Jul 31

IRA Financial Group Introduces Self-Directed IRA LLC Asset Protection Plan

Self-Directed IRA offers significant creditor and asset protection for retirement account holders

IRA Financial Group, the leading provider of “checkbook control” self-directed IRA LLC structures announces the introduction of the “Self-Directed IRA LLC 401(k) Asset Protection Plan.” The “Self-Directed IRA LLC Asset protection Plan has been created to offer asset and creditor protection to retirement investors. “Because retirement accounts have become many Americans most valuable assets, we believe it is extremely important that our retirement clients have the power to protect their hard earned retirement funds from creditors or potential creditors, “ stated Adam Bergman, a tax attorney with the IRA Financial Group.

Self-Directed IRA offers significant creditor and asset protection for retirement account holders Like 401(k) qualified plans, The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA” or the “Act”) effective for bankruptcies filed after October 17, 2005, gave protection to a debtor’s IRA funds in bankruptcy by way of exempting them from the bankruptcy estate. The general exemption found in sec­tion 522 of the Bankruptcy Code, 11 U.S.C. §522, pro­vides an unlimited exemption for IRAs under section 408 and Roth IRAs under section 408A. IRAs created under an employer-sponsored section 408(k) sim­plified employee pension (a “SEP IRA”) or a sec­tion 408(p) simple retirement account (a “SIMPLE IRA”), as well as pension, profit sharing, or qualified section 401(k) Plan wealth transferred to a rollover IRA.

According to Mr. Bergman, Traditional and self-directed Roth IRA s that are created and funded by the debtor are subject to an exemp­tion limitation of $1 million in the aggregate for all such IRAs (adjusted for inflation and subject to increase if the bankruptcy judge determines that the “interests of justice so require”). It is understood that a rollover from a SEP or SIMPLE IRA into a rollover IRA receives only $1 million of protection since such a section 408(d)(3) rollover is not one of the rollovers sanctioned under Bankruptcy Code section 522(n).

Outside of bankruptcy, in the case of a self-directed IRA LLC state law determines whether IRAs (including Roth IRAs) are shielded from creditors’ claims. “Most states provide full asset and creditor protection for self-directed IRA assets, “ stated Mr. Bergman. According to Mr. Bergman there are several notable states that do not provide full asset and creditor protection to self-directed IRA assets, including California and Wyoming.”

The use of a limited liability company (LLC) wholly owned by a Self-Directed IRA generally offers additional limited liability protection to retirement investors seeking stronger asset and creditor protection. “The LLC adds another layer of protection to help shield your retirement funds outside of the LLC from creditor attack, ” stated Mr. Bergman.

The IRA Financial Group was founded by a group of top law firm tax and ERISA lawyers who have worked at some of the largest law firms in the United States, such as White & Case LLP, Dewey & LeBoeuf LLP, and Thelen LLP.

IRA Financial Group is the market’s leading provider of “checkbook control” self-directed IRA LLC retirement solutions. IRA Financial Group has helped thousands of clients take back control over their retirement funds while gaining the ability to invest in almost any type of investment, including real estate without custodian consent.

To learn more about the IRA Financial Group please visit our website at http://www.irafinancialgroup.com or call 800-472-0646.

Jul 30

How to Transfer a SIMPLE IRA to a Self-Directed IRA LLC

Individuals may generally transfer IRA or rollover eligible qualified retirement plan assets into a self-directed IRA LLC structure. Individuals may also roll over after-tax retirement funds to a Self-Directed SIMPLE IRA.

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

Transfers and rollovers are types of transactions that allow movements of assets between like IRAs – Traditional IRA to Traditional IRA, including Savings incentive match plan for employees of small employers (SIMPLE). A SIMPLE IRA transfer is the most common method of funding a Self-Directed SIMPLE IRA LLC.

Note – SIMPLE IRA assets may be rolled over to a Self-Directed SIMPLE IRA anytime, however, SIMPLE IRA assets may be rolled over to a 401(k) qualified retirement plan, 403(b) plan, governmental 457(b) plans or a Traditional IRA only after a two (2) year waiting period is met. Though, a 401(k) qualified retirement plan, 403(b) plan, or governmental 457(b) plan may not be rolled into a SIMPLE IRA. Also, a Roth IRA cannot be rolled into a SIMPLE IRA.

