Sep 29

Investing in a Vacation Home with an IRA

Did you know you can use your retirement funds to purchase a vacation home.  With a Self-Directed IRA LLC, you can!  Further, with checkbook control over your funds, you can buy a home without the need for custodial consent.  The one caveat is that you cannot utilize the home while it’s still owned by your IRA.  However, it will be the perfect revenue earner until you retire.  You can use the property you buy as an investment, with all the earnings growing tax-deferred in your IRA.  Read on to see how the structure works and the many benefits.

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

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

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

Why Buy Real Estate Using a Self-Directed IRA LLC

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

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

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

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

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

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

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

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

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

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

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

2. Partner with Family, Friends, Colleagues

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

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

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

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

Likely not if the transaction is structured correctly. Investing in an investment entity with a family member and investing in an investment property directly are two different transaction structures that impact whether the transaction will be prohibited under Code Section 4975. The different tax treatment is based on who currently owns the investment. Using a Self-Directed IRA LLC to invest in an entity that is owned by a family member who is a disqualified person will likely be treated as a prohibited transaction. However, partnering with a family member that is a non-disqualified person directly into an investment property would likely not be a prohibited transaction. Note: If you, a family member, or other disqualified person already owns a property, then investing in that property with your Self-Directed IRA LLC would be prohibited.

3. Borrow Money for your Self-Directed IRA LLC

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

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

Why Work With the IRA Financial Group?

The IRA Financial Group was founded by a group of top law firm tax and ERISA lawyers who have worked at some of the largest law firms in the United States, such as White & Case LLP, Dewey & LeBoeuf LLP, and Thelen LLP. Over the years, we have helped thousands of clients establish IRS compliant Self-Directed IRA LLC solutions. With our work experience at some of the largest law firms in the country, our retirement tax professionals’ tax and real estate IRA knowledge in this area is unmatched.

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

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Sep 27

Watch How the Self Directed IRA Structure Works

Watch how the Self Directed IRA LLC Structure works

Watch how IRA Financial Group’s IRS approved self-directed IRA LLC structure will allow you to take control of your retirement funds and make real estate and other investments by simply writing a check.

See how IRA Financial Group’s Self-Directed IRA LLC with “checkbook control” will allow you to unlock a world of investment opportunities and make investments without custodian consent. Make investments quickly while significantly reducing your annual IRA custodian fees.

Work directly with our in-house retirement tax professionals to set-up an IRS compliant Self-Directed IRA LLC with “checkbook control”. Our retirement tax professionals have worked at some of the largest law firms in the United States, including White & Case LLP and Dewey & LeBoeuf LLP.

Working with our in-house retirement tax professionals, establishing a Self-Directed IRA LLC is quick and easy. Our in-house retirement tax professionals will take care of everything for you. The whole process can be handled by phone, email, fax, or mail. Our expert retirement tax professionals are on site greatly reducing the set-up time and cost.

Call us at 800-472-0646 and learn more about the benefits and tax advantages of establishing a Self Directed IRA LLC with “Checkbook Control”.

It’s quick & easy and we can have your Self-Directed IRA LLC structure established in days!

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Sep 26

When Using ROBS, Can a Family Member Invest or Work for the Business?

Yes, when using your IRA with the ROBS structure to invest in a business, you or any family member may invest or work for the new company. The exemption to “prohibited transactions” found under Internal Revenue Code Section 4975(f)(6)(b)(2) permit ownership or investment in the new company by any family members, friends, or colleagues.

When Using ROBS, Can a Family Member Invest or Work for the Business?

For more information, please contact us @ 800.472.0646.

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Sep 22

Why I Need To Use A Special IRA Custodian To Make Self-Directed IRA Investments

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Sep 20

Adam Bergman, IRA Financial Group Partner, Publishes Second Book on Self-Directed IRA

Newly published Self-Directed IRA in a Nutshell book will help explain the self-directed IRA structure and is available on Amazon.com

Adam Bergman, a partner with the IRA Financial Group, LLC, the markets leading provider of Self-Directed IRA LLC and Solo 401(k) plans, announces the release of his second book on the self-directed IRA structure, titled Self-Directed IRA in a Nutshell. The new book is available on Amazon.com and at most popular book sellers. This is Mr. Bergman sixth book in the area of retirement plans and taxation. “I am really excited to release my new book – Self-Directed IRA in a Nutshell, which I believe will offer an easy and simple introduction to the increasingly popular self-directed IRA retirement solution,” stated, Adam Bergman, author of the Self-Directed IRA in a Nutshell.

