Financial Institutions

IRA or Employer 401(k) Plan funds can be rolled over to IRA Financial Group Real estate IRA LLC without tax or penalty

IRA Financial Group, the leading provider of self-directed IRA LLC and Solo 401(k) plans, announces that its new self-directed real estate IRA LLC can now be funded by tax-free rollovers from any IRA or employer 401(k) plan. IRA Financial Group’s self-directed IRA LLC solution can be funded by IRA rollover or contribution will allow one rollover their rollover IRA or 401(k) Plan funds tax-free. IRA Financial Group’s self-directed real estate IRA LLC can make traditional as well as non-traditional investments, such as real estate from a local bank and without requiring the consent of a custodian. In order to funds the self-directed IRA LLC structure, there are generally two methods, the IRA rollover or the IRA transfer. Transfers and rollovers are types of transactions that allow movements of assets between like IRAs – Traditional IRA to Traditional IRA. An IRA transfer is the most common method of funding a Self-Directed IRA LLC or Self-Directed Roth IRA. An IRA rollover generally involves the rollover of funds form a 401(k), 403(b), 457(b), or other employer retirement plan to a self-directed IRA. “IRA Financial Group’s self-directed real estate IRA LLC can now be funded by tax-free rollovers from all IRAs, 401(k), 403(b), 457(b) offering the IRA holder checkbook control to make real estate and other investments without tax,“ stated Susan Lattimore, a self-directed retirement specialist with the IRA Financial Group.

New Self-Directed Real Estate IRA Can Be Funded By IRA or 401(k) Plan Rollovers from All Major Financial InstitutionsUsing a Self-Directed IRA LLC to make investments, such as real estate presents many exciting investment and tax deferral opportunities and can now be funded by ta-free rollover from any IRA or 401(k) retirement plan.

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 provider of self-directed IRA LLC 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 custodian consent.

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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Mar 23

Tax Filing Tips To Save On Taxes And Boost IRA Savings

The following was written by Adam Bergman and first appeared on Forbes.com

With the individual tax-filing deadline date of April 18, 2017 for the 2016 taxable year quickly approaching, reviewing some of the ways one can save taxes as well as boost his or her retirement savings is always helpful.  Below are a few ways one can use the IRA contribution regime to help save taxes as well as enhance one’s retirement nest egg.

Tax Filing Tips To Save On Taxes And Boost IRA Savings

Still Time to Make IRA Contributions for 2016: The maximum IRA contribution is $5500 or $6500 if over the age of fifty and will remain the same for 2017 contributions. The deadline for making IRA or Roth IRA contributions for 2016 is April 18, 2017.  The contribution must be made by such date even if the taxpayer has filed an extension.  Contributions can be made in pre-tax, after-tax or Roth, if applicable.

Don’t Forget About Spousal IRA Contributions: Many married taxpayers are not aware that if one spouse is not working and the other spouse has earned sufficient income, the working spouse can make IRA contributions for the nonworking spouse.  In general, a nonworking spouse can make a deductible IRA contribution of up to $5,500 for 2016 ($6,500 if age 50 or older as of 12/31/16) as long as the couple files a joint return, and the working spouse has earned income that equals are exceeds the sum of the nonworking spouse’s contribution plus the working spouse’s contribution. However, if the working spouse is covered by a qualified retirement plan (via a job or self-employment), the deductibility of the nonworking spouse’s contribution is subject to phase-out based on joint adjusted gross income.

Be Aware of the Savers Tax Credit: Low- and moderate-income taxpayers are incentivized to save for retirement by becoming eligible to claim the saver’s credit, which can be worth up to $2,000 for individuals and $4,000 for couples. People age 18 and older who are not full-time students or dependents on someone else’s tax return can claim this tax credit until their adjusted gross income exceeds $62,000 for couples in 2016.

Not Too Late for Employer SEP IRA Contributions.  For sole proprietors or small business owners looking to make more substantial IRA contributions than $5500 or $6500, if over the age of 50, the SEP IRA could be your answer.  For 2016, an employer can make contributions to a SEP IRA up to the lessor of 25% (20% if sole proprietor or single member LLC) of the employee’s compensation or $53,000.  The limit increases to $54,000 for 2017.  SEP IRA contributions for the 2016 taxable year can be made by April 18, 2017 or up until the date of the tax filing extension date, if applicable.

