Oct 31

Did You Know You Can Invest in Tax Liens with Your IRA?

It’s a little-known fact that tax liens can be purchased with retirement account funds. By Self-Directing your IRA LLC  investments into tax liens, your profits are tax-deferred back into your retirement account. More importantly, if you have full checkbook control over your Self-Directed IRA, the purchases can be made on the spot as fast as you can write a check. Tax Liens have been a lesser known and under-appreciated money-maker, however learning how they can magnify your earnings in a tax-deferred IRA LLC or 401(k) will make them one of the soundest investments in your retirement account.

The purchase of tax lien certificates is a surprisingly safe investment. The transaction is fast and its characteristics make tax liens a perfect investment for the individual with full checkbook control of an IRA Financial Group IRA LLC. In fact, the use of a Self-Directed IRA LLC is one of the most tax efficient ways to finance your tax lien purchase. IRA Financial Group’s IRA LLC allows investors to participate in a wide range of investment vehicles including, but not limited to tax liens, real estate, mortgages, franchise, notes, stocks and mutual funds, partnerships, etc.

These unique IRS approved structures are created by IRA Financial Group’s in-house tax and ERISA professionals who personally customize your account structure to suit your needs. Only a handful of institutions are skilled in these specialized account structures and IRA Financial Group is the “gold standard” for Compliance, Leadership, Customer Service, and Technological Innovation.

Facts & Opportunities Surrounding Tax Liens

Real estate has long been considered one of the best (and safest) investment opportunities for both the large and small capitalist. Savvy investors know that the trick to making money in a downward spiraling market is to purchase properties for a fraction of their value. The question is…How? Many are finding the perfect answer in the high-profit possibilities of investing in Tax Lien Sales.

When a property owner falls behind on their taxes, failing to pay for one or more years, the local taxing authority has the legal right to place a lien or repossess the property and sell it at auction to recoup the lost tax revenue. How long local authorities wait to seize individual properties, and how much they allow to be owed on it before one of these events is up to the lien laws in their particular area. In many cases properties may be acquired for a few thousand dollars, regardless of how much it’s actually worth! Similarly, paying off the lien on others may cost more than the house or land is worth. A savvy investor takes the time to research each property carefully prior to sale day.

Tax Lien Sales

Tax lien sales usually happen at public auctions once or twice a year, depending on the area in which it is located, and how many properties the government may seize annually for back taxes. Larger urban areas may hold monthly auctions, while smaller rural ones might only have one a year.

Types of Tax Liens

There are two types of tax lien sales through auction: the tax lien certificate; and the tax lien deed. Both can be a safe yet profitable opportunity for investors with check book control.

Tax Lien Certificate sales offer the delinquent homeowner one last chance to retain ownership of their property, by using third-party investment money to pay off the taxes and give them a bit more time to collect the money needed to pay their debt without the risk of losing their home. When an investor bids on a tax lien certificate, he is in essence agreeing to loan the homeowner the money needed to pay all taxes due. The homeowner, in turn, agrees to pay back the tax lien certificate holder – with interest – by a specified date. If the homeowner fails to pay the debt on time, the deed to the property is transferred to the investor for the amount paid on the taxes. Either way the investor makes a profit: either on the interest he earns on the loan; or by obtaining the property for a fraction of its value through the tax lien sale, and then reselling it.

Tax Lien Deed sales are handled a bit differently, since the investor is actually bidding (or buying), the complete property at the time of auction, with no responsibility to give the homeowner more time to pay his/her tax debt. Once the selling price is approved, the deed is automatically transferred to its new owner, giving the investor full reign as to what to do with the property next: renovate it; sell it as-is; or raze the existing house and build anew.

Investors usually pay more for properties in this type of tax lien sale, which may lower their profit margins compared to the acquisition of tax lien certificate properties. But, many investors prefer outright purchases to eliminate problems with current homeowners. Either way, investing in tax liens is a profitable and easy way to enter the real estate market in virtually any area.

How Much Money Can I Make and How?

1. Double Your Money Quickly. A Self-Directed IRA LLC can be supercharged when you buy tax lien certificates. Example: A tax lien certificate can earn up to 16% annually in your Self-Directed IRA. When you buy tax lien investments you generally receive the amount invested plus interest within 12 months. If you continue to reinvest in tax liens year after year at 16%, you can double your money in about 4.4 years. Only a Self-Directed IRA LLC can preserve this 16% return, as traditional IRAs do not invest in tax liens.

