May 30

How Does a Small Business Owner Set Up a SEP IRA?

A SEP, or Simplified Employee Pension, is established by adopting a SEP agreement and having eligible employees establish SEP-IRAs. There are three basic steps in setting up a SEP, all of which must be satisfied.

A formal written agreement must be executed. This written agreement may be satisfied by adopting an Internal Revenue Service (IRS) model SEP using Form 5305-SEP, Simplified Employee Pension – Individual Retirement Accounts Contribution Agreement. A prototype SEP that was approved by the IRS may also be used. Approved prototype SEPs are offered by banks, insurance companies, and other qualified financial institutions. Finally, an individually designed SEP may be adopted.

How Does a Small Business Owner Set Up a SEP IRA?Each eligible employee must be given certain information about the SEP. If the SEP was established using the Form 5305-SEP, the information must include a copy of the Form 5305-SEP, its instructions, and the other information listed in the Form 5305-SEP instructions. If a prototype SEP or individually designed SEP was used, similar information must be provided.

A SEP-IRA must be set up for each eligible employee. SEP-IRAs can be set up with banks, insurance companies, or other qualified financial institutions. The SEP-IRA is owned and controlled by the employee and the employer sends the SEP contributions to the financial institution where the SEP-IRA is maintained.

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

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May 23

How Does the Self-Directed Roth IRA LLC Structure Work?

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

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

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

We provide the following all for one low price

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

How Does the Self-Directed Roth IRA LLC Structure Work?

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

2. Transfer of Retirement Funds Tax-Free.

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

What is a Passive Custodian?

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

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

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

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

3. Open IRA LLC Bank Account.

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

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

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

5. “Checkbook Control”.

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

6. Tax-Free Investing.

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

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

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

Self-Directed IRA LLC Structure

Self Directed IRA LLC

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

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May 22

How to Invest in Private Equity With a Self-directed IRA

Here’s a recent article from usnews.com about investing in private equity with an IRA

When saving for retirement is the order of the day, you may think your options are limited to stocks and bonds. Investing in a self-directed individual retirement account, however, can open up new possibilities.

Self-directed IRAs allow you to invest in alternatives like real estate, precious metals and an asset class that’s typically the domain of the uber-wealthy: private equity.

From an investment perspective, private equity can be lucrative. According to the Private Equity Growth Capital Council, private equity outperformed the Standard & Poor’s 500 index by 5.2 percent during the 10-year period ending in 2015. Private equity investments are not without certain risks, though, and they may not be appropriate for every investor.

Hunter Unschuld, president of Albuquerque-based Fractal Profile Wealth Management and founder and CEO of the American Society of Fiduciary Education, cautions that investing in private equity is the epitome of all or nothing.

“It’s a home run or a strikeout in investing,” Unschuld says. “The main advantage is if you hit the home run, all of those gains are much bigger than what you would get in the stock market and they grow in your account tax-free.”

On the other hand, the big disadvantage of investing in private equity via a self-directed IRA comes if you strike out.

“If you take a loss, you can’t write that off on your taxes like you can with a loss in a regular investment,” Unschuld says.

If you’re considering an investment in private equity through a self-directed IRA, here are some best practices to observe.

Get familiar with the self-directed IRA guidelines. Self-directed IRAs share the same tax advantages as a traditional or Roth IRA but the Internal Revenue Service imposes certain restrictions on the management and use of these accounts.

Adham Sbeih, CEO and founder of Socotra Capital in Sacramento, California, says investors sometimes have a tendency to overlook the importance of these rules.

“I think the one that’s broken most frequently is that you can’t personally benefit from your self-directed IRA – only your IRA can benefit,” Sbeih says.

The IRS specifically prohibits self-directed IRA investors from conducting transactions that result in an indirect benefit. For example, you’re not allowed to lend yourself money from the IRA or use IRA funds to purchase a vacation home. These kinds of activities fall under the umbrella of self-dealing, which is a major no-no in the eyes of the IRS.