Contributing to a pre-tax IRA or qualified retirement plan, such as a 401(k), can prove to be a great way of saving for retirement while at the same time reducing ones tax liability.  The IRA contribution regime was designed by Congress to incentivize Americans to save for retirement by granting a tax-deduction for the pre-tax IRA contribution as well as offering the ability to defer taxes on any IRA income/gains until a future date.  The good news is that there is still plenty of time for taxpayers to take advantage of these benefits.

For more information about IRA contributions, please contact us @ 800.472.0646.

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Mar 20

Why Use ROBS Instead of a Self-Directed IRA to Start a Business

The Business Acquisition & Compliance Solution Structure (BACSS) also known as the “Rollover Business Start-Up” (“ROBS”) Solution is an IRS and ERISA approved structure that allows an individual to purchase a new or existing business with retirement funds and be active in the business without triggering any of the IRS prohibited transaction rules. The ROBS solution qualifies for a special exemption set forth under IRC 4975(d) to certain prohibited transaction rules, which do not apply to a Self-Directed IRA structure.

How Does the ROBS structure work?

The ROBS arrangement typically involves rolling over a prior IRA or 401(k) plan account into a newly established 401(k) plan, which a start-up C Corporation business sponsored, and then investing the rollover 401(k) Plan funds in the stock of the new C Corporation. The funds are then deposited in the C Corporation bank account and are available for use for business purposes.

The following is how a typical ROBS structure works:

  • 1. Jim, an entrepreneur or existing business owner, establishes a new C Corporation in the state where the business will be operating. The ROBS structure must involve a C Corporation and not an LLC or S Corporation because the exemption to the IRS prohibited transaction rules under IRC 4975(d) involves the purchase of “Qualifying Employer Securities”, which is defined as stock of a Corporation. Using an LLC would not satisfy this definition and only individuals can be shareholders of an S Corporation and a 401(k) Plan is a trust.
  • 2. The new C Corporation adopts a prototype 401(k) plan that specifically permits the plan participants, including Jim, to direct the investment of their plan accounts into a selection of investments options, including employer stock, also known as “qualifying employer securities.
  • 3. Jim elects to participate in the new 401(k) plan and, as permitted by the plan, directs a rollover of a prior employer’s 401(k) Plan funds into the newly adopted 401(k) plan.
  • 4. Jim then directs the investment of his or her 401(k) plan account to purchase the C Corporation’s newly issued stock at fair market value (i.e., the amount that Jim wishes to invest in the new business).
  • 5. Jim also invests personal funds equal to more than 1% of the purchase price so that the structure is not considered an Employee Stock Option Plan (ESOP).
  • 6. The C Corporation utilizes the proceeds from the sale of stock (the amount of rollover funds and personal funds used) to purchase the assets for the new business.
  • 7. Joe would be able to earn a salary from the revenues of the business as well as personally guarantee any business loan.

What is the Difference between using a Self-Directed Vs. ROBS structure to buy a business?

In a lot of respects, using a Self-Directed IRA LLC or a 401(k) Plan to purchase stock in a corporation would seem to be subject to the same rules. However, as described above, using 401(k) Plan funds and not IRA funds allows one to take advantage of the prohibited transaction exemption under IRC 4975(d) for “Qualifying Employer Securities.”

The recent U.S. Tax Court case, Peek v. Commissioner, 140 T.C. No. 12 (May 9, 2013), highlights the risk and limitations involved when using a Self-Directed IRA to purchase business assets. In the Peek case, the taxpayers used IRA funds to invest in a corporation that ultimately purchased business assets. Because Mr. Peek used an IRA and not a 401(k) Plan to purchase the C Corporation stock, Mr. Peek was not able to earn a salary or personally guarantee a business loan, which ultimately was the cause of the IRS prohibited transaction rule violation.

The limitation of using a Self-Directed IRA LLC to buy a business is that the individual retirement account business owner would not be able to be actively involved in the business, earn a salary, or even personally guarantee a business loan. Whereas, if the business owner used a ROBS strategy, that individual would be able to be actively involved in the business, earn a salary, as well as personally guarantee a business loan without triggering the IRS prohibited transaction rules.

To learn more about the benefits of the ROBS (Rollover Business Startup) strategy, please contact a retirement tax expert at 800-472-0646.

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Mar 17

How to Use Your Self Directed IRA for Peer to Peer Lending

IRA Financial Group, the leading provider of self-directed IRA LLC and solo 401(k) plan solutions has designed a cost effective solution for peer-to-peer lenders looking to generate tax-deferred or tax-free returns without high annual IRA custodian costs.