SIMPLE IRA Transfers to a Self-Directed IRA

Transferring a SIMPLE IRA to a Self Directed IRA is Simple!A SIMPLE IRA-to SIMPLE IRA transfer is one of the most common methods of moving assets from a SIMPLE IRA to Self-Directed SIMPLE IRA LLC. A transfer usually occurs between two separate financial organizations, but a transfer may also occur between SIMPLE IRAs held at the same organization. If a SIMPLE IRA transfer is handled correctly the transfer is neither taxable nor reportable to the IRS. With a SIMPLE IRA transfer, the SIMPLE 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 SIMPLE IRA transfer to be tax-free and penalty-free, the IRA holder must not receive the SIMPLE 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 SIMPLE IRA LLC by transferring your current SIMPLE IRA funds to your new Self-Directed SIMPLE IRA structure tax-free and penalty-free.

How the SIMPLE IRA to Self-Directed IRA Transfer Works?

Your assigned retirement tax professional will work with you to establish a new Self-Directed SIMPLE IRA account at a new FDIC and IRS approved IRA custodian. The new custodian will then, with your consent, request the transfer of your SIMPLE 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 SIMPLE IRA custodian, the new custodian will be able to invest the SIMPLE IRA assets into the new SIMPLE IRA LLC “checkbook control” structure. Once the funds have been transferred to the new SIMPLE IRA LLC, you, as manager of the SIMPLE 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 Rule

An individual generally has sixty (60) days from receipt of the eligible rollover distribution from a SIMPLE IRA account to roll the funds into a Self-Directed SIMPLE IRA LLC structure. 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 SIMPLE 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 SIMPLE IRA assets into the new IRA LLC “checkbook control” structure. Once the SIMPLE IRA funds have been transferred to the new IRA LLC, you, as manager of the SIMPLE 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.

Self-Directed IRA Transfer Experts

The retirement tax professionals at the IRA Financial Group will assist you in transferring your SIMPLE IRA tax-free and penalty-free to a “checkbook control” self-directed SIMPLE IRA LLC solution. Each client of the IRA Financial Group will work directly with an assigned retirement tax professional to establish the Self-Directed SIMPLE IRA LLC solution and make sure that the self-directed IRA transaction is structured in the most tax efficient manner and is not in violation of any IRS rules.

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

Jul 29

The Stretch IRA may be an Endangered Species

The so-called Stretch IRA may become a thing of the past if lawmakers get their way.  So, what exactly is a Stretch IRA you ask?  In basic terms, a Stretch IRA is the ability to name your child or grandchild the beneficiary of your IRA (traditional or Roth) who can then “stretch” out withdrawals over his or her projected lifespan.  Therefore, they’ll add decades of tax-deferred or tax-free growth.  Further, it’s become a big reason for people to convert to a Roth IRA since it will allow tax-free growth for years to come if you bequeath it to a young person.

Lawmakers are trying to close up this loophole by forcing non-spousal heirs to take distributions of the IRA within five years.  Further, if it’s a traditional IRA, will owe the taxes due in that same time frame.  If the heir is disabled, he or she may still stretch out the account and if the heir is a minor, he or she would have until age 26 to distribute the account.  Spouses will still have great flexibility with the account including rolling it over into his or her own name.

“Millionaires, billionaires can pass on millions in their IRAs to their heirs without paying taxes for years, if not decades. That was never what IRAs were for. That is a loophole. It has to be closed,” Sen. Tom Harkin argued recently.

So what can you do now to prepare yourself for the inevitable?

Be forewarned of possible laws against the Stretch IRAFirst off, check your beneficiary designations.  Your best bet, if you’re married, is to name your spouse as your primary beneficiary.  If you have kids, you should name them as your secondary beneficiary.  Therefore, in the event of your passing, your spouse can decide, based on his or her financial situation and inherited IRA rules, to keep the IRA or disclaim it so it will go to your child(ren).

Next, if you’re planning on performing a Roth conversion, figure out if it makes sense to do so under possible new rules of the Stretch IRA.  Don’t assume your heirs can continue to receive a tax break and convert only for this reason.  The main reason to convert is to pay taxes now at a lower tax rate than you might be in the future.