2. Your Money Grows Tax-Free. By buying tax liens in an IRA Financial Group Self-Directed IRA LLC, you can avoid all taxes until the money invested is withdrawn from the IRA, which is usually around age 59 1/2. The money can be invested once, twice or a thousand times and continue to grow tax-free, so long as it is not withdrawn for personal use. If you use a Self-Directed Roth IRA LLC, your investment will grow tax-free and you can withdraw the funds tax-free once you reach the age of 59 1/2.

3. The Flexibility to Buy Time Sensitive Investments. IRA Financial Group’s Self-Directed IRA LLC allows you to carry a checkbook that is tied to the account. This gives you incredible freedom to fund the investment at a moment’s notice. In this arrangement, you can buy tax liens with the stroke of the pen, without a custodian or other bureaucrat saying no or otherwise trying to slow down the process.

Tax liens are backed and leveraged by real estate and guaranteed by the governmental taxing authority. In most states, they are a first lien on real estate, and when foreclosed, they wipe out all junior liens, including mortgages. This allows you to potentially receive a valuable piece of real estate for pennies on the dollar!

Time to Act

Real property has been the cornerstone of wealth for thousands of years. While ill-informed speculators have fled real estate because of the housing bust, intelligent real estate investors are enjoying immense profits by expanding their geographic scope and investing for predictable income.

Why are we significantly less than everyone else and “The best in the business”?

Establish a Self-Directed IRA LLC with IRA Financial Group and have immediate “checkbook control” to make tax lien investments.

Our in-house tax and ERISA professionals will take care of setting up your Self-Directed IRA LLC. Our tax and ERISA professionals are onsite greatly reducing the setup time and cost. You will find that our fee for this service is significantly less than other companies that perform the same or similar services.

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

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Oct 30

How Long Does it Take to Set Up a Self-Directed IRA?

The IRA Financial Group will take care of setting up your entire Self Directed IRA LLC structure in a matter of days. Our in-house tax and ERISA professionals will work with you directly to customize a structure that satisfies your tax and investment goals.

How Long Does it Take to Set Up a Self-Directed IRA?The whole process can be handled by phone, email, fax, or mail. Our expert tax and ERISA professionals are on site greatly reducing the set-up time and cost. Our in-house retirement tax professionals will complete all the necessary IRA rollover or transfer paperwork and assist you in transferring your funds to the new passive custodian so that your funds will be available for investment in a matter of days. Typically it takes anywhere between 7 and 21 days for your funds to be transferred to your new “Checkbook Control” Self Directed IRA LLC. In most cases, we are able to complete the IRA LLC facilitation aspects of the transaction within a few days; however, the transfer of funds from one custodian to another can take some time depending on the financial institution and the type of assets being transferred. Most importantly, you will find that our fee for this service is significantly less than other companies that perform the same or similar services.

To get started or to learn more about the Self-Directed IRA LLC Structure, please contact one of our IRA Experts at 800-472-0646.

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Oct 29

Funding a Self-Directed IRA with an IRA Rollover

In general, a self-directed IRA LLC may be funded by a transfer from another IRA account or through a rollover from an eligible defined contribution plans, defined benefit plans eligible defined contribution plans include qualified 401(k) retirement plans under Internal Revenue Code Section 401(a), 403(a), 403(b), and governmental 457(b) plans.

What is the most Common Way to Fund a Self-Directed IRA?

Transfers and rollovers are types of transactions that allow movements of assets between like IRAs – Traditional IRA to Traditional IRA and Roth IRA to Roth IRA. An IRA transfer is the most common method of funding a Self-Directed IRA LLC or Self-Directed Roth IRA.

IRA Transfers to a Self-Directed IRA with a Traditional IRA

An IRA-to-IRA transfer is one of the most common methods of moving assets from one IRA to another. A transfer usually occurs between two separate financial organizations, but a transfer may also occur between IRAs held at the same organization. If an IRA transfer is handled correctly the transfer is neither taxable nor reportable to the IRS. With an IRA transfer, the IRA holder directs the transfer, but does not actually receive the IRA assets. Instead, the transaction in completed by the distributing and receiving financial institutions. In sum, in order for the IRA transfer to be tax-free and penalty-free, the IRA holder must not receive the IRA funds in a transfer. Rather, the check must be made payable to the new IRA custodian. Also, there is no reporting or withholding to the IRS on an IRA transfer.