As a result of the very strong demand from peer-to-peer IRA investors looking to have more control over the loan process without the high transaction fees, we have developed a special self-directed IRA LLC solution specifically tailored for peer-to-peer investors. Because of the attractive returns that many peer-to-peer investors have generated over the last several years, a growing number of peer-to-peer lenders are eager to use their IRA funds to make loans and generate tax-deferred income or gains.

Self Directed IRA LLCA Self-Directed IRA LLC offers one the ability to use his or her retirement funds to make almost any type of investment, including peer-to-peer lending, on their own without requiring the consent of any custodian or person in a tax-efficient manner. The IRS only describes the type of investments that are prohibited, which are very few. The main advantage of using a Self Directed IRA LLC to make peer-to-peer lending investments is that the loan can be made by simply writing a check. In addition, all income and gains associated with the self directed IRA hard money loan would grow tax-deferred.

With IRA Financial Group’s self directed IRA hard money lending solution, traditional IRA or Roth IRA funds can be used to make secured or unsecured private loans to small business owners or home builders.

IRA Financial Group’s Self-Directed IRA for hard money investors, is an IRS approved structure that allows one to use their retirement funds to make hard money loans, either secured or unsecured, to any non-disqualified third-party by simply writing a check. The Self-Directed IRA LLC involves the establishment of a limited liability company (“LLC”) that is owned by the IRA (care of the 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 traditional as well as non-traditional investments, such as hard money loans by simply writing a check.

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 custodian consent

For additional information on the advantages of using a Self-Directed IRA LLC with “Checkbook Control” to make investments, please contact one of our IRA Experts at 800-472-0646.

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Mar 14

Changes to IRS Form 5498 with Regards to Your Self-Directed IRA

For Tax Year 2015 and beyond on IRS Form 5498, the IRS now requires IRA custodians to separately specify transactions which involve certain Self-Directed IRA investments

The information on Form 5498 is submitted to the Internal Revenue Service by the trustee (IRA custodian) of your individual retirement arrangement (IRA) to report contributions, including any catch-up contributions, required minimum distributions (RMDs), and the fair market value (FMV) of the account.

The IRS Form 5498 gives the market value of all assets and cash held within the client account for the previous year and is used for tax reporting.  The IRA custodian will forward IRS Form 5498 to the IRS electronically by May 31 of the current year for the previous year.

Changes to IRS Form 5498 with Regards to Your Self-Directed IRAFor Tax Year 2015 and beyond, the IRS now requires IRA custodians to separately specify transactions which involve certain types of investments with no readily available fair market value that are held inside a tax deferred retirement account. These investments have no readily available fair market value and include, but are not limited to, non-publicly traded stock, private partnerships or LLC interests, real estate, options, and other hard-to-value investments.  The IRS updated the IRS Form 5498 to include new Boxes 15a and 15b. The fair market value of investments in the IRA will be reported in Box 15a. Box 15b will be used to categorize the types of investments listed in Box 15a through the use of the following category code(s):

A – Stock or other ownership interest in a corporation that is not readily tradable on an established US or foreign securities market.

B – Short- or long-term debt obligation that is not traded on an established securities market.

C – Ownership interest in a limited liability company or similar entity (unless the entity is traded on an established securities market).

D – Real estate.

E – Ownership interest in a partnership, trust, or similar entity (unless the entity is traded on an established securities market).

F – Option contract or similar product that is not offered for trade on an established US or foreign option exchange.

G – Other asset that does not have a readily available fair market value.

H – More than two types of assets (listed in A through G) that are held in the IRA.

The IRS has indicated that these reporting change are a result of the IRS trying to get a better handle on the type of IRA assets that are being purchased with IRA funds and get a better handle on what percentage of IRA assets should be considered ‘hard-to-value’ assets.  The IRS has some concern that certain IRA assets’ fair market values are not being reported accurately. The fair market value of an IRA asset is very important to the IRS because that is what a tax would be imposed on when distributions are taken by the IRA holder.  With the total IRA assets valued at close to $8 trillion dollars as of 2016, making sure IRA holders are paying their fair share of taxes on their IRA distributions are vital.

For more information on the IRS Form 5498 changes and its impact on your Self-Directed IRA, please contact a self-directed IRA specialist at 800-472-0646.

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Mar 10

New Podcast – New Partnership Tax Return Deadline for Multiple-Member LLC – March 15 2017

IRA Financial Group’s Adam Bergman discusses the new March 15th tax filing deadline for Self-Directed IRA LLCs for partnership return IRS form 1065.