Proper asset allocation should be a major factor as well.  “If you hold stocks, funds and other assets such as real estate in regular (non-retirement) accounts, they get a step-up in basis to their current market value at your death—-meaning that your heirs can sell them immediately without paying capital gains taxes. There’s no step up for IRA assets and anything heirs take from a traditional IRA is taxed at high ordinary income rates. But if Obama, Senate Democrats and the ABA Tax Section have their way, your heirs won’t even be able to stretch out that tax hit over decades,” says Forbes.com staffer Janet Novack.

Lastly, figure out any charitable bequests you plan to make upon your death.  It’s always best to leave your pre-tax assets to a non-profit if you wish.  Your heirs have to pay ordinary tax on withdrawals from a traditional, pre-tax IRA.  If they cannot spread out those withdrawals, they’re tax bracket will usually bump up meaning they will owe more on taxes.  Charities are exempt from the tax when they cash in the IRA.  You can then leave a tax-free Roth to your heirs.

This could take years or never even come to fruition, but it’s best to play it safe when it comes to your retirement.  If you have any questions about the Stretch IRA or anything else IRA-related, contact the tax professionals at the IRA Financial Group today at 800.472.0646!  Be sure to follow us on Twitter @Bergman401k!

Jul 26

Estate Planning Opportunities with a Self-Directed Roth IRA LLC

In addition to the significant tax benefits in using a Self-Directed Roth IRA LLC to make investments, the Roth IRA also offers a number of very exciting estate planning opportunities.

In general, a self-directed Roth IRA is an after-tax account that allows the Roth IRA holder to benefit from tax-free investment growth, so long as a Roth IRA distribution is not taken prior to a five year holding period and the Roth IRA holder is not under the age of 59/1/2 ( a “qualified distribution”). In addition, a Roth IRA holder would not be subject to the required minimum distribution rules (“RMD”).

Estate Planning Opportunities with a Self-Directed Roth IRA LLCWith IRA Financial Group’s Self-Directed Roth IRA LLC Estate Planning Solution, your family could receive tax-free use of your Roth IRA funds. Converting a pre-tax IRA to a Roth IRA could be used as a very valuable estate-planning tool for estate owner’s that would be subject to the estate tax (For 2013 – estates over $5,250,000) as the Roth conversion funds would be paid out of funds subject to estate tax.

Estate Tax Basics

In general, an IRA, whether a traditional or a Roth, is included in the owner’s gross estate. You can’t avoid that. But when a traditional IRA is inherited, the beneficiary must include all distributions in gross income just as the original owner would have. The distributions are taxed at the beneficiary’s ordinary income tax rate. The beneficiary is able to stretch out the distributions over his or her life expectancy, but annual distributions are required and will be taxed. Hence, when passing a Traditional IRA to a spouse or child, the beneficiary is required to pay ordinary income tax on the IRA distribution amount, which would reduce the amount of Traditional IRA funds available to spend.

Converting a Traditional IRA to a Roth IRA – Estate Planning Benefits

In a conversion of a Traditional IRA to a Roth IRA, the IRA converted amount is as though it were taken as a distribution. So, hence, you would be subject to ordinary income taxes on the converted amount. Note: there is no restriction on the amount of IRA funds that can be converted at one time.

The first estate tax benefit of a Roth IRA conversion is that the Roth IRA holder’s estate would be reduced by the income taxes paid on the amount of the Roth IRA conversion. There are several estate planning benefits to paying tax on the Roth conversion while you are alive.

