Feb 15

Can You Get a Mortgage on a Piece of Property with a Self Directed IRA?

Yes. The mortgage would need to be a non-recourse type of loan. With a nonrecourse loan, if your Self-Directed IRA fails to make the payments, the only recourse the lender has is the property itself. Also, note that if your IRA obtains a loan, unrelated debt financing income tax (UDFI) will apply, which will subject the portion of the income or gains that are debt financed to Unrelated Business Taxable Income (UBTI).

Can You Get a Mortgage on a Piece of Property with a Self Directed IRA?“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).

Check out this link for more info about investing in real estate with a Self-Directed IRA.

Please contact one of our Self Directed IRA Experts at 800-472-0646 for more information.
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Feb 12

Trump, The Fiduciary Rule And Your IRA

This article originally appeared on Forbes.com, authored by Adam Bergman –

On February 3, 2017, President Trump announced that he will use a memorandum to ask the labor secretary to consider rescinding a rule, better known as the fiduciary rules, set to go into effect in April 2017 that orders retirement advisers, overseeing about $3 trillion in assets, to act in the best interest of their clients.

The fiduciary rule, rolled out by the Obama administration, took many years to develop. The fiduciary rule aimed to protect retirement savers from bad advice and keep more money in their pockets. It also sought to indirectly change the way the industry structures its products and advisor compensation policies.

Trump, The Fiduciary Rule And Your IRAUnder the fiduciary rules, broker-dealers would be required to act in their clients’ best interest rather than encouraging money moves that directly benefit the broker’s bottom line.  Among the requirements in the rule, brokers have to justify the varying compensation they can receive for recommending one investment product over another to a retirement saver. Brokers said that rule makes sales fees on some mutual funds, known as sales loads, and some funds’ differing share-class prices problematic for accounts that charge investors for each transaction made.

Currently, if you work with a financial advisor who is a registered broker, he or she only has to recommend investments that are “roughly suitable” for you. That means if your advisor has the option between two similar mutual funds, but one pays out a higher commission, he or she can put you in that one—even if the other fund has lower fees and would boost your portfolio in the long run. In rescinding the fiduciary rules, the Trump administration wants to keep this system in place, arguing that the fiduciary rule will limit investment choices and burden the industry with unnecessary regulations.  According to The industry’s top lobby group, the Securities Industry and Financial Markets Association estimated the fiduciary rule would cost firms $5 billion to implement and another $1.1 billion annually to maintain.

The Obama Administration believed that fiduciary rules would help lower costs for American retirement account investors as well as better protect the average retirement investor from bad advice and unnecessary fees.  On the flip side, the financial industry has attacked the rules as being overly burdensome as well as potentially limiting the type of investments and advice financial advisors can offer.  To this end, in 2016, Edward Jones and some other financial advisors announced that it would stop offering mutual funds and exchange traded funds in IRA accounts that charge investors a commission and move to an account value fee based arrangement.

In the end, President Trump seemingly sided with the financial and securities industry that the fiduciary rules were overly burdensome and would limit investment options for IRA holders.  In the end, it appears that President Trump was not convinced that any lower consumer costs associated with the enactment of the fiduciary rule would be enough to overcomes its perceived shortfalls. Because the fiduciary rules have not yet been enacted into law, President Trump’s executive order rescinding the rule will have no current impact on IRA investors, however, the long-term impact could be significant for both investors and financial advisors.

For more information about the fiduciary rule, please contact us @ 800.472.0646.

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Feb 08

What Exactly is Unrelated Business Taxable Income?

The tax advantage of an IRA is that income is tax-free until distributed. In general, an exempt organization is not taxed on its income from an activity that is substantially related to the charitable, educational, or other purpose that is the basis for the organization’s exemption. Such income is exempt even if the activity is a trade or business. However, to prevent tax-exempt entities from competing unfairly with taxable entities, tax-exempt entities are subject to unrelated business taxable income (UBTI) when their income is derived from any trade or business that is unrelated to its tax-exempt status.