 

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Mar 08

IRA Financial Group Expands Self-Directed IRA CPA Service In Light of New March 15th Partnership Filing Deadline

The Highway Act accelerates the due date to March 15 for filing Self-Directed IRA LLC partnership tax returns and issuing Schedules K-1 to partners

IRA Financial Group Expands Self-Directed IRA CPA Service In Light of New March 15th Partnership Filing DeadlineIRA Financial Group, the leading provider of self-directed IRA LLC and Solo 401(k) Plans, is proud to announce the expansion of its self-directed IRA Accounting and CPA service to accommodate the new March 15 partnership and K-1 filing deadline established as a result of the Surface Transportation Act of 2015 (“the Highway Act”). In the case of a self-directed IRA, a single member IRA LLC is not required to file a partnership return (IRS Form 1065) as it is treated as a disregarded entity for federal income tax purposes. However, an LLC owned by two or more IRAs is treated as a self-directed IRA partnership for federal income tax purposes and, in general, a partnership return (IRS Form 1065) must be filed. For 2016 partnerships, the new deadline has been moved up to March 15, 2017. “Due to the March 15 partnership filing deadline for multiple-member self-directed IRA LLC, we have expanded our accounting services to meet demand from our expanding client base,” stated Adam Bergman, a partner with the IRA Financial Group.

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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Mar 06

What Types of Alternate Investments Can You Make with a Self-Directed 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 only describes the type of investments that are prohibited, which are very few.   The main advantages of using a self-directed IRA to make investments is that one can generate tax-deferred or tax-free gains on investments one knows and understands.

For 2017, the following are some examples of types of investments that can be made with your Self-Directed IRA LLC:

  • Residential or commercial real estate
  • Domestic or Foreign real estate
  • Raw land
  • Foreclosure property
  • Mortgages
  • Mortgage pools
  • Deeds/Notes
  • Hard money lending
  • Private loans
  • Tax liens
  • Private businesses
  • Limited Liability Companies
  • Limited Liability Partnerships
  • Private placements
  • Precious metals and certain coins
  • Stocks, bonds, mutual funds
  • Foreign currencies
  • Bitcoins
  • Hedge Funds
  • Private Equity Funds

Using a Self-Directed IRA LLC to make investments offers the investor the ability to make traditional as well as non-traditional investments, such as real estate, in a tax-efficient manner.

Below are some of the most popular reasons to purchase non-traditional assets with your Self-Directed IRA LLC.

What Types of Alternate Investments Can You Make with a Self-Directed IRA?

Diversification

In general, most Americans have an enormous amount of financial exposure to the financial markets. Whether it is through retirement investments, such as IRAs or 401(k) plans, or personal savings, many of us have most of our savings connected in some way to the stock market. In fact, over 90% of retirement assets are invested in the financial markets. With over $20 trillion in retirement assets as of 2013, you can see the scope of that exposure. Investing in non-traditional assets, such as real estate, offers a form of investment diversification from the equity markets. In general, the more diversified your portfolio, the greater chance that your assets will offer lower correlation, meaning they are less likely to move in the same direction. However, diversification does not assure profit or protect against loss. The use of non-traditional asset classes can help protect your portfolio when the market is down and help protect you from losing more than the market.

Invest in Something You Understand

Many Americans became frustrated with the equity markets after the 2008 financial crisis. Thankfully, we have seen the financial markets rebound since then and have even seem some years of over 20% growth in the equity markets. Nevertheless, many Americans are still somewhat shell-shocked from the market swings and not 100% sure what exactly goes on in Wall Street and how it all works. Real estate, for comparison, is often a more comfortable investment for the lower and middle classes because they grew up exposed to it, whereas the upper classes often learned about Wall Street and other securities during their younger years and college days. Everyone has heard someone talk about the importance of owning a home or the amount of money that can be made by owning real estate. From Donald Trump to reality TV, real estate is fast becoming mainstream and one of the most trusted asset classes for Americans. It is, of course, not without risk, but many retirement investors feel more comfortable understanding the real estate market and buying and selling real estate than they do stocks.

Inflation Protection

Rising food and energy prices, coupled with high federal debt levels and low interest rates, have recently fueled new inflationary fears. As a result, some investors may be looking for ways to protect their portfolios from the ravages of inflation. It is a matter of guesswork to estimate whether these inflation risks are real, but for some retirement investors, protecting retirement assets from inflation is a big concern. Inflation can have a nasty impact on a retirement portfolio because it means a dollar today may not be worth a dollar tomorrow.  Inflation also increases the cost of things that are necessary for humans to live and enjoy life, such as bread, gas, shelter, clothing, medical services, etc., decreasing the value of money so that goods and services cost more. For example, if someone had an IRA worth $250,000 at a time of high inflation, that $250,000 will be worth significantly less or have significantly less buying power. This can mean the difference between retiring and working the rest of your life. Buying hard assets is seen as one way of protecting your assets against inflation. Many investors have long recognized that investing in commercial real estate can provide a natural protection against inflation, as rents tend to increase when prices do, acting as a hedge against inflation.