Jeffrey Kelley, senior vice president and chief operating officer at Equity Institutional in Westlake, Ohio, says investors should also be aware transactions involving certain individuals are verboten. That includes transactions between an IRA and disqualified persons, which covers fiduciaries, certain family members, and businesses that are controlled by the investor who owns the IRA or another disqualified person.

If your investment activity moves beyond the scope of what’s allowed by the IRS, the result could be damaging to your bottom line. In the worst-case scenario, your IRA could lose its tax-advantaged status and you may incur taxes or penalties on prohibited transactions. That could wipe out any gains you’ve made by investing through the IRA in the first place.

Understand the risks associated with private equity investments. Private equity can add diversification to your investments but it’s important to understand where it fits in terms of your risk tolerance.

“Investing in private equity through a self-directed IRA will raise an investor’s risk profile,” Unschuld says. “There’s a higher risk, but also a higher reward and to offset that, the investor should be more conservative with other investments in his or her portfolio.”

Erik Davidson, chief investment officer for Wells Fargo Private Bank in San Francisco, says investors should take a holistic view when introducing private equity investments through a self-directed IRA.

“It’s very important to look at investments in the context of the entire portfolio,” Davidson says.

Davidson says investors should be focused on balancing private equity with investments that offer greater liquidity and a different risk-and-return profile. He also encourages investors to consider their broader timeline until retirement.

“Investors who need liquidity soon, as well as those who lack substantive other assets for diversification, wouldn’t be appropriate for this strategy,” Davidson says.

He says that investors who are pursuing private equity investments through a self-directed IRA should perform exhaustive due diligence beforehand. Davidson further recommends diversifying within private equity investments to avoid significant deal-specific exposure.

Sbeih says investors should consider diversifying into an investment that counterbalances any weaknesses a particular private equity investment may bear. Investors also need to understand how the investment winds down, as well as the process and timeline involved to make an exit, he says.

Compare the costs to any potential upside of investing in private equity. Anthony Glomski, principal and founder of Los Angeles-based AG Asset Advisory, says the cost of private equity in a self-directed IRA can be prohibitive for some investors.

“Many private equity investments that our firm would advocate require the investor to be a qualified purchaser (QP),” Glomski says, meaning an individual with at least $5 million in investable assets.

“As you go down the food chain, away from investments that do not require an individual to be a QP, fees and expenses are increased and performance can be compromised,” Glomski says.

If you’re planning to invest through a private equity fund, venture capital fund or funds of funds, scrutinize the fee schedule carefully so you have a realistic picture of what the investment will cost on an annual basis. You can then compare that to the fund’s performance to determine whether it’s worth any gains you anticipate over the long term.

Beyond that, you’ll also need to consider the tax implications.

“Returns from a self-directed IRA investment can be tax-deferred or tax-free, depending upon the account type,” Kelley says. “However, some investments made using self-directed IRAs, such as limited partnerships, limited liability companies and other entities, may also generate unrelated business taxable income.”

Don’t assume that your IRA custodian will do the legwork of managing your tax burden.

“If you’re in a self-directed IRA, it’s your responsibility to be aware of tax liabilities,” Unschuld says. “For example, if you invest in private equity in a manufacturing business that generates income and it’s not paid out as a dividend, you have to pay tax on that income or face a penalty.”

Even if the money is in your IRA in that scenario, it’s still subject to tax in the year it’s distributed. It’s advantageous to know beforehand how private equity could reshape your tax outlook.

“The potential tax implications that can come with private equity can be a big problem for some people,” Unschuld says.

For more information about the Self-Directed IRA, or to open one up, please contact an IRA Expert from the IRA Financial Group @ 800.472.0646.

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May 18

How Long to Set Up a Self-Directed IRA LLC?