Mr. Bergman is a recognized expert on IRAs and 401(k) Plans and is the founder of the BergmanIRAReport.com and the Bergman401KReport.com. Mr. Bergman is the author of six previous books on the taxation of retirement accounts: Going Solo, The Checkbook IRA, Turning Retirement Funds into Start-Up Dreams, In God We Trust—In Roth We Prosper, and Solo 401(k) Plan in a Nutshell, which are all available on Amazon.com and Barnes & Nobles. Mr. Bergman is a frequent contributor to Forbes and has advised over 12,000 clients on the self-directed IRA LLC and Solo 401(k) Plan solutions.

Adam Bergman, IRA Financial Group Partner, Publishes Second Book on Self-Directed IRAAccording to Mr. Bergman, “I’ve written this book for people who want to learn more about the basics of what a self-directed IRA is and how it works without having to read a five hundred-page book. In 2015, I published an in depth and detailed 466 page book on the self-directed IRA structure titled, The Checkbook IRA, Why You Want It, Why You Need It, A Private Conversation With a Top Retirement Tax Attorney, that I am very proud of and which has hopefully helped many retirement investors learn more about the Self-Directed IRA option. However, in addition to have received some really great feedback from many people and clients who bought the book, I did get some comments requesting that I write another book on the self-directed IRA structure that was a bit more introductory and less comprehensive. So, I have decided to heed their advice and hope this book helps introduce many of the important concepts involved in establishing and using a self-directed IRA to make traditional as well as alternative asset investments, such as real estate with their retirement funds.”

Mr. Bergman has been quoted in a number of major publications on the area of self-directed retirement plans. Mr. Bergman has been interviewed on CBS News and has been quoted in Businessweek, CNN Money, Forbes, Dallas Morning News, Daily Business Review, Law.com, San Francisco Chronicle, U.S. Tax News, the Miami Herald, Bloomberg, Arizona Republic, San Antonio Express, Findlaw, Smart Money, USA Today, Houston Chronicle, Morningstar, and American Lawyer on the area of retirement tax planning.

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

Mr. Bergman is recognized as a leading retirement tax-planning expert and has lectured attorneys on the legal and tax aspects of Self-Directed IRA LLC and Solo 401(k) Plans. Mr. Bergman has also been retained by several leading IRA custodians, including Entrust, to offer expertise on the Self-Directed IRA structure. Mr. Bergman is a member of the Tax Division of the American Bar Association and New York State Bar Association.

IRA Financial Group is the market’s leading provider of self-directed IRA and Solo 401(k) Plans. IRA Financial Group has helped thousands of clients take back control over their retirement funds while gaining the ability to invest in almost any type of investment, including real estate without custodian consent.

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

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Sep 19

Why Should You Open a Self-Directed Roth IRA?

Tax-Free Investing: The primary advantage of using a Self-Directed Roth IRA LLC to make investments is that 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.

Investment Options: With the Self-Directed Roth IRA LLC, you can invest in almost any type of investment, including real estate, private business entities, tax liens, precious metals and commercial paper tax-free!

Diversification: With the Self-Directed Roth IRA LLC, you can invest in almost any type of investment, including real estate, allowing you to diversify and better protect your retirement portfolio.

“Checkbook Control”: With a Self-Directed Roth IRA LLC, you have even more advantages, including what’s called “checkbook control”. As manager of the Self-Directed IRA LLC you will have the ability to make IRA investments without seeking the consent of a custodian. Instead, all decisions are truly yours.

Access: With a Self-Directed Roth IRA LLC, you will have direct access to your IRA funds allowing you to make an investment quickly and efficiently. There is no need to obtain approvals from your custodian, or deal with time delays in awaiting approval from your custodian, or pay any review fees.

Speed: With a Self-Directed Roth IRA LLC, 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 Roth IRA LLC bank account to make the investment. The Self-Directed Roth IRA LLC allows you to eliminate the delays associated with an IRA custodian, enabling you to act quickly when the right investment opportunity presents itself.