Hard Assets

Many non-traditional assets, such as real estate and precious metals are tangible hard assets that you can see and touch. With real estate, for example, you can drive by with your family, point out the window, and say “I own that”. For some, that’s important psychologically especially in times of financial instability, inflation, or political or global upheaval.

Tax Deferral

Tax deferral literally means that you are putting off paying tax. The most common types of tax-deferred investments include those in IRAs or Qualified Retirement Plans (i.e. 401(k)). Tax-deferral means that all income, gains, and earnings, such as interest, dividends, rental income, royalties or capital gains, will accumulate tax-free until the investor or IRA owner withdraws the funds and takes possession of them. As long as the funds remain in the retirement account, the funds will grow tax-free. This allows your retirement funds to grow at a much faster pace than if the funds were held personally, allowing you to build for your retirement more quickly. And, when you withdraw your IRA funds in the form of a distribution after you retire, you will likely be in a lower tax bracket and be able to keep more of what you accumulated. So, with using a Traditional IRA as a retirement savings vehicle, not only are you not paying taxes on the money you invested, you could be paying them at a lower rate when you finally do “take home” your money.

As long as the funds remain in the account, they grow without taxes eroding their value. This enables assets to accumulate at a faster pace, giving you an edge when saving for the long term. And, when you withdraw funds after you retire, you’ll likely be in a lower tax bracket and be able to keep more of what you’ve accumulated.

The concept of tax deferral is premised on the notion that all income and gains generated by the pre-tax retirement account investment would generally flow back into the retirement account tax-free. Instead of paying tax on the returns of a Self-Directed IRA investment, such as real estate, tax is paid only at a later date, leaving the investment to grow unhindered. For example, if an IRA investor invested $100,000 into a Self-Directed IRA LLC in 2017 and the account earns $10,000 in 2017, the investor would not owe tax on that $10,000 in 2017. Instead, the Self-Directed IRA investor would be required to pay the taxes when he or she withdraws the money from the IRA, which could be many years later. For example purposes, assuming the IRA investor mentioned above is in a 33% federal income tax bracket, she would have had to pay $3,333 in federal income taxes on the $10,000 earned on the IRA in 2017. That would have left $6,667 in the account. At a 8% annual return, those earnings would go on to produce $533.36 in 2017. However, because IRAs are tax deferred, the self-directed IRA investor is able to earn a return on the full $10,000 rather than the $533.36 she would have had if she had to pay taxes that year. At a 8% annual return, she’d earn $800 in 2017. The beauty of tax deferral is that the deferral compounds each year.

The following examples illustrate the powerful advantage of tax-deferred contributions and compounding through a Traditional IRA versus making contributions to a taxable account.

Example #1:

Joe is 40 years old and makes a $5,000 contribution to an IRA. Joe is in a 30% federal income tax bracket. Joe invests his IRA funds and receives a 6% average annual return.  When Joe retires at age 70, his $5,000 contribution would be worth $21, 609.71. If Joe invested the $5,000 personally, the account would only be worth $14,033.97.

Example #2:

Jane is 35 years old and makes a $5,000 contribution to an IRA. Assume Jane makes a $5,000 contribution to her IRA each year until she reaches the age of 70. Jane is in a 30% federal income tax bracket. Further assume that Jane was able to generate a 7% average annual return on her investment. When Jane retires at the age of 70, her IRA account would be worth  $792,950.21. If Jane made these $5,000 contributions though a taxable account, the account would only be worth $490,707.49.

Tax deferred investments though a self-directed IRA LLC generally help investors generate higher returns. That’s because the money that would normally be used for tax payments is instead allowed to remain in the account and earn a return.

Real Estate

The IRS permits using a Self-Directed IRA LLC to purchase real estate or raw land. Real estate is the most popular investment made with a Self-Directed IRA. Making a real estate investment is as simple as writing a check. Since you are the manager of your Self-Directed IRA LLC, you have the authority to make investment decisions on behalf of your IRA. One major advantage of purchasing real estate with a Self-Directed IRA 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 Self-Directed Roth IRA LLC, all gains are tax-free.