What Exactly is Unrelated Business Taxable Income?UBTI is defined as “gross income derived by any organization from any unrelated trade or business regularly carried on by it” reduced by deductions directly connected with the business. An exempt organization that is a limited partner, member of a LLC, or member of another non-corporate entity will have attributed to it the UBTI of the enterprise as if it were the direct recipient of its share of the entity’s income which would be UBTI had it carried on the business of the entity.   UBTI also applies to unrelated debt-financed income (UDFI).   “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 an IRA, any business regularly carried on or by a partnership or LLC of which it is a member is an unrelated business. For example, the operation of a shoe factory, the operation of a gas station, or the operation of an computer rental business by an LLC or partnership owned by the Self Directed IRA LLC would likely be treated as an unrelated business and subject to UBTI.

Although there is little formal guidance on UBTI implications for self-directed real estate IRAs, there is a great deal of guidance on UBTI implications for real estate transactions by tax-exempt entities. In general, Gains and losses on dispositions of property (including casualties and other involuntary dispositions) are excluded from UBTI unless the property is inventory or property held primarily for sale to customers in the ordinary course of an unrelated trade or business. This exclusion covers gains and losses on dispositions of property used in an unrelated trade or business, as long as the property was not held for sale to customers. In addition, subject to a number of conditions, if an exempt organization acquires real property or mortgages held by a financial institution in conservatorship or receivership, gains on dispositions of the property are excluded from UBTI, even if the property is held for sale to customers in the ordinary course of business. The purpose of the provision seems to be to allow an exempt organization to acquire a package of assets of an insolvent financial institution with assurance that parts of the package can be sold off without risk of the re-sales tainting the organization as a dealer and thus subjecting gains on re-sales to the UBIT.

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

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Feb 07

Workplace Retirement Plan May Limit IRA Deductions

This article originally appeared on Forbes.com



In general, one may be able to claim a deduction on their individual federal income tax return for the amount contributed to a pre-tax Individual retirement account (“IRA”), also known as a Traditional IRA.  Whereas, after tax or Roth IRA contributions are not tax deductible.  For 2017, the maximum IRA contribution is $5500 and $6500 if over the age of fifty. However, in the case of an individual that is covered by an employer qualified retirement plan, such as 401(k) plan, the IRA contribution amount that individual can deduct could be limited by his or her modified adjusted gross income (“AGI”).  An individual’s AGI is essentially the amount of gross income earned during the year, less certain adjustments. One can find the allowable reductions to your income on the front page of IRS Form 1040.

The two key factors in determining the amount an individual can deduct from their pre-tax Traditional IRA contribution in a given year are (i) whether the individual is covered by an employer 401(k) plan and (ii) their AGI. For individuals that are not covered by an employer 401(k) plan, they are free to deduct the full amount of their IRA contribution up to $5500 or $6500, if over the age of fifty, for 2017.  For example, if Bill Gates was no longer employed by Microsoft or any other company and was not covered by a retirement plan at work, he would be able to deduct the full amount of his IRA contribution for 2017, notwithstanding his annual gross income amount.  Whereas, if Bill Gates was still employed at Microsoft and was covered by the company’s retirement plan, he would not be able to take a deduction for his IRA contribution because his income would exceed the maximum threshold amount.   Interestingly, the Internal Revenue Service (“IRS”) rules do not distinguish whether the individual that is covered by an employer retirement plan actually participated and made contributions to the plan.  The rule states, however, that so long as the employee is covered by the employer retirement plan, that individual’s AGI will determine whether he or she can take a tax deduction for the IRA contribution.  Thus, if an individual is covered by an employer sponsored retirement plan, notwithstanding whether that individual actually made a contribution to the plan, the individual’s AGI will be the determining factor whether he or she can deduct his or her IRA contribution.  An individual that does not have access to an employer 401(k) plan has no such limitation.

For 2017, if an individual is covered by a retirement plan at work, the following table provided by the IRS will help one determine what amount of his or her IRA contribution for 2017 is tax deductible.