Lower fees: Another advantage to a Self-Directed Roth IRA LLC account is that you can save a lot of money on custodian fees. With the “checkbook control” Self-Directed Roth IRA LLC structure, you will not be required to seek custodian approval when making IRA investments allowing you to eliminate custodian transaction fees and account valuation fees.

Limited Liability: By using a Self-Directed Roth IRA LLC with “Checkbook Control”, your Roth IRA will benefit from the limited liability protection afforded by using an LLC. By using an LLC, all your Roth IRA assets held outside the LLC will be shielded from attack. This is especially important in the case of Roth IRA real estate investments where many state statutes impose an extended statute of limitation for claims arising from defects in the design or construction of improvements to real estate.

Asset & Creditor Protection: By using a Self-Directed Roth IRA LLC with “Checkbook Control”, the Roth IRA holder’s Roth IRA will be protected for up to $1 million in the case of personal bankruptcy. In addition, most states will shield a Self-Directed Roth IRA from creditors attack against the Roth IRA holder outside of bankruptcy. Therefore, by using a Self-Directed Roth IRA LLC, the Roth IRA will be generally protected against creditor attack against the Roth IRA holder.

Self-Directed Roth IRA LLC Structure

To view a diagram of the Self-Directed IRA LLC structure, please select the image below.

Self Directed IRA LLC

 

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

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Sep 15

Think You Can Hold Gold Or Coins In A Self-Directed IRA At Home – Think Again

Thanks to significant advertising by precious metals and coin dealers, it has become widely known that gold, silver, palladium bullion, as well as certain coins can be purchased with retirement account funds. In fact, Internal Revenue Code (“IRC”) Section 408(m) sets forth a list of approved precious metals and coins that are not considered “collectibles” and may be purchased with retirement funds. Even though IRC Section 408 generally deals with IRAs, section (m) applies to both IRAs and 401(k) plans.

By using a Self-Directed IRA to purchase Internal Revenue Service (“IRS”) approved precious metals or coins, one is able to seemingly better diversify his or her retirement portfolio as well as generate tax-free gains on the sale of the metals or coins.

IRC Section 408(m)(3)(A) lists the types of coins that may be purchased with retirement funds, which generally are American Eagle and U.S. state minted coins of a certain finesse.  The Technical and Miscellaneous Revenue Act of 1988 (“TAMRA”) also allowed for the purchase of state minted coins. Whereas IRC 408(m)(3)(B), refers to gold, silver, or palladium bullion of a certain finesse which must be held in the “physical possession” of a U.S. trustee as described under subsection IRC 408(a), and which essentially refers to a U.S. bank, financial institution, depository, or approved trust company. Therefore, one should never hold IRS approved coins or precious metals/bullion owned by his or her retirement account personally, such as in his or her home.

There has been some uncertainty as to whether the “physical possession” requirement applies to both IRS approved coins and metals/bullion.  IRC Section 408(m) clearly states that gold, silver or palladium bullion must be held in the physical possession of a trustee, otherwise known as a U.S. bank, financial institution or approved trust company.  Hence, IRS approved precious metals may not be held personally or anywhere outside of the physical possession of a trustee, as defined under IRC Section 408(a). But what about IRS approved coins?  Can IRS approved coins, as described in IRC Section 408(m)(3)(A), which does not include the “physical possession of a trustee” language be held personally?  Unfortunately, there is not much IRS guidance on this point, but since coins may also be bullion, as defined in IRC Section 408(m)(3)(B), most tax practitioners take the position that IRS approved coins purchased by a retirement account should be held in the physical possession of a trustee, as defined under IRC Section 408. However, the language in TAMRA does state that a retirement account may purchase state minted coins so long as a person holds them independent of the IRA owner. The language in TAMRA does not define “person” and interestingly does not refer to the term “trustee.” So can one hold IRS approved coins personally?  The safest approach is to hold IRS approved coins owned by a retirement account in the “physical possession of a trustee.”

That begs the next question; can an LLC owned by a retirement account hold IRS approved coins and precious metals/bullion in a safe deposit box in the name of the LLC?  Over the last ten or so years, the self-directed IRA LLC or checkbook control IRA has gained popularity among retirement investors, including precious metals and coin investors.  A common self-directed IRA LLC strategy involves IRS approved coins or bullion purchased by the LLC manager in the name of the LLC, which is owned one-hundred percent by the IRA, and then held at a bank safe deposit box in the name of LLC. So what does the IRS say about this? Unfortunately not very much, but it is important to review what we do know.