For example, if you purchased a piece of property with your Self-Directed IRA for $75,000 and later sold the property for $150,000, the $75,000 of gain would generally be tax-free. Whereas, if you purchased the property using personal funds (non-retirement funds), the gain would be subject to federal income taxes and in most cases state income tax.

Tax Liens

The IRS permits the purchase of tax liens and tax deeds with a Self-Directed IRA LLC. By using a Self-Directed IRA LLC to purchase tax-liens or tax deeds, your profits are tax-deferred back into your retirement account until a distribution is taken (Traditional IRA distributions are not required until the IRA owner turns 70 1/2). In the case of a Self-Directed Roth IRA LLC, all income and gains received would be tax-free.

More importantly, with a Self-Directed IRA LLC, you, as the manager of the IRA LLC, will have “checkbook control” over your IRA funds allowing you to make purchases on the spot without custodian consent. In other words, purchasing a tax-lien or tax deed is as easy as writing a check!

Loans & Notes

The IRS permits the use of IRA funds to make loans or purchase notes from third parties. By using a Self-Directed IRA LLC to make loans or purchase notes from third parties, all interest payments received would be 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 Self-Directed Roth IRA LLC, all interest received would be tax-free.

For example, if you used a Self-Directed IRA LLC to loan money to a friend, all interest received would flow back into your IRA tax-free. Whereas, if you lent your friend money from personal funds (non-retirement funds), the interest received would be subject to federal and in most cases state income tax.

Private Businesses

With a Self-Directed IRA LLC you are permitted to purchase an interest in a privately held business. The business can be established as any entity other than an S Corporation (i.e. limited liability company, C Corporation, partnership, etc.). When investing in a private business using IRA funds, it is important to keep in mind the “Disqualified Person” and “Prohibited Transaction” rules under IRC 4975 and the Unrelated Business Taxable Income rules under IRC 512. The retirement tax professionals at the IRA Financial Group will work with you to develop the most tax-efficient structure for using your IRA to invest in a private business.

Precious Metals & Coins

Internal Revenue Code Section 408(m) lists the type of precious metals and coins that are permitted investments using IRA funds:

  • 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) and be legal tender coins.
  • 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).

By using a self-directed IRA to purchase IRS approved precious metals or coins, one is able to seemingly better diversify their retirement portfolio as well as generate tax-free gains on the sale of the metals or coins.

Internal Revenue Code Section 408(m) identifies the types of coins and precious metals that may be purchased using a Self-Directed IRA.

Section 408(m)(3)(A) lists the type of coins that may be purchased with retirement funds, which generally are American Eagle and U.S. state minted coins of a certain finesse.  The Technical and Miscellaneous Revenue Act of 1988 also allowed for the purchase of state minted coins. Whereas, IRC 408(m)(3)(B), refers to gold, silver, or palladium bullion of a certain finesse which must be held in the “physical possession” of a U.S. trustee, as described under subsection IRC 408(a), and which essentially refers to a bank, financial institution, depository, or approved trust company.

IRA Financial Group suggests that all clients seeking to purchase IRS approved coins or precious metals/bullion with their retirement account hold them in the physical possession of a trustee, such as a depository.  The IRS, as outlined in IRC 408(m)(3)(B) clearly does not allow any individual to hold IRS approved coins or precious metals/bullion personally, such as in their house. However, the Technical and Miscellaneous Revenue Act of 1988 Senate amendment seems to suggest that state minted coins can be held by a person other than the IRA holder, without referencing the term trustee, as defined in IRC Section 408.  Nevertheless, we recommend that IRS approved coins should not be held personally by the IRA holder and should be held at a trustee, as defined in IRC 408.

For Self-Directed IRA LLC clients seeking to hold IRS approved coins and precious metals at a bank safe deposit box, we believe that this position has some risk, as the IRS has not offered any formal guidance. In the case of a Self-Directed IRA, if the bank where the safe deposit box is not the trustee of the IRA that purchased the metals or coins, an argument can be made that the metals or coins would not satisfy the physical possession definition outlined in IRC section 408 since the bank could not serve as the IRA trustee.

In general, the rules surrounding the ownership and possession of IRS precious metals or coins are complicated.  Therefore, it is crucial that one works with a firm, such as IRA Financial Group, that has the expertise and resources to help one navigate the IRS rules without being preoccupied with selling you coins or precious metals.

The advantage of using a Self-Directed IRA LLC with “checkbook control” to purchase precious metals and/or coins is that their values generally keep up with, or exceed, inflation rates better than other investments. In addition, the metals and/or coins can be held in the name of the LLC at a financial organization (at any local bank) safe deposit box eliminating depository fees.