Filing Status Your Modified AGI IRA Deduction Amount
single or
head of household
$62,000 or less
______________more than $62,000 but less than $72,000________________
$72,000 or more
A full deduction up to the amount of your 2017 contribution limit
_______________Partial deduction
No deduction
married filing jointly or qualifying widow(er) $99,000 or less
________________more than $99,000 but less than $119,000________________
$119,000 or more
A full deduction up to the amount of your 2017 contribution limit
Partial deduction
No deduction
married filing separately Less than $10,000
$10,000 or more
Partial deduction
_______________No deduction

Having the ability to contribute and deduct IRA contributions is an important aspect of many Americans’ retirement strategy.  In order to best take advantage of the existing IRA contribution and deduction rules available, it is vital that Americans with access to an employer retirement plan have a solid understanding of how the IRA contribution deduction rules work.

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

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Feb 01

Is There Any Holding Period Requirement Before Taking Tax-Free Distributions from a Roth IRA?

Generally, distributions from a designated Roth account are excluded from gross income if they are (1) made after the employee attains age 59 1/2 , (2) “attributable to” the employee being “disabled,” or (3) made to the employee’s beneficiary or estate after the employee’s death. However, the exclusion is denied if the distribution occurs within five years after the employee’s first designated Roth contribution to the account from which the distribution is received or, if the account contains a rollover from another designated Roth account, to the other account.

Is There Any Holding Period Requirement Before Taking Tax-Free Distributions from a Roth IRA?

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

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Jan 30

IRA Financial Group Introduces New Bitcoin Self-Directed IRA with Checkbook Control

Bitcoin self-directed IRA LLC will allow for tax-free treatment on bitcoin transactions using retirement funds

IRA Financial Group, the leading provider of self-directed IRA LLC and Solo 401(k) Plans is proud to announce the introduction of the self-directed IRA bitcoin with checkbook control. The bitcoin self-directed IRA LLC structure will allow retirement account investors to purchase bitcoins and generate tax-deferred or tax-free gains. “We are excited to offer our clients with a tax efficient and cost effective way to use retirement funds to buy bitcoins,” stated Adam Bergman, a partner with the IRA Financial Group.

IRA Financial Group Introduces New Bitcoin Self-Directed IRA with Checkbook ControlOn March 25, 2014, the IRS issued Notice 2014-21, which for the first time set forth the IRS position on the taxation of bitcoins. 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 bitcoins without tax.

The primary advantage of using a Self Directed IRA LLC to make investments is that all income and gains associated with the IRA investment grow tax-deferred.

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 ones retirement portfolio with real estate, precious metals, and other alternative investment options.

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.

Adam Bergman, IRA Financial Group partner, has written six books the topic of self-directed retirement plans, including, The Checkbook IRA, Going Solo, Turning Retirement Funds into Start-Up Dreams, Solo 401(k) Plan in a Nutshell, Self-Directed IRA in a Nutshell, and In God We Trust in Roth We Prosper.

To learn more about the IRA Financial Group please call 800-472-0646.

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Jan 26

Some Helpful Tips For Investing In Real Estate Using Retirement Funds

This article originally appeared on Forbes.com and was written by our own Adam Bergman –



Most people mistakenly believe that their retirement accounts must be invested in traditional financial related investments such as stocks, mutual funds, exchange traded funds, etc. Few Investors realize that the Internal Revenue Service (“IRS”) permits retirement accounts, such as an IRA or 401(k) plan, to invest in real estate and other alternative types of investments.  In fact, IRS rules permit one to invest retirement funds in almost any type of investment, aside generally from any investment involving a disqualified person, collectibles and life insurance.

One of the primary advantages of purchasing real estate with retirement funds is that all gains are tax-deferred until a distribution is made or tax-free in the case of a Roth account (after-tax). For example, if one purchased a piece of property with retirement funds for $100,000 and later sold the property for $300,000, the $200,000 of gain appreciation would generally be tax-deferred. Whereas, if you purchased the property using personal funds (non-retirement funds), the gain would be subject to federal income tax and in most cases state income tax.