Think You Can Hold Gold Or Coins In A Self-Directed IRA At Home - Think AgainLet’s start with IRS approved coins. If a an IRA holder holds coins in a safe deposit box at a U.S. bank in the name of the Self-Directed IRA LLC, the coins are clearly not being held by the IRA owner personally, which in the case of state minted coins would seem to satisfy the language in TAMRA. In the case of IRS approved coins that are not state minted, IRC Section 408(m)(3)(A) does not seemingly include a “physical possession” requirement, however, some IRS approved coins, such as American Eagles, can be considered bullion and could then fall under the “physical possession” requirement under IRC 408(m)(3)(B) for bullion. Thus, holding IRS approved coins at a bank safety deposit box in the name of the IRA LLC Plan is certainly not in the “physical possession” of the IRA holder since they will physically be held in a safe deposit box of the bank in the name of the IRA LLC. However, the question then becomes is whether the bank where the coins are being stored in the name of the IRA LLC is considered the trustee of the IRA, as defined by IRC Section 408. The answer to this question is also relevant when examining whether bullion/precious metals owned by a self-directed IRA LLC can be stored at a bank safe deposit box.

Unlike coins, IRC Section 408(m)(3)(B) clearly holds that the IRS approved bullion/precious metals must be held in the physical possession of a trustee and may not be held personally. We have learned that a trustee is defined under IRC Section 408 as a U.S bank, financial institution, or approved trust company, including a depository.  The definition of a U.S. trustee is outlined in IRC Section 408(a), which discusses the definition of an IRA.  So the argument goes if the IRS approved coins or bullion/precious metals are held at a bank safe deposit box in the name of the IRA LLC and the bank is not the trustee or the custodian of the IRA that hold the coins or metals/bullion, then is the physical possession definition satisfied and is the bank acting as the trustee of the IRA which owns the metals?  There are arguments on both sides.  For example, IRC Section 408(m) also applies to 401(k) plans and the definition of a 401(k) plan trustee is not the same as a trustee of an IRA.  Since the physical possession requirement outlined in IRC Section 408(m)(3)(B) applies to IRAs and 401(k) plans, some tax practitioners believe that the definition is satisfied so long as the bullion/metals are held at any bank or financial institution that satisfies the definition of trustee, as outlined in IRC Section 408(a), and not necessarily the actual trustee of the retirement account owning the coins, bullion/metals. The language in IRC Section 408(m)(3)(B) uses the term “a trustee” and not “the trustee” offering some support for the position that the coins, metals/bullion can be held at any trustee, as defined under IRC 408(a) and not just the trustee of the IRA.  This would make sense since a depository is considered a trustee pursuant to IRC Section 408(a), but may not be the actual trustee of the IRA owning the coins, metals/bullion.

So What Should I Do?

The safest approach for anyone seeking to purchase IRS approved coins or precious metals/bullion with their retirement account is to hold them in the physical possession of a trustee, such as a depository.  The IRS, as outlined in IRC 408(m)(3)(B), clearly does not allow any individual to hold IRS approved coins or precious metals/bullion personally, such as in his or her home. However, the language in TAMRA seems to suggest that state minted coins can be held by a person other than the IRA holder, without referencing the term trustee, as defined in IRC Section 408.  Nevertheless, it is recommended that IRS approved coins should not be held personally by the IRA holder and should be held at a trustee, as defined in IRC 408.

For individuals with a Self-Directed IRA LLC seeking to hold IRS approved coins and precious metals at a bank safe deposit box, there is risk to this position, as the IRS has not offered any formal guidance. In the case of a Self-Directed IRA, if the bank where the safe deposit box is not the trustee of the IRA that purchased the metals or coins, an argument can be made that the metals or coins would not satisfy the physical possession definition outlined in IRC section 408 since the bank could not serve as the IRA trustee. The safest approaching to holding IRS approved coins or bullion/precious metals is at a trustee, as defined in IRC Section 408, such as an approved depository.  One thing that is clear, is the one should not ever hold IRS approved coins or precious metals/bullion personally.

