Dec 28

Important Things to Consider Before Converting to a Roth IRA

Beginning in 2010, the modified Adjusted Gross Income (“AGI”) and filing status requirements for converting a Traditional IRA to a Roth IRA are eliminated.

Below are some important points to consider when deciding whether to convert your Traditional IRA to a Self-Directed Roth IRA LLC.

  • Do you have the ability to pay income taxes on the money you convert from your Traditional IRA?
  • Based on your income tax bracket, does it make sense to pay the entire tax due in 2017. If you expect your rate to go up, converting may be for you. If you think it will go down, then the opposite holds true.
  • Do you anticipate withdrawing Roth IRA funds for personal use within five years of conversion? If so, you may face taxes and penalties if you withdraw within five years of a conversion.

Converting a Traditional IRA to a Roth Self-Directed Roth IRA LLC has a number of tax advantages and can offer you multiple tax and investments benefits.

To learn more about converting your Traditional IRA to a Self-Directed Roth IRA LLC, please contact one of our IRA experts at 800-472-0646.

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Jul 24

Can You Invest in Options with a Self-Directed Roth IRA?

When it comes to making investments with a self-directed Roth IRA LLC, the IRS generally does not tell you what you can invest in, only what you cannot invest in.  The types of investments that are not permitted to be made using retirement funds is outlined in Internal Revenue Code Section 408 and 4975.  These rules are generally known as the “Prohibited Transaction” rules.

In addition, to the Prohibited Transaction rules, the IRS imposes a levy or tax on certain transactions involving IRA funds.  In general, when one uses IRA funds to invest in an active business, such as a restaurant, store, factory that is operated through a passthrough entity such as a Limited Liability Company or Partnership or used nonrecourse financing, such as a nonrecourse loan or margin in a stock or trading account, a percentage of net profits or income generated by that activity could be subject to a tax. The tax imposed is often referred to as Unrelated Business Taxable Income or UBIT or UBTI.  The UBTI rules are generally outlined in Internal Revenue Code Sections 512-514.

Using a Self Directed Roth IRA to Invest in OptionsThe reason the UBTI tax rules do not impact most retirement investors, is that Internal Revenue Code Section 512(b) provides a general exemption for the following categories of income generated by a retirement account:  dividends, interest, royalties, rental income, and capital gain type transaction, As a result, since the majority of retirement investors purchase publicly traded company stock, which is exempted from the UBTI tax pursuant to Internal Revenue Code Section 512, the UBTI tax rules are not widely known.

When it comes to investing in options with a self-directed Roth IRA LLC, the question then becomes whether the investment would trigger the UBTI rules. An option is a contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price on or before a certain date. An option, just like a stock or bond, is a security. It is also a binding contract with strictly defined terms and properties.

According to the IRS , any gain from the lapse or termination of options to buy or sell securities is excluded from unrelated business taxable income. Note – the exclusion is not available if the organization is engaged in the trade or business of writing options or the options are held by the organization as inventory or for sale to customers in the ordinary course of a trade or business. Hence, if option trading is not being done as an active trade or business, then using a self-directed Roth IRA LLC to invest in options would not trigger the UBTI tax rules.

For more information on using a self-directed Roth IRA LLC to invest in options, please contact a tax professional at 800-472-0646.

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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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Jan 10

Why You Need a Self-Directed Roth IRA in 2017!

Use your retirement funds to invest in real estate, precious metals, private businesses and much more tax-free!

The Self-Directed Roth IRA Structure has been in use for some 35 years. The Tax Court and the IRS have firmly established that the funding of a new entity by an IRA for self-directing assets was a permitted transaction and not prohibited pursuant to Code Section 4975. In fact, the IRS, in an advisory memorandum to audit agents, confirmed that a newly established entity owned by an IRA and managed by the IRA owner may make investments using IRA funds without violating the prohibited transaction rules under Internal Revenue Code Section 4975.