The retirement tax professionals at the IRA Financial Group will assist you fund your Self-Directed IRA LLC by transferring your current pre-tax or after-tax IRA funds to your new Self-Directed IRA or Self-Directed Roth IRA structure tax-free and penalty-free. In order

How the Self-Directed IRA Transfer Works?

Your assigned retirement tax professional will work with you to establish a new Self-Directed IRA account at a new FDIC and IRS approved IRA custodian. The new custodian will then, with your consent, request the transfer of IRA assets from your existing IRA custodian in a tax-free and penalty-free IRA transfer. Once the IRA funds are either transferred by wire or check tax-free to the new IRA custodian, the new custodian will be able to invest the IRA assets into the new IRA LLC “checkbook control” structure. Once the funds have been transferred to the new IRA LLC, you, as manager of the IRA LLC, you would have “checkbook control” over your retirement funds so you can make traditional as well as non-traditional investments tax-free and penalty-free.

Moving 401(k) Plan & Qualified Retirement Plan Assets to a Self-Directed IRA

The 2001 Economic Growth and Tax Relief Reconciliation Act expanded the rollover opportunities between employer-sponsored retirement plans, such as 401(k) Plans and IRAs. Since 2002, individuals may rollover both pre-tax and after-tax 401(k) Plan fund assets from a 401(a), 403(a), 403(b), and governmental 457(b) plans into a Traditional IRA tax-free and penalty-free.

In general, in order to rollover qualified retirement plans to a Traditional IRA there must be a plan-triggering event. A plan-triggering event is typically based on the plan documents, but they generally include the following: (i) the termination of the plan, (ii) the plan participant reaching the age of 591/2, or (iii) the plan participating leaving the employer.

A Direct Rollover to a Self-Directed IRA

A direct rollover transpires when a plan participant, who has access to his or her retirement funds, moves the eligible qualified retirement plan funds to an IRA custodian. In other words, a direct rollover is between a qualified retirement plan and an IRA, whereas, a transfer is between IRA financial institutions. In general, employer 401(k) plan providers must offer the direct rollover option if it is reasonable anticipated that the total amount of eligible rollover distributions to a recipient for the year would be more than $200.

How to Complete a Direct Rollover

Your assigned retirement tax professional will work with you to establish a new Self-Directed IRA account at a new FDIC and IRS approved IRA custodian. With a direct rollover from a defined contribution plan, the plan participant must initiate the direct rollover request. What this means is that the plan participant must request the movement of 401(k) plan funds to the new IRA custodian, not the IRA custodian, like with an IRA transfer. Your assigned retirement tax professional will assist you in completing the direct rollover request form which will allow you to move your 401(k), 403(a), 403(b), 457(b), or defined benefit plan assets to your new IRA account.

A direct rollover may be accomplished by any reasonable means of direct payment to an IRA. Regulations state that the reasonable means may include, wire, mailing check to new IRA custodian, or mailing check made out to new IRA custodian to plan participant.

Reporting a Direct Rollover

When an individual directly rolls over a qualified retirement plan distribution to a Traditional IRA, the employer is generally required to report the distribution on an IRS Form 1099-R, using Code G in Box 7, Direct rollover and rollover contribution. The receiving IRA administrator would them be required to report the amount as a rollover distribution in Box 2 of IRS Form 5498.

Rollover Chart

Click the image below to view the Rollover Chart.

IRA Rollover Chart

An Indirect Rollover to a Self-Directed IRA

An indirect rollover occurs when the IRA assets or qualified retirement plan assets are moved first to the IRA holder or plan participant before they are ultimately sent to an IRA custodian.

60-Day Rollover Rule

An individual generally has sixty (60) days from receipt of the eligible rollover distribution to roll the funds into an IRA. The 60-day period starts the day after the individual receives the distribution. Usually, no exceptions apply to the 60-day time period. However, in cases where the 60-day period expires on a Saturday, Sunday, or legal holiday, the individual may execute the rollover on the following business day.