  • Turning Taxable Distributions into Tax-Free Distributions: Doing a Roth IRA conversion is in effect paying the taxes on the IRA funds for your heirs. They would have owed the taxes in the future when they were required to take a distribution from the inherited IRA. Instead, the Roth IRA holder would be paying the tax now, out of his/her taxable estate, and avoid estate and gift taxes on that amount. Thereafter, when your beneficiary would take a distribution from the inherited Roth IRA, those Roth IRA distributions would be tax-free.
  • Pay Tax & Reduce Estate Taxes: Paying the taxes now reduces the size of your estate and any estate tax bill. This isn’t a factor for estates below the taxable level, but it could be important for taxable estates.
  • Lifetime of Tax Benefits : A Roth IRA conversion can provide lifetime income tax benefits to the Roth IRA holder and it can also benefit your beneficiaries. When you maintain a traditional IRA, after age 70½ you’re required to take minimum annual distributions, which would be subject to income tax. If it turned out that you didn’t need this money for spending or living purposes, it simply increases the taxes you would be required to pay. In addition, being required to take a Traditional IRA distribution could increase your income enough to push you into a higher tax bracket, reduce itemized deductions, increase taxes on Social Security benefits, and have other effects. The older you become, the higher the required distributions and taxes become. With a Roth IRA, you or your beneficiaries could benefit from tax-free appreciation of the Roth IRA assets as well as generating tax-free income to live off.
  • Tax-Free Growth & Tax-Free Income . Once the Traditional IRA has been converted to a Roth IRA, the Roth IRA holder and his or her beneficiaries would be able to benefit from tax-free growth and income generated by the Roth IRA. In other words, the assets of the Roth IRA will be able to grow tax-free and all “qualified distributions” from the Roth IRA would be tax-free allowing the Roth IRA holder or his or her beneficiaries to live off the Roth IRA funds without ever having to pay tax on the income.
  • Take Advantage of Historical Low Tax Rates: Even though a lot has been made of the increasing Obamacare tax rates, our current income tax rates are still at historical lows. Therefore, it is conceivable that income tax rates will rise in the future especially with the high levels of debt that is being used by the Government to stimulate the economy. Doing a Roth IRA conversion now versus later could potentially be a tax savvy decision if the Roth IRA grows at a respectful rate and if tax rates increase. Having a Roth IRA to use or offer to your beneficiaries in a high tax environment will prove to be extremely tax beneficial.

The Self-Directed Roth Stretch IRA

Unlike the original Roth IRA owner, a non-spousal beneficiary of a Roth IRA is required to take minimum distributions over his or her life expectancy. Note: a spousal beneficiary of a Roth IRA is not required to take a Roth IRA distribution.

In the case of a non-spousal Roth IRA beneficiary, when the beneficiary is relatively young, there is the potential for the distributions to be less than the annual earnings of the Roth IRA, so the Roth IRA grows while the distributions are being taken. Of course, the beneficiary can take more than the minimum, even the entire Roth IRA, at any time tax-free. In other words, using a Self-Directed Roth Stretch IRA will allow an individual to transfer tax-free assets to children or other beneficiaries and allow those individuals to benefit from tax-free income while the Roth IRA contributes to grow tax-free.

To learn more about the estate tax benefits of having a Self-Directed Roth IRA LLC, please contact a tax professional at 800-472-0646.

Jul 24

Custodial Controlled v. Checkbook Control IRA

Experience the Self-Directed IRA LLC “Checkbook Control” Advantage

Many traditional IRA custodians advertise themselves as offering a Self-Directed IRA, but what that really means is that you will need approval from your custodian before making an investment. Whereas, in the case of a truly Self-Directed IRA, a limited liability company (“LLC”) is established that is owned by the IRA account and managed by the IRA account holder providing the IRA holder with “checkbook control” over his or her funds.

In general, there are three categories of self-directed IRA structures distinguishable by the level of control the custodian exercises over your IRA investments.

1. Financial Institution Self-Directed IRA

With a financial institution self-directed IRA, you are able to direct your IRA investments, however, you are generally limited to investing in the financial products offered by the financial institution. For example, a financial institution such as Vanguard or Fidelity will allow you to select the type of investments for your IRA, but your choices would generally be limited to the financial products they offer, such a stocks, mutual funds, and bonds. With a financial institution self-directed IRA, you will not be permitted to make non-traditional investments such as real estate, precious metals, private business investments, foreign currency, options, etc.