The two most common vehicles for purchasing real estate with retirement funds is the self-directed IRA or an employer sponsored 401(k) plan.  However, most employer 401(k) plans do not offer real estate as a plan investment option and, thus, the self-directed IRA has become the most popular way to buy real estate with retirement funds.  Establishing a self-directed IRA is quick and relatively inexpensive and can be done in just a few days.  The most challenging aspect of investing in real estate using retirement funds is navigating the IRS prohibited transaction rules.  In general, pursuant to Internal Revenue Code (“IRC”) Section 4975, the retirement account holder cannot make a retirement account investment that will directly or indirectly benefit ones self or any disqualified person (lineal descendant of the retirement account holder and related entities), perform any service in connection with the retirement account investment, guarantee any retirement account loan, extend any credit to or from the retirement account, or enter into any transaction with the retirement account that would present a conflict of interest.  The purpose of these rules is to encourage the use of retirement account for accumulation of retirement savings and to prohibit those in control of the retirement account from taking advantage of the tax benefits for their personal account.

Aside from navigating the IRS prohibited transaction rules, the following are a handful of helpful tips for making real estate investment using retirement funds:

  • The deposit and purchase price for the real estate property should be paid using retirement account funds and not from any disqualified person(s)
  • All expenses, repairs and taxes incurred in connection with the retirement account real estate investment should be paid using retirement funds – no personal funds from any disqualified person should be used
  • If additional funds are required for improvements or other matters involving the retirement account-owned real estate investment, all funds should come from the retirement account or from a non-“disqualified person”
  • Partnering with yourself or another disqualified person in connection with a retirement account investment could trigger the IRS prohibited transaction rules.
  • If financing is needed for a real estate transaction, only nonrecourse financing should be used. A nonrecourse loan is a loan that is not personally guaranteed by the retirement account holder or any disqualified person and whereby the lender’s only recourse is against the property and not against the borrower.
  • If using a nonrecourse loan to purchase real estate with a self-directed IRA, the unrelated business taxable income (“UBTI”) rules could be triggered and a tax rate reaching as high as 40 percent could apply.  Note – an exemption from this tax is available for 401(k) plans pursuant to IRC 514(c)(9). If the UBTI tax is triggered and tax is due, IRS Form 990-T must be timely filed.
  • No services should be performed by the retirement account holder or any “disqualified person” in connection with the real estate investment.  Please see: Finally Some Clarity On What You Can And Cannot Do In Your Self-Directed IRA for additional information
  • Title of the real estate purchased should be in the name of the retirement account. For example, if Joe Smith established a Self-Directed IRA LLC and named the LLC “XYZ, LLC”, title to the real estate purchased by Joe’s Self-Directed IRA LLC would be as follows: XYZ LLC.  Whereas, if Joe Smith established a self-directed IRA with ABC IRA Trust Company (custodian), and the custodian purchased the real estate directly on behalf of Joe without the use of an LLC, then title would read:  ABC IRA Trust Company FBO John Doe IRA.
  • Keep good records of income and expenses generated by the retirement account owned real estate investment
  • All income, gains or losses from the retirement account real estate investment should be allocated to the retirement account owner of the investment
  • Make sure you perform adequate diligence on the property you will be purchasing especially if it is in a state you do not live in.
  • Beware of fraud if purchasing real estate from a promoter.
  • If using a self-directed IRA LLC to buy real estate, it is good practice to form the LLC in the state where the real estate will be located to avoid any additional filing fees.  Also, be mindful of any annual state LLC filing or franchise fees.

Using retirement funds to buy real estate can offer retirement account holders a number of positive financial and tax benefits, such as a way to invest in what one knows and understands, investment diversification, inflation protection, and the ability to generate tax-deferred or tax-free (in the case of a Roth) income or gains. The list of helpful tips outlined above should provide retirement account investors looking to buy real estate with a guideline of how to keep their retirement account from running afoul of any of the IRS rules.  However, retirement account holders using retirement funds to invest in real estate must be mindful of the broad application of the IRS prohibited transaction and UBTI rules and should consult with a tax professional for further guidance.