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

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

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

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May 16

IRA Financial Trust Company Releases Self-Directed IRA Precious Metals Guide In Light of Fake News on Holding Precious Metals At Home

Fake news that gold can be held at home with a self-directed IRA runs counter to IRS law

IRA Financial Trust Company, a custodian for self-directed IRA LLC and solo 401(k) plans announces the release of a free guide on using a self-directed IRA to purchase gold and other IRS approved precious metals. The free precious metals guide will help self-directed IRA investors navigate the IRS rules surrounding the purchase and possession of IRS approved precious metals, such as gold or American Eagle coins.

IRA Financial Trust Company Releases Self-Directed IRA Precious Metals Guide In Light of Fake News on Holding Precious Metals At HomeThe IRS does not list the type of assets or investments that may be purchased with retirement funds, but does indicate which categories of assets or investments are not permitted. Internal Revenue Code 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. “Because the rules for the purchase and possession of IRS approved metals and coins are complex, IRA Financial Trust felt it was important to provide a detailed guide for self-directed IRA investors,” stated Adam Bergman, President of the IRA Financial Trust Company, a self-directed IRA custodian.

According to Mr. Bergman, there has been a growing trend of fake news and advertising reports that are incorrectly stating the self-directed IRA investors and hold their IRA owned gold and IRS approved bullion in their home or in their personal possession. This is false and runs in direct contradiction to the Internal Revenue Code which holds under Code section 408(m), that IRS approved metals must be held in the physical possession of a U.S. Trustee, which is defined as a bank or depository.

The IRA Financial Trust Company was founded by tax attorneys who worked at some of the largest law firms in the world, including White & Case LLP and Dewey and LeBoeuf LLP, and have helped over 12,000 clients Self-Direct their retirement funds through their ownership in the IRA Financial Group LLC.

IRA Financial Trust Company is a regulated financial institution that is made up of retirement tax specialists committed to helping you make Self-Directed retirement investments quickly while minimizing annual fees.

To learn more about establishing a self-directed IRA account with the IRA Financial Trust Company please visit http://www.irafinancialtrust.com or call 800-472-1043.

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May 11

IRA Financial Group Introduces New Cryptocurrency Self-Directed IRA with Checkbook Control Solution

Cryptocurrency self-directed IRA LLC will allow for tax-free treatment on bitcoin & other digital asset transactions using retirement funds.

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

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

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

IRA Financial Group’s Self-Directed IRA LLC for cryptocurrency investors, is an IRS approved structure that allows one to use their retirement funds to make bitcoin and other investments tax-free and without custodian consent. The Self-Directed IRA LLC involves the establishment of a limited liability company (“LLC”) that is owned by the IRA (care of the IRA custodian) and managed by the IRA holder or any third-party. As manager of the IRA LLC, the IRA owner will have control over the IRA assets to make traditional as well as non-traditional investments, such as real estate.

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

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

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

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May 08

Can Both You and Your Spouse Invest in One Self-Directed IRA?

Yes. You and your spouse’s IRA can co-invest in one Self Directed IRA LLC entity. Each spouse’s IRA would own a percentage of the LLC based on the amount contributed. In some cases, it may make sense for each spouse to use a separate Self-Directed IRA LLC entity to make their investments. Instances such as investment disputes and/or divorce could end up complicating matters.

Can Both You and Your Spouse Invest in One Self-Directed IRA?

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

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May 03

Using Your Self Directed IRA to Invest in Tax Liens

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

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

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

Facts & Opportunities Surrounding Tax Liens

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

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

Tax Lien Sales

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

Types of Tax Liens

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

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

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

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

How Much Money Can I Make and How?

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

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

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

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

Time to Act

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

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

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

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

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May 01

Taking Advantage of the Stretch Feature of a Self-Directed Roth IRA

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 59½ ( a “qualified distribution”). In addition, a Roth IRA holder would not be subject to the required minimum distribution rules (“RMD”).

Taking Advantage of the Stretch Feature of a Self-Directed Roth IRAWith 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 2017 – estates over $5,490,000) 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.

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