2. Custodian Controlled Self-Directed IRA Without “Checkbook Control”

With a custodian controlled Self-Directed IRA without “Checkbook Control”, many types of nontraditional investments, such as real estate, are generally permitted, however, custodian consent is required in order to enter into and execute the transaction. This typically results in long delays and high custodian fees associated with the transaction. For example, before engaging in an IRA investment, you will be required to receive the consent of the custodian. To this end, you will be required to provide the custodian with the transaction documents for review as part of their transaction review process. As a result, it is common to experience time delays as well as high annual fees as well as additional transaction fees. For example, it is common for a moderately active investor with $50,000 in assets with a Self-Directed IRA custodian without checkbook control to end up paying from $400 to $600 in aggregate annual fees (i.e. account value fee, transaction fees, approval letters).

In addition, there is no guarantee that the custodian will approve your investment even though the investment would not violate IRS rules. Overall, with a custodian controlled self-directed IRA, even though you will generally be permitted to make most non-traditional IRA investments, time delays and high custodian fees are the common characteristics of using a custodian controlled self-directed IRA.

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

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

With a Self-Directed IRA LLC, a limited liability company (“LLC”) is established that is owned by the IRA account and managed by the IRA account holder. The IRA Holder’s IRA funds are then transferred by the Custodian to the LLC’s bank account providing the IRA holder with “checkbook control” over his or her IRA funds.

The Self-Directed IRA LLC “Checkbook Control” Structure has been in use for over 30 years. The notion of using an entity owned by an IRA to make an investment was first reviewed by the Tax Court in Swanson V. Commissioner 106 T.C. 76 (1996). In Swanson, the Tax Court, in holding against the IRS, ruled that the capitalization of a new entity by an IRA for making IRA related investments was a permitted transaction and not prohibited pursuant to Code Section 4975. The Swanson Case was later affirmed by the IRS in Field Service Advice Memorandum (FSA) 200128011.

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

If you have any questions about the checkbook control IRA, contact one of the IRA experts at the IRA Financial Group today @ 800.472.0646!

Jul 23

SEP IRA – Pension Plan for the Self-Employed

When you work for someone else, you’re stuck with the 401k (or other retirement plan) they decide.  Sometimes, you might not have a workplace plan available to you, so you can look at an Individual Retirement Account (IRA).  However, if you are self-employed, there’s a wide array of retirement plans available to you, most that allow contributions to exceed those of traditional and Roth IRAs.

The SEP IRA is a great retirement plan option for small business ownersOne of the most popular plans for the self-employed is the Simplified Employee Pension plan or SEP IRA.  These are especially popular with solo proprietors.  However, if you do have employees that have worked three of the last five years and have earned $550 or more in compensation, you are required to make contributions for them (the employees themselves are not allowed to contribute).

As a sole proprietor (or partner in a partnership), you are allowed to contribute 25% of your profit earned from self-employment work.  These deductions are taken from your 1040, line 28.  “If your legal form is a Sub S corporation, the profit that flows through from your corporation on Schedule K-1 is not counted as earnings from self-employment. You may max out your SEP IRA at up to 25% of your W2 compensation only,” says foxbusiness.com contributor Bonnie Lee.

Pam Jacobs, a financial advisor and plan administrator at Edward Jones in Sonoma, Calif., states, “A great way to take advantage of the markets ups and downs is to dollar cost average by depositing monthly into your account. This also eliminates the need to come up with a large sum of money at year end.”

You must be age 59 1/2 or older to take penalty-free distributions from the plan.  There are instances where you can take a hardship withdrawal and avoid the penalty.  These include: medical expenses, first time home buying, higher education costs and funeral expenses.  You will owe taxes on any withdrawals.
So, if you are self-employed and are looking for an easy, cost-efficient retirement plan, look no further than the SEP IRA.  If you have any questions, feel free to contact the tax professionals at the IRA Financial Group at 800.472.046!

Jul 22

Tax Consequences of a SIMPLE IRA

A savings incentive match plan for employees (SIMPLE IRA) is a retirement plan specifically for small businesses.  In addition to employer contributions, SIMPLE IRAs allow for higher contributions than traditional or Roth IRAs so employees can save more for retirement plus receive a tax advantage as well.

A SIMPLE IRA is a great retirement plan for small businessesMoney you contribute to a SIMPLE IRA as an employee will not get you a tax deductions.  This is because it’s not included in your taxable income to start with.  For 2013, you may contribute up to $12,000 into a SIMPLE IRA.  If you are at least age 50, you may contribute an additional $2,500 “catch-up” contribution.  Whatever you contribute into your plan, that money is deducted from your taxable income for the year.  For example, if you contribute $5,000 of your $40,000 total income this year, only $35,000 will be considered taxable.