For more information about using a Self-Directed IRA to invest in real estate, please contact us @ 800.472.0646.

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Jan 24

Do You Need a Special Custodian to Make Self-Directed IRA Investments?

Pursuant to Section 408 of the Internal Revenue Code, an IRA must be established by a bank, financial institution, or authorized trust company.  Thus, a bank such as Wells Fargo, financial institution such as Vanguard, or a trust company such as the IRA Financial Trust Company are authorized to establish and administer IRAs.  The main difference is that not all IRA custodians allow the IRA to invest in alternative assets, such as real estate.

Individual Retirement Account is a term that most Americans have some understanding of.  They are commonly aware that it is a type of retirement account that was designed by Congress to encourage people to save for retirement. They generally understand that one can contribute a certain amount of income each year to the IRA account for investment. However, most do not have a solid understanding of the concept of tax deferral and the fact that retirement funds can be invested in assets other than stocks or mutual funds through what has become known as a Self-Directed IRA.

Do You Need a Special Custodian to Make Self-Directed IRA Investments?So why don’t they know this? It’s not because the majority of Americans are uneducated, indifferent, or incurious – they simply have not been told. It’s not in the financial interests of the traditional institutional investment companies, such as Bank of America, Charles Schwab, or E-Trade, to encourage you to make alternative investments using retirement funds. They make money when you invest in their financial products and keep your money there for a long time, whether through highly profitable trading commissions or by leveraging the power of your savings. They make no money when you use your money to invest in alternative or nontraditional investments, such as a plot of land or a private business. They get no commissions as a result. They lose access to your money too. Why would they inform you that such a strategy was permissible and possibly even preferable depending on the circumstances?

Yet, such nontraditional or alternative retirement asset investments are perfectly legal. The IRS has permitted them since 1974. It says so right on the IRS website.

And the best way to make those investments is through the Self-Directed IRA.

What are the Responsibilities of a Self-Directed IRA Custodian?

The majority of all Self-Directed IRA custodians are non-bank trust companies for the reasons outlined above.  The Self-Directed IRA custodian or trust company will typically have a banking relationship with a bank who will hold the IRA funds in a special account called an omnibus account, offering each Self-Directed IRA client FDIC protection of IRA funds up to $250,000 held in the account.  For example, IRA Financial Trust is a non-banking IRA custodian. IRA Financial Trust has partnered with Northern Trust, one of the most respected private banks in the world, to offer our Self-Directed IRA clients a safe and secure way to make Self-Directed IRA investments.

The following are the primary roles and responsibilities of a Self-Directed IRA custodian:

  • IRS approved
  • Permitted to hold and custody IRA and 401(k) plan assets
  • Subject to state regulation by the state division of banking
  • Performance of administrative recordkeeping regarding the Self-Directed IRA
  • Perform administrative review of the Self-Directed IRA assets
  • Assisting in opening & funding your IRA account
  • Making the investment(s) on your behalf
  • Making distributions & paying expenses per your request
  • Providing you with quarterly statements
  • Answering questions about your account and our procedures
  • Reporting information required by the IRS and other governmental agencies
    • IRS Form 1099R – Distributions from your IRA
    • IRS Form 5498 – Contributions to and Fair Market Value of your IRA

What are the Differences Between a Self-Directed IRA Custodian and Third-Party Administrator?

All IRA custodians, banks, financial institutions, and approved trust companies are regulated entities that are authorized by the IRS to act as IRA custodians. Since custodians are directly approved by the IRS, they are the only entity in this group that’s allowed to physically hold retirement assets. IRA custodians are needed in order to make investments with IRA funds and, as a result, are regulated by federal and state banking authorities.

Whereas, an IRA administrator is not able to hold or custody IRA assets and is not approved or overseen by the IRS or any state banking regulators. IRA administrators essentially act as intermediaries between the IRA owner and a partner custodian.

Why Is It Important to Work Directly with an IRA Custodian?