Foreign Currencies

The IRS does not prevent the use of IRA funds to purchase foreign currencies, including Iraqi Dinars. Many believe that foreign currency investments offer liquidity advantages to the stock market as well as significant investment opportunities.

Purchasing foreign currency, such as the Iraqi Dinar, with a Self-Directed IRA LLC is as easy as writing a check. As manager of the IRA LLC, you will have “checkbook control” over your IRA funds, providing you with the ability to make investments without requiring custodian consent. In addition, the foreign currency notes, including Iraqi Dinars, can be held in the name of the LLC at a financial organization (any local bank) safe deposit box eliminating depository fees.

By using a Self-Directed IRA LLC to purchase foreign currencies, such as the Iraqi Dinar, all foreign currency gains generated would be 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 Self-Directed Roth IRA LLC, all foreign currency gains would be tax-free.

Bitcoin

On March 25, 2014, the IRS issued Notice 2014-21, which, for the first time, set forth the IRS position on the taxation of bitcoin.  According to the IRS, “Virtual Currency is treated as property for U.S. federal tax purposes,” the notice said. “General tax principles that apply to property transactions apply to transactions using virtual currency.”  By treating bitcoins as property and not currency, the IRS is providing a potential boost to investors but it also imposing extensive record-keeping rules – and significant taxes – on its use. With IRA Financial Group’s Self-Directed IRA LLC bitcoin solution, traditional IRA or Roth IRA funds can be used to buy bitcoin without tax.

IRA Financial Group’s Self-Directed IRA LLC for bitcoin investors, is an IRS approved structure that allows one to use their retirement funds to make bitcoin 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 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 traditional as well as non-traditional investments, such as real estate.

Using IRA Financial Group’s self directed IRA LLC with “Checkbook Control” solution to make bitcoin investments offers a number of very interesting investment opportunities, including the ability to diversify one’s retirement portfolio with real estate, precious metals, and other alternative investment options.

Stocks, Bonds, Mutual Funds, CDs

In addition to non-traditional investments such as real estate, a Self-Directed IRA LLC may purchase stock, bonds, mutual funds, and CDs. The advantage of using a Self-Directed IRA LLC with “Checkbook Control” is that you are not limited to just making these types of investments. With a Self-Directed IRA LLC with “checkbook control” you can open a stock trading account with any financial institution as well as purchase real estate, buy tax liens, or lend money to a third-party. Your investment opportunities are endless!

For more information about alternate investments in an IRA, please contact us @ 800.472.4646.

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Mar 02

New Ruling Expected to Increase Popularity of DISC Roth IRA Tax Strategy

Appeals Court in Summa Holdings affirmed use of having commissions from domestic international sales corporation go to Roth IRA

IRA Financial Group, the leading provider of self-directed IRA retirement solutions, believes that the Sixth Circuit Appeals Court decision which held that using a DISC and Roth IRA strategy for their congressional sanctioned purposes—tax avoidance was permissible will increase the popularity of the domestic international sales corporation (“DISC”) Roth IRA strategy. The Sixth Circuit in Summa Holdings, Inc. Vs. Commissioner of Internal Revenue reversed a previous Tax Court ruling (Summa Holdings Inc. v. Commissioner, T.C. Memo 2015-119) that disallowed a domestic international sales corporation (DISC) Roth IRA strategy. “The Summa case solidifies the right of a taxpayer to structure a transaction to minimize taxes with in itself is not enough to label the transaction as a sham or lacking economic substance,” stated Adam Bergman, a partner with the IRA Financial Group.

New Ruling Expected to Increase Popularity of DISC Roth IRA Tax StrategyIn Summa the owner of a closely held export company would transfer money from the company (Summa Holdings) to a DISC (JC Export), as the statute encourages, and pay some (or all) of that money as a dividend to its shareholders (JC Holding, which was wholly owned by the Roth IRAs), allowing the money to enter the Roth IRA and grow there tax-free. The IRA account holder would have to pay the high unrelated business income tax—here roughly 39%—when the DISC dividends go into the IRA, but all remaining funds would be able to stay in the self-directed IRA Roth IRA and grow tax-free.

According to Mr. Bergman, “at this time it is unclear whether the IRS or Department of Justice will appeal. However, what is clear is that the Appeal Courts decision could help many exporters devise a tax friendly strategy for shifting taxable commission income to a Roth IRA.”

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 provider of self-directed IRA LLC 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 custodian consent.