In general, the rules surrounding the ownership and possession of IRS precious metals or coins are complicated.  Therefore, it is crucial that one seeks the advice of a tax attorney or tax professional in order to safely navigate the IRS rules.

For more information about holding precious metals and coins in an IRA, please contact us @ 800.472.0646.

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Sep 12

Adam Bergman, IRA Financial Group Partner, Authors Article on Holding IRS Approved Coins and Precious Metals in a Self-Directed IRA for Forbes

Adam Bergman is a contributor to Forbes.com on the topic of retirement taxation, with attention to the self-directed IRA rules and investments

Adam Bergman, partner with the IRA Financial Group, authors an article on Forbes.com titled, “Buying Gold Or Coins In An IRA Creates Possession Issues”. Thanks to significant advertising by precious metals and coin dealers, it has become widely known that gold, silver, palladium bullion, as well as certain coins can be purchased with retirement account funds, such as a self-directed IRA gold. However, there has been great degree of attention on the subject of how one is able to hold IRS approved coins and precious metals/bullion. “I felt it was important to write an article that offered an in-depth analysis of the rules involved in owning and holding IRS approved coins and precious metals as per IRC Section 408(m).” stated Adam Bergman, IRA Financial Group Partner.

Mr. Bergman has writing about various items involving the taxation of retirement funds, particularly on the matters of Self-Directed IRAs and Solo 401K Plans. For example, Mr. Bergman recently wrote a blog about the self-directed Solo 401(k) Plan as well as the impact of the Greek financial crisis on retirement accounts. Mr. Bergman has just contributed an article to Forbes.com on the topic of retirement tax planning tax-planning opportunities for the millennials or Generation Y.

Adam Bergman, IRA Financial Group Partner, Authors Article on Holding IRS Approved Coins and Precious Metals in a Self-Directed IRA for ForbesAdam Bergman is a partner with the IRA Financial Group, LLC, the markets leading provider of Self-Directed IRA LLC and Solo 401(k) plans. Mr. Bergman is also the President of the IRA Financial Trust Company, a self-directed IRA custodian. In addition, Mr. Bergman is a recognized expert on IRAs and 401(k) Plans and is the founder of the BergmanIRAReport.com and the Bergman401KReport.com. Mr. Bergman is the author of six books on self-directed retirement plans, such as “Going Solo: America’s Best Kept Retirement Secret For the Self-Employed, The Checkbook IRA, Self-Directed IRA in a Nutshell, In God We Trust – In Roth We Prosper, and Turning Retirement Funds in” available on Amazon, and is a frequent contributor to Forbes. Mr. Bergman has advised over 12,000 clients on the Self-Directed IRA LLC and Solo 401(k) Plan solutions.

Mr. Bergman has been quoted in a number of major publications on the area of self-directed retirement plans. Mr. Bergman has been interviewed on CBS News and has been quoted in Businessweek, CNN Money, Forbes, Dallas Morning News, Daily Business Review, Law.com, San Francisco Chronicle, U.S. Tax News, the Miami Herald, Bloomberg, Arizona Republic, San Antonio Express, Findlaw, Smart Money, USA Today, Houston Chronicle, Morningstar, and American Lawyer on the area of retirement tax planning.

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

Mr. Bergman is recognized as a leading retirement tax-planning expert and has lectured attorneys on the legal and tax aspects of Self-Directed IRA LLC and Solo 401(k) Plans. Mr. Bergman is a member of the Tax Division of the American Bar Association and New York State Bar Association.

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 “checkbook control Self Directed IRA and Solo 401(k) Plan provider. 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 800-472-06

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Sep 08

Your IRA Can Be A Lousy Business Partner

The following originally appeared on Forbes.com:

With the median retirement account value in the U.S. at around $91,800 as of June 2015 according to Fidelity, it is not uncommon for retirement account holders looking to make real estate and other alternative asset investments to consider using some personal funds in combination with their retirement funds.  With real estate and other alternative asset prices rising over the last several years, seeking additional funding from non-retirement account sources has become far more commonplace for retirement account investors.  The Internal Revenue Code (“IRC”) does not specifically address this type of transaction, although, it does discuss what types of retirement account investments are “prohibited”.