IRA administrators are not subject to any IRS or state audit or reviews.  Accordingly, they are not subject to ongoing oversight, especially in the area of prohibited transactions, which is important in order to keep your Self-Directed IRA in full IRS compliance. Whereas, an IRA custodian is subject to quarterly state banking division audits and reviews, as well as IRS audits, helping keep your IRA safe from prohibited transactions and fraud.

To learn more about establishing a Self-Directed IRA account with the IRA Financial Trust Company, please contact a Self-Directed IRA specialist at 800-472-0646.

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Jan 20

Understanding Your Options When Inheriting An IRA From A Non-Spouse

This article, written by our own Adam Bergman, appeared on Forbes.com

Unfortunately, the Internal Revenue Service (“IRS”) does not allow you to keep retirement funds in your account indefinitely. The required minimum distribution rules (“RMD”) were created in order to guarantee the flow of IRA funds into the federal income tax system as well as to encourage IRA owners to use their retirement funds during their retirement.

One generally has to start taking withdrawals from your IRA, SIMPLE IRA, SEP IRA, or retirement plan account when reaching the age 70½ or as the beneficiary recipient of an inherited IRA. Of interest, Roth IRAs do not require withdrawals until after the death of the owner.

There are a number of distribution options available to a designated IRA beneficiary, generally dependent on whether the deceased IRA owner’s sole primary beneficiary is a spouse, and whether the deceased IRA owner has reach 70 1/2, the age for RMDs. Remember, a living IRA owner is not required to take an RMD until the IRA owner reaches the age of 70 1/2.

If an IRA holders dies and designates a non-spouse, such as a parent, child, sibling, friend, etc. as the primary beneficiary of his or her IRA, the non-spouse beneficiary will typically only have two options for taking RMDs with respect to the inherited IRA: (i) the life expectancy rule and (ii) the five-year rule.

Understanding Your Options When Inheriting An IRA From A Non-SpouseThe IRS allows a non-spouse beneficiary to use the life expectancy rules to calculate the IRA required distributions after the deceased IRA holder’s death. The IRA distributions must begin to be taken no later than December 31 of the year after the death of the deceased IRA holder’s death. There are no additional opportunities for delaying IRA distributions for non-spouse beneficiaries. If distributions are made under the life expectancy rule to a designated beneficiary non-spouse, the applicable distribution period for the calendar year immediately after the year of the IRA owner’s death is the beneficiary’s remaining life expectancy as of his or her birthday during that year and the applicable period is reduced by one for each subsequent distribution calendar year. Unlike in the case of a spouse beneficiary, which is required to use the life expectancy of the deceased IRA owner for purposes of calculating the annual RMD amount, a non-spouse beneficiary is required to use his or her life expectancy when calculating the annual required distribution amounts. For example, if Jane is designated as sole beneficiary of an IRA of her mother, who died during 2015, her first distribution calendar year is 2016. If Jane turned 60 years old during that year, the applicable distribution period would be based on the life expectancy of a 60-year-old. Conversely, the non-spouse beneficiary has the option to select a five-year distribution rule, which would required the non-spouse beneficiary to take the entire amount of the inherited IRA as a distribution over a five year period. Of note, a non-spouse IRA beneficiary does not have the option to convert the traditional inherited IRA to a Roth IRA.

The IRA custodian (the financial institution) is required to submit reports to the IRS and to the IRA owner regarding RMDs. If an RMD is required to be taken from an IRA for a calendar year and the IRA owner is alive at the beginning of the year, the IRA custodian that held the IRA as of December 31 of the prior year must provide a statement to the IRA owner to report the due date of the RMD and, in most cases, the amount that is due. The IRA custodian is required to send this report to the IRA owner by January 31 of the year for which the RMD is required.

The RMD rules and options for a non-spouse beneficiary can bring to bear some financial and tax implications.  Therefore, it is important that one consults a tax professional or financial advisor for further guidance.

For more information about options when inheriting an IRA, please contact an IRA Expert @ 800.472.0646.

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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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