If you have a SIMPLE plan, your employer must contribute to it on your behalf, per IRS rules.  Your employer must match your contribution, up to 3% of your salary, OR contribute 2% of every employees’ salary automatically.  Since you don’t see this money, it’s not considered part of your taxable income as well.

If you are a sole proprietor, you may contribute both as an employer and an employee to a SIMPLE IRA.  The taxes are the same, but the tax reporting is a little different.  As the IRS states: “If you have any other employees and make contributions on their behalf, that counts as a business expense that gets reported on Schedule C. Contributions to your SIMPLE IRA, on the other hand, get deducted on Form 1040 as an adjustment to income because that money isn’t already excluded from your taxable income.”

As far as distributions go, they always count towards taxable income.  Unless an exception applies, you’ll owe a 10% early withdrawal penalty if you take money from the plan before you are age 59 1/2.  Further, if you take a withdrawal within the first two years of opening the SIMPLE IRA, you’ll owe a 25% penalty!  There are exceptions to avoid these penalties such as health insurance during unemployment, higher education expenses and if you become permanently disabled.

For any questions about the SIMPLE IRA or to look into opening one for yourself or your small business, contact the tax experts at the IRA Financial Group today at 800.472.0646!

Jul 19

Foreclosure Squeeze Impacting Self-Directed Real Estate IRA Investors

Stiff new foreclosure rules limiting real estate opportunities for self-directed IRA investors

IRA Financial Group, the leading provider of self-directed real estate IRA solutions announces the findings of a new report which shows self directed IRA investors across the country being impacted by the lack of available real estate inventory due to the recent stricter foreclosure rules. Based on interviews with a number of IRA Financial Group clients across the country, the number of available homes has plunged after state laws have subjected lenders to stiff new foreclosure rules and penalties. According to one IRA Financial Group client, “with banks reluctant to pursue foreclosure actions, many homeowners—including those seriously negligent on their loans—have been allowed to remain in their home.” Accordingly, many of the self-directed IRA clients have reported that there is little on the market at a time when real-estate investors are anxious to tap both cheap prices and low-interest mortgages.”

According to several IRA Financial Group clients, the new stricter foreclosure laws being adopted in many states, such as Florida and Nevada, which were intended to cure foreclosure-processing abuses, has actually backfired. “What has in essence happened is that some owners who are behind on payments aren’t maintaining their homes as banks refrain from eviction proceedings, which has created real estate Inventory shortages,“ stated Adam Bergman, a tax attorney with the IRA Financial Group.

IRA Financial Group’s Self-Directed IRA for real estate investors, also called a real estate IRA with checkbook control, is an IRS approved structure that allows one to use their retirement funds to make real estate and other investments tax-deferred and without custodian consent. The Self-Directed IRA LLC involves the establishment of a limited liability company (“LLC”) that is owned by the IRAStiff new foreclosure rules limiting real estate opportunities for self-directed IRA investors (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 the investments he or she wants and understand – not just investments forced upon you by Wall Street.

The IRS has always permitted a IRA to purchase real estate, raw land, or flip homes. “With IRA Financial Group’s self-directed IRA LLC solution for real estate, investors can make real estate purchases and generate income and gains while deferring the tax on the income or gains”, stated Mr. Bergman.  “Many of our self-directed IRA clients are optimistic that when the banks begin again to pursue foreclosure actions, significant inventory will be added to the real estate market and will offer exciting buying opportunities, “ stated Mr. Bergman.

With IRA Financial Group’s self-directed IRA LLC for real estate instead of buying real estate with personal funds and being subject to tax on the income or upon the disposition of the asset, using retirement funds will allow one to buy real estate, including rental properties without paying tax immediately.

The IRA Financial Group was founded by a group of top law firm tax and ERISA lawyers who have worked at some of the largest law firms in the United States, such as White & Case LLP, Dewey & LeBoeuf LLP, and Thelen LLP.

The IRA Financial Group is the market’s leading “checkbook control real estate IRA Facilitator. IRA Financial IRA Group has helped thousands of clients take back control over their retirement funds while gaining the ability to invest in almost any type of investment, including real estate without custodian consent.