The IRC does not describe what a retirement account can invest in, only what it cannot invest in. IRC Sections 408 & 4975 prohibits Disqualified Persons from engaging in certain types of transactions. A disqualified person is generally defined as the IRA holder and any of his or her lineal descendants as well as any entity controlled by such persons.  The foundation of the prohibited transaction rules are based on the premise that investments involving retirement accounts and related parties are handled in a way that benefits the retirement account and not the IRA owner.

The legality of partnering with ones retirement funds to make real estate and other alternative asset investments has finally been reviewed by a Court of Law.  In KELLERMAN, 115 AFTR 2d 2015-1944 (531 B.R. 219) (Bktcy Ct AR), 05/26/2015, a bankruptcy case, the court held that a partnership formed by a self-directed IRA and an entity owned by the IRA holder and his spouse personally was a prohibited transaction.

In the case, Barry Kellerman and his wife each own a 50 percent interest in Panther Mountain personally.  To effect the acquisition and development of the four-acre property, the IRA and Panther Mountain formed a partnership whereby the IRA contributed property and Panther Mountain contributed property and cash.  The case is a clear example that using retirement and personal funds in the same transaction can potentially trigger a self-dealing prohibited transaction under IRC 4975(c)(1)(D).  By entering into a transaction with IRA funds that in some way directly or indirectly involves a disqualified person, in this case Panther Mountain, which was owned by the Kellermans personally, the IRA owner then is saddled with the burden of proving the transaction does not violate any of the self-dealing or conflict of interest prohibited transaction rules under IRC Section 4975, a burden that as this case shows could be difficult to satisfy.

As the court stated, “Further, and cumulatively, Barry Kellerman transferred or used “the income or assets of [the IRA]” for the benefit of each of the aforementioned disqualified persons and as a fiduciary dealt with “ the income or assets of [the IRA]” in his own interest or for his own account.  The real purpose for these transactions was to directly benefit Panther Mountain and the Kellermans in developing both the four acres and the contiguous properties owned by Panther Mountain. The Kellermans each own a 50 percent interest in Panther Mountain and stood to benefit substantially if the four-acre tract and the adjoining land were developed into a residential subdivision.”

Anyone thinking of combining retirement and personal funds in the same retirement account investment should think twice.  The Kellerman case is a great example why using retirement funds and personal assets in the same transaction is not advisable and highly risky as it can potentially trigger the IRC Section 4975 prohibited transaction rules.

Adam Bergman is a tax partner with the IRA Financial Group and founder of the Bergman Law Group, LLC. Contact him via email at adamb@irafinancialgroup.com or call him at 800-472-0646 Ext. 12.

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Sep 06

Self-Directed IRA Real Estate Investor Focusing on Home Fixer Uppers In Light of Strong Home Prices

High home prices forcing real estate IRA investors to look at fixer-uppers

IRA Financial Group, the leading provider of self-directed IRA LLC and Solo 401(k) plan solutions, has seen a growing trend of real estate IRA clients looking to use their self-directed IRA funds to purchase home fixer-uppers in light of high residential home prices across the country. “We have seen more and more self-directed IRA clients looking to use their retirement funds to purchase residential home fixer-uppers as prices on newly improved homes have escalated over the years”, stated Jacky Ospina, a self-directed IRA specialist with the IRA Financial Group.

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

With IRA Financial Group’s self directed IRA LLC solution, traditional IRA or Roth IRA funds can be used to buy a vacation property tax-free. “With depressed real estate prices, many retirement investors are looking to buy their dream retirement home with IRA funds as a year-end tax planning solution”, stated Adam Bergman, a tax attorney with the IRA financial Group. “Using a Self Directed IRA LLC to buy real estate presents a number of exciting tax planning opportunities”, added Ms. Ospina.

Self-Directed IRA Real Estate Investor Focusing on Home Fixer Uppers In Light of Strong Home PricesIRA 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-free and without custodian consent. The Self-Directed IRA LLC involves the establishment of a limited liability company (“LLC”) that is owned by the IRA (care of the IRA custodian) and managed by the IRA holder or any third-party. As manager of the IRA LLC, the IRA owner will have control over the IRA assets to make traditional as well as non-traditional investments, such as real estate.

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

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

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

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

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

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