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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Feb 27

Learn How to Use ROBS with Your IRA Funds to Start A Business

The Business Acquisition & Compliance Solution Structure (BACSS), also known as the “Rollover Business Start-Up” (“ROBS”) Solution, is an IRS and ERISA approved structure that allows an individual to use retirement funds, such as an IRA or 401(k), to purchase a new or existing business or franchise tax-free and penalty-free.

The ROBS arrangement typically involves rolling over a prior IRA account into a newly established 401(k) plan, which a start-up C Corporation business sponsored, and then investing the rollover funds in the stock of the new C Corporation.

What is the Difference between using a Self-Directed IRA Vs. ROBS structure to buy a business?

At first glance, using a Self-Directed IRA LLC to purchase stock in a corporation would seem to share many similarities with the ROBS structure.

Learn How to Use ROBS with Your IRA Funds to Start A BusinessWith IRA Financial Group’s ROBS transactions, the structure typically involves the following sequential steps: (i) an entrepreneur or existing business owner establishes a new C Corporation; (ii) the C Corporation adopts a prototype 401(k) plan that specifically permits plan participants to direct the investment of their plan accounts into a selection of investment options, including employer stock, also known as “qualifying employer securities.”; (iii) the entrepreneur elects to participate in the new 401(k) plan and, as permitted by the plan, directs a rollover or trustee-to-trustee transfer of retirement funds from another qualified retirement plan into the newly adopted 401(k) plan; (iv) the entrepreneur then directs the investment of his or her 401(k) plan account to purchase the C Corporation’s newly issued stock at fair market value (i.e., the amount that the entrepreneur wishes to invest in the new business); and finally (v) the C Corporation utilizes the proceeds from the sale of stock to purchase an existing business or to begin a new venture.

With IRA Financial Group’s ROBS strategy, the newly formed business will also be able to borrow from third parties, pay salaries to employees (including shareholders/plan participants), and engage in other routine business transactions with disqualified persons. Commonly, a corporate officer or shareholder will make or guarantee loans to the business.

With a Self-Directed IRA LLC, an entrepreneur could use retirement funds to purchase business assets like with the ROBS strategy. However, that individual would not be able to be actively involved in the business, earn a salary, or even personally guarantee a business loan.

The recent U.S. Tax Court case Ellis v. Comm’r of Internal Revenue, No. 14-1310 (8th Cir. 2015) highlights the risk and limitations involved when using a Self-Directed IRA to purchase business assets. In the Ellis case, the taxpayers used IRA funds to invest in a corporation that ultimately purchased business assets. Because Mr. Ellis used an IRA and not a 401(k) Plan to purchase the C Corporation stock, Mr. Ellis was not able to earn a salary or personally guarantee a business loan, which ultimately was the cause of the IRS prohibited transaction rule violation.

If Mr. Ellis had used IRA Financial Group’s ROBS strategy, he would have been able to purchase business assets with retirement funds, earn a salary from the business, as well as personally guarantee the business loan without triggering the IRS prohibited transaction rules.

Legal Foundation for the ROBS Solution

An individual retirement account investor is able to use retirement funds to invest in an active trade or business with tax or penalty because the ROBS solution qualifies for a special exemption set forth under IRC 4975(d) to certain prohibited transaction rules. The exemption to the prohibited transaction rules under IRC 4975(d) is centered around ERISA Section 408(e). It is IRC Section 4975(d) and ERISA Section 408(e) which shields employers from scrutiny of routine (non-abusive) corporate transactions by the plan sponsor and other “disqualified persons,” which might otherwise constitute technical violations of the prohibited transaction rules (due to the employer-sponsored retirement plan’s ownership of employer securities). If the plan sponsor and other fiduciaries’ routine corporate transactions did not fall within the purview of ERISA Section 408(e), the prohibited transaction rules would needlessly prohibit a myriad of legitimate business transactions and would ultimately nullify the exemption that Congress intended to provide. To accomplish its intended effect, ERISA Section 408(e) must be read to exempt the natural and necessary commercial consequences of owning corporate stock, rather than just the stock purchase or divestiture.

Important tax and economic policy considerations also compel a different result for 401(k) plans than IRAs. Congress specifically intended to encourage 401(k) plans to invest in employer securities, within certain limits. The opportunity to invest in employer securities through retirement plans benefits employers and employees alike by aligning their economic interests.

Outside the context of ROBS arrangements, many 401(k) plans permit participants to invest in employer stock. A number of large 401(k) plans, including plans sponsored by Apple and Pepsi, include substantial allocations of employer stock.

To learn more about the benefits of the ROBS (Rollover Business Startup) strategy, please contact a retirement tax expert at 800-472-0646.

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