To learn more about the IRA Financial Group please visit our website at http://www.irafinancialgroup.com or call 800-472-0646.

Jul 18

How to Fund a Self-Directed IRA LLC With a Traditional 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 tax attorneys 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 tax attorney and paralegal 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 tax attorney and paralegal 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 tax attorney 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 tax attorneys 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 tax attorneys 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 tax attorney 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 from the IRA Financial Group at 800-472-0646.

Jul 17

Is a Self-Directed IRA Right for You?

A great read from NerdWallet.com:

Is a self-directed retirement account right for you?  This post goes into the main reasons one should consider opening one, the factors and limitations to consider, and the reasons you might want to consider a Roth IRA instead.

Think of a retirement account like a crockpot; the IRS will tell you how it cooks – by deferring or eliminating income tax on the assets you put in it – but the IRS doesn’t put many restrictions on the ingredients. You aren’t limited to mutual funds, CDs stocks and bonds by any means.

That’s where a tool called the “self-directed retirement account” comes in; you can create an account, such as a self-directed IRA or 401(k), and have that account purchase assets on your behalf. You simply find yourself a third-party administrator to run it for you, in accordance with IRS rules, and provide them with detailed direction on what you want your IRA to purchase and/or sell, and at what price.

Benefits of Self-Directed Retirement Accounts

Sure, there are a few things that aren’t Kosher. The IRS won’t let you put retirement account money in life insurance, collectibles, alcoholic beverages, jewelry, gems, or certain formats of precious metals. But outside of these few categories of assets, and some rules designed to prevent your retirement account from doing business with entities that have a conflict of interest, you have full run of the supermarket. Put almost anything you like in that crockpot!

And increasingly, people are doing just that. Consumers are using their IRAs, Roth IRAs, SEP IRAs, Solo 401(k)s and even health savings accounts to hold an ever-widening array of non-standard assets to fund their retirement security:

  • Real estate
  • Raw land
  • FOREX
  • Foreign property
  • Tax liens
  • Interest in a partnership
  • S-corporation shares
  • Privately-held businesses
  • Farms
  • Commodities
  • Ranches
  • Precious metals
  • Art galleries
  • Horse-breeding businesses

And other alternative types of investments.  Now, is it a great idea? As with most things in the investment world, it depends.

Who is A Self-Directed IRA Good For?

The self-directed retirement account may be a good fit for someone who has real professional expertise in a given industry or niche. I’m not saying just a casual familiarity with it – I’m talking bona fide expert-level knowledge at a level where other people are willing to pay you for your advice, assistance or counsel. The reason: Most self-directed retirement accounts are not very diverse. Portfolios with just one asset class in them – be it real estate, precious metals, or nearly anything else commonly held for long-term investment purposes – are generally riskier than portfolios stuffed with mutual funds diversified among hundreds or thousands of securities in a variety of asset classes.

But your upside, of course, is much greater in a concentrated portfolio, as well – especially if it‘s in a field you work in professionally, and in which you have a natural competitive advantage. For example, a real estate agent may do well holding rental real estate properties or flipping houses within a retirement account, because he gets first crack at the best deals on the market in his neighborhood. Likewise, the manager of a coin collectors’ shop may want to hold a few American Eagle coins in an IRA for her own account, because she feels that her professional insights allow her an advantage in knowing when to buy or sell them.

Downsides

Aside from the risk inherent in concentrating retirement holdings in a limited number of asset classes (we assume you’re comfortable with that so far!), there are some potential disadvantages you should be aware of.

1.)  Liquidity issues. Remember that unlike your taxable accounts, you can’t dump an unlimited amount of new money into a retirement account in any given year. IRAs and other retirement accounts have annual contribution limits. So if you own a house in an IRA, and all of a sudden that house needs a $30,000 new roof, you can’t just write a check. That money has to come from an IRA. But you can only contribute $5,500 in new money to an IRA. Houston, you have a problem! Your IRA will have to borrow money to put the new roof on (more on that in a bit).

To minimize potential liquidity traps like that, you might consider using a Solo 401(k) account or a SEP IRA account, both of which offer much more generous caps on the amount of money you can contribute in a given year.