An individual receiving an eligible rollover distribution may rollover the entire amount received or any portion of the amount received. The amount of the eligible rollover distribution that is not rolled over to an IRA is generally included in the individual’s gross income and could be subject to a 10% early distribution penalty if the individual is under the age of 591/2.

How the 60-Day Rollover Works with a Self-Directed IRA

The retirement tax professionals at the IRA Financial Group will assist you in rolling over your 60-day eligible rollover distribution to a new FDIC and IRS approved IRA custodian. Once the 60-day eligible rollover distribution has been deposited with the new IRA custodian within the 60-day period, the new custodian will be able to invest the IRA assets into the new IRA LLC “checkbook control” structure. Once the funds have been transferred to the new IRA LLC, you, as manager of the IRA LLC, you would have “checkbook control” over your retirement funds so you can make traditional as well as non-traditional investments tax-free and penalty-free.

60-Day Rollover from an Employer Retirement Plan

In general, when a plan participant requests a distribution from an employer qualified retirement plan. IRS rules require the employer to withhold 20% from the amount of the eligible rollover distribution. If an individual receives an eligible rollover distribution and then elects to rollover the assets to an IRA custodian within 60 days, the individual can make up the 20% withheld by the employer retirement plan provider for federal income tax purposes.

Employer sponsored retirement plans are required to withhold at a rate of 20% on all eligible rollover distributions of taxable funds or assets, unless the participants elects to directly rollover the distribution to an IRA or to another eligible retirement plan. In other words, when taking an indirect rollover from an employer qualified retirement plan, the employer is required to withhold 20% of the eligible rollover distribution. The 20% withholding requirements is not applicable for IRA-to-IRA transfers or for direct rollover distributions.

Reporting Indirect Rollovers

When an individual takes a distribution from an employer sponsored retirement plan, such as 401(k) Plan, the employer should make the individual, even if the individual intends to roll the funds over to an IRA. The employer would be required to withhold 20% from the eligible rollover distribution since the funds will be rolled to the plan participant and not directly to the IRA or qualified retirement plan custodian. The employer (payer) would report the indirect distribution on IRS Form 1099-R, using the applicable distribution Code (1,4, or 7). If the funds are deposited with an IRA custodian within 60-days, the receiving IRA custodian would report the rollover assets on the IRS Form 5498 as a rollover contribution in Box 2.

Self-Directed IRA Transfer & Rollover Experts

The retirement tax professionals at the IRA Financial Group will assist you in determining how best to fund your Self-Directed IRA or Self-Directed Roth IRA LLC structure. Whether it’s by IRA transfer or direct or indirect rollover, each client of the IRA Financial Group will work directly with an assigned retirement tax professional to make sure his or her Self-Directed IRA LLC structure is funded in the most tax efficient manner.

To learn more about the Self-Directed IRA transfer or direct or indirect rollover rules, please contact a tax professional at 800-472-0646.

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Oct 27

How a Self Directed Roth IRA LLC Works

Making an investment through a Self-Directed IRA LLC can be done in a few easy steps:

1. Set up a Self-Directed Roth IRA LLC.

With IRA Financial Group, you no longer have to spend $2000 to $5,000 or more to set up your Self-Directed Roth IRA LLC.

We provide the following all for one low price

  • Free tax consultation with our in-house retirement tax professionals
  • Setup your LLC in the State of your choice
  • Prepare and file the Articles of Organization with the State
  • Generate a special purpose, attorney-reviewed Self-Directed Roth IRA LLC Operating Agreement
  • Generate a special purpose, attorney-reviewed Subscription Agreement, as required by the Custodian
  • Obtain the EIN from the IRS
  • Co-ordinate setup with the Custodian of your Choice
  • Free tax and IRA support regarding the Self-Directed Roth IRA LLC Structure
  • Expedited Service Guarantee!
  • Satisfaction Guaranteed!

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

2. Transfer of Retirement Funds Tax-Free.

Our IRA Experts will assist you in transferring your retirement funds tax-free from your current custodian to a new FDIC backed/IRS approved Passive Custodian that allows for truly Self-Directed IRA investments, such as real estate, tax liens, precious metals, and much, much more.

What is a Passive Custodian?