2.)  Required minimum distributions, or RMDs. Sure, these are factors with any tax-deferred, non-Roth retirement account. But they are especially hazardous if you hold a large and illiquid investment within your self-directed retirement account that doesn’t generate enough income to pay the RMD. If you’ve got a large plot of land, or a business that just isn’t generating much cash, it could be tough to sell a chunk of it to generate your RMD. So you might be forced to sell the whole thing, and launch yourself into a higher tax bracket – or sell a fractional interest at a discount just to make it happen before the RMD deadline. To avoid this, plan a year or two ahead.

3.)  Tax on unrelated debt-financed income. Think your IRA is tax-deferred? Think again. The only thing deferred is tax on income attributable to money you put in. If you borrowed money from outside your IRA or other tax-deferred retirement account to make investments, and your IRA made money, you become liable for a little known tax called “tax on unrelated debt-financed income,” sometimes called UDIT. Originally this tax was imposed to keep non-profit corporations from abusing the privilege by using their tax-exempt status to operate and shelter income from profitable businesses. But it also means that you have to pay taxes on profits attributable to borrowed money.  If 50 percent of your IRA investments were made with borrowed money, then you will have to pay income taxes on 50 percent of your profits.

4.)  Prohibited Transactions. Congress has laid down some restrictions on what you can and can’t do with IRAs and, generally, other retirement accounts as well, to prevent self-dealing. It’s important to understand these rules, because if you run afoul of them – even accidentally – you can blow up an entire IRA, forcing an immediate distribution and some nasty penalties. Here are the basic prohibited transactions:

  • Your IRA (or other retirement account) can’t buy or sell property directly from you.
  • You cannot lend money to your IRA, nor can you borrow from it.
  • Your IRA can’t do business with a company you own or control. So if you have a rental real estate property in your IRA, you can’t have it hire your own landscaping company.
  • The same goes for your wife, children, grandchildren, parents and grandparents, their spouses, and any entities they control.
  • The same also goes for anyone advising you on your retirement account in a fiduciary capacity and any entities they control.
  • You cannot rent property to any prohibited individuals above.
  • You cannot use the property to benefit yourself or your family, personally.
  • Siblings, for some reason, are fair game. Don’t ask me why. They just aren’t listed as prohibited counter-parties for self-directed retirement account transactions.
  • You can’t stay in your property, even overnight, even if you pay your IRA market-rate rent, and even if you are working on repairing the property. If you do, and the IRS finds out, you’ll blow up the whole IRA and be forced to take an immediate distribution of the whole account. (For 401(k) accounts, you only have to take a distribution of the part of the account that’s authorized.)

5. Less Transparency. Because self-directed IRAs typically don’t invest in publicly-traded securities – with all the inherent disclosures and protections – you can’t just crosscheck your IRA statement against the listings in the Wall Street Journal. Unfortunately, some unethical individuals have tried to exploit the lack of transparency to rip off shareholders. The Securities and Exchange Commission recently put out a consumer notice to warn of the dangers of self-directed IRA ponzi schemes and other possible frauds investigators have uncovered.

This is why it’s important for those considering the self-directed retirement account to have their own independent expertise, so that they know exactly what they are invested in.

The Bottom Line

The self-directed retirement account isn’t for everyone. Most people are probably better off with the traditional mix of stocks, bonds, CDs, annuities, mutual funds, ETFs and the like. It’s still the easiest way to diversify into a lot of asset classes quickly and cheaply. Indeed, the self-directed retirement account probably isn’t for most people. But if you’re an experienced and capable entrepreneur, with specific and marketable expertise, your retirement account can help you leverage that ability with tax deferral or tax-free growth. The potential is powerful indeed.

Another Smart Option: The Roth IRA

If you decide a self-directed IRA isn’t the right option for you at this point in time, another smart retirement account to consider is a Roth IRA.  A Roth IRA is a good bet for younger investors because it means you pay the taxes up front (by investing with your after-tax income) and then the investment grows tax-free for the rest of your life.

If you have any questions, give the country’s leading facilitators of self-directed IRAs a call: the IRA Financial Group is waiting to hear from you at 800.472.0646!