The IRS approved and FDIC backed custodian in the “checkbook control” Self-Directed IRA LLC structure is referred to as a “passive” custodian largely because the custodian is not required to approve any IRA related investment and simply serves the passive role of satisfying IRS regulations. The passive custodian business model is built around the establishment and maintenance of IRAs, whereas a traditional IRA custodian generates income through the marketing and sale of investment products.

All the passive custodians we work with are FDIC backed and IRS approved. Once your custodian has transferred your retirement funds to the passive custodian, the passive custodian will immediately transfer your funds to your new IRA LLC where you as manager of the LLC will have “Checkbook Control” over the funds.

With a Self-Directed Roth IRA LLC with “checkbook control” you no longer have to pay excessive custodian fees based on account value and transaction fees. Instead, with a “checkbook control” Self-Directed Roth IRA LLC, an FDIC backed IRS approved passive custodian is used. By using a Self-Directed Roth IRA LLC with “checkbook control” you can take advantage of all the benefits of self-directing your retirement assets without incurring excessive custodian fees and custodian created delays.

Our IRA Experts will assist you in completing all the necessary custodian documents so your retirement funds are transferred to the new passive custodian quickly and without any tax.

3. Open IRA LLC Bank Account.

Open a local bank account for the LLC at any bank of your choice. You can open a bank account for your Self-Directed IRA LLC at any bank or credit union.

4. Tax-Free Transfer of Funds to LLC Bank Account.

Direct the passive custodian to transfer the IRA funds to your new Self-Directed Roth IRA LLC bank account. The IRA LLC checking account can be opened at any bank or credit union.

5. “Checkbook Control”.

As the Manager of the Self-Directed Roth IRA LLC, you will have the freedom to make all investment decisions for your Self-Directed Roth IRA LLC. In other words, you will have “checkbook control” over your IRA funds allowing you to make an IRA investment by simply writing a check or wiring funds directly from the IRA LLC bank account.

6. Tax-Free Investing.

Since your IRA will become the owner(s) (member(s)) of the newly formed IRA LLC, all income and gains generated by an IRA LLC investment will generally flow back to your IRA tax-free. With a Self-Directed Roth IRA LLC, all income and gains associated with the Roth IRA investment grow tax-free and will not be subject to tax upon withdrawal or distribution. This is because unlike traditional IRAs, you are generally not subject to any tax upon taking Roth IRA distributions once you reach the age of 59 1/2.

Because an LLC is treated as a passthrough entity for federal income tax purposes, all income and gains are taxed at the owner level not at the entity level. However, since an IRA is a tax-exempt party pursuant to Internal Revenue Code Section 408 and, thus, does not pay federal income tax, all IRA investment income and gains will generally flow through to the IRA tax-free!

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

For more information about the Self-Directed Roth IRA LLC structure, please contact us @ 800.472.0646!

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Oct 24

Owning property in a self-directed IRA

Here’s a recent article from the Chicago Tribune talking about owning property in a Self-Directed IRA:

“Q: I have acquired two properties within my self-directed IRA. One was obtained when I was offered a deed in lieu of foreclosure and the other I bought from a bank three years ago at a low cost. Neither property has a mortgage. When I retire or wish to sell them at some point, how are the capital gains handled within the IRA?

A: A self-directed IRA allows the custodian of the account to purchase other forms of investments beyond stocks, bonds, REITs and other types of publicly traded investments. For some, this includes investment real estate but might also include business entities and private loans but not collectibles.

When you buy investment real estate inside a self-directed IRA, it is treated the same, whether it is residential single-family houses, townhouses, condos, multifamily or multi-use buildings, or some flavor of commercial properties. The property income flows into the IRA and out of the income the trustee pays the expenses of the property, such as the mortgage, insurance premiums, property taxes, and the costs of updating and maintaining the property.

What’s left is the profit. That stays inside the IRA, and you’re allowed to grow it on a tax-deferred basis, like any other qualified retirement account.

When you sell the properties, the same thing happens. At closing, the custodian signs the documents and the income from the sale goes into your IRA. All of the expenses from the sale are usually paid out of the proceeds at the closing, before the transfer. Then you can withdraw some or all of the cash from the self-directed IRA, just as you would with a regular 401(k) or IRA, and pay taxes that you owe either quarterly or on your federal income tax return plus any penalty for an early withdrawal if you are under the age of 59 1/2.

The tax you pay on your profits might not be capital gains, however, but could be regular and ordinary income. The tax structures on self-directed IRAs (which may also be referred to as SDIRAs), can be complicated and extremely expensive if small details are not handled correctly.

Also, please be aware that if you cash out your self-directed IRA before the age of 59 1/2, just as with a traditional IRA you may be subject to penalties in addition to the tax burden.

For more details, please consult with a tax attorney or account with expertise in self-directed IRAs.”

If you are looking to invest in real estate with a Self-Directed IRA, please contact an IRA Expert from the IRA Financial Group @ 800.472.0646 today!

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Oct 23

The Secret of the Self-Directed IRA

Individual retirement accounts, or IRAs, exist in many forms. In general, if you have income from working for yourself or someone else, you may set up and contribute to an IRA. The major advantage of using a traditional IRA is that contributions are tax-deductible. Furthermore, IRA funds can be used for any purpose, including investing in real estate, tax liens, stock, bonds, and gold.

Alternative investments such as real estate have always been permitted in IRAs, but few people seemed to know about this option- until the last several years. This is because large financial institutions have little incentive to recommend something other than stocks, bonds or mutual funds which bring in extremely profitable commission and fees for them.

There are approximately 2.5 million Self-Directed IRA accounts in the United States. In the last several years, the number of Self-Directed IRA accounts has grown significantly. The significant increase in the number of Self-Directed IRAs formed can be largely attributed to the poor performance of the stock market, the growth of the real estate market, the lack of liquidity in the small business loan market, and the increase in media coverage by the Wall Street Journal, CNBC, The New York Times, Business Week, and some of the other major financial media companies.

It is not entirely uncommon for a tax or financial advisor to have not heard of self-directed IRAs given the fact that the traditional financial institutions have concealed their benefits due to their focus on selling the more profitable equities, bonds, and mutual funds.

The Self-Directed IRA LLC SecretThe Self-Directed IRA LLC Solution

The Self-Directed IRA LLC structure was affirmed in the Tax Court case Swanson v. Commissioner, 106 T.C. 76 (1996), and further confirmed by the IRS in Field Service Advisory (FSA) 200128011 (April 6, 2001).

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. Tired of being forced to invest in stocks or mutual funds? Have an investment opportunity, such as real estate or a business investment that you would love to make with your IRA funds? Then the Self-Directed IRA LLC is your solution. In addition to the tremendous IRA benefits (tax-free profits, tax deductions, asset protection and estate planning), the Self-Directed IRA LLC allows you to invest tax-free in investments that you know and understand. Aside from life insurance, collectibles and certain “prohibited transaction” investments outlined in Internal Revenue Code Section 4975, Self-Directed IRAs can invest in most commonly made investments, including real estate, private business entities, public stocks, private stocks, and commercial paper.

The Self-Directed IRA LLC, allows the IRA holder to:

  • Use the same Self-Directed IRA LLC to purchase domestic and foreign real estate, private mortgages, gold and stocks, bonds and mutual funds inside the same plan and generate profits tax-free
  • Purchase real estate foreclosures and tax liens on the spot, or make personal loans by simply writing a check and generate profits tax-free
  • Buy your retirement home or vacation property now at today’s prices, rent it out, and then move in at the age of 59 1/2!
  • Diversify your retirement portfolio and invest in almost any type of investment tax-free

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

To learn more about the Self-Directed IRA LLC structure, contact one of our IRA Professionals at 800-IRA-0646 today!

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Oct 21

The Most Common IRA Prohibited Transactions

Categories of Prohibited Transactions

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

Direct Prohibited Transactions

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

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

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

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

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

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

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

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

Self-Dealing Prohibited Transactions

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

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

Conflict of Interest Prohibited Transactions

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

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

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

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

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Oct 20

Back to Basics – What is a Roth IRA?

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

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

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

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

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

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

Oct 17

Making an Investment with a Self-Directed IRA Loan

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

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

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

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

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Oct 16

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

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

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

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

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

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

Types of Real Estate Investments

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

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

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

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

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

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

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

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

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

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

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

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

2. Partner with Family, Friends, Colleagues

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

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

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

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

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

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

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

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

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

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

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

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