The Roth IRA

In 1997, Congress, under the Taxpayer Relief Act, introduced the Roth IRA to be like a traditional IRA, but with a few attractive modifications. The big advantage of a Roth IRA is that if you qualify to make contributions, all distributions from the Roth IRA are tax-free – even the investment returns – as long as the distributions meet certain requirements. In addition, unlike traditional IRAs, you may contribute to a Roth IRA for as long as you continue to have earned income (in the case of a traditional IRA, you can’t make contributions after you reach age 70 and 1/2). The rules for the Roth IRA are found in the Internal Revenue Code under Section 408A.

What is a Roth IRA?

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

The most attractive feature of the Roth IRA is that even though contributions are not deductible, all distributions, including the earnings and appreciation on all Roth contributions, are tax-free if certain conditions are met.

Roth IRA Characteristics

The following is an overview of the tax characteristics of the Roth IRA

  • Contributions are not Tax-Deductible: Unlike a Traditional IRA, an individual is not permitted to take an income tax deduction for their Roth IRA contributions. All Roth IRA contributions are made with after-tax dollars. What this means is that the amount of the contribution is treated as basis in the IRA.
  • Earnings are Tax-Deferred: Earnings and gains from a Roth IRA are tax-deferred and may be tax-exempt if certain conditions are met. What this means is that all income and gains generated by a Roth IRA investment are not subject to income tax.
  • Tax-Free Earnings: The attraction to the Roth IRA is based on the fact that qualified distributions of Roth earnings are tax-free. As long as certain conditions are met and the distribution is a qualified distribution (the Roth IRA has been established for greater than five years and the Roth IRA owner is over the age of 59 and 1/2), the Roth IRA owner will never pay tax on any Roth distributions received.

The Self-Directed Roth IRA LLC structure has become a popular choice for gaining total investment control (“checkbook control”) over IRA funds and making investments tax-free. In each case, 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 IRA Financial Group was founded by a group of top law firm tax and ERISA professionals who have worked at some of the largest law firms in the United States, including White & Case LLP and Dewey & LeBoeuf LLP. We have helped thousands of clients take back control over their retirement funds while gaining the ability to invest in almost any type of investments.

With IRA Financial Group’s Self-Directed Roth IRA LLC Structure – you now can:

  • Use your retirement funds to invest in real estate and much more tax-free!
  • Take advantage of great investment opportunities in real estate, tax liens, precious metals, private businesses, and much more!
  • Gain control of your retirement funds!
  • Pay no tax on distributions
  • Purchase a home and move in tax-free at 59 and 1/2
  • Diversify your retirement portfolio!
  • Access your retirement funds to make the investments you want when you want!
  • Help grow your retirement funds tax-free!
  • Make investments quickly without delay!
  • Make investment decisions without requiring custodian consent!
  • Save on high annual custodian fees
  • Enjoy tax benefits generated by using a Self-Directed Roth IRA LLC
  • Work directly with our retirement tax professionals to establish an IRS compliant structure that works best for you and your investment goals

Our Self-Directed Roth IRA LLC Establishment Service Includes

  • Free tax consultation with our IRA Specialists
  • 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
  • Obtain the EIN from the IRS
  • Co-ordinate setup with the Custodian of your Choice
  • Free tax and IRA support
  • Direct access to our on-site retirement tax professionals
  • No annual fees
  • Satisfaction Guaranteed!

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 retirement tax experts are onsite greatly reducing the setup time and cost. Most importantly, each client of the IRA Financial Group is assigned a retirement tax professional to help with the establishment of the Self-Directed Roth IRA LLC “Checkbook Control structure. You will find that our fee for this service is significantly less than other companies that perform the same or similar services.

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

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Oct 17

What Are the Advantages of Converting an IRA to a Self-Directed Roth IRA?

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

Self-Directed Traditional IRA

Self-Directed Roth IRA

Tax deductible contributions

Contributions are not tax deductible – contributions made to a Roth IRA are from after tax dollars

Distributions may be taken by age 59 1/2 and are mandatory by 70 1/2.

No Mandatory Distribution Age – with a Roth IRA you are not required to ever take distributions

Taxes are paid on amount of distributions (10% excise tax may apply if withdrawn prior to age 591/2)

No taxes on distributions if rules and regulations are followed

Available to everyone; no income restrictions

  • Single filers, Head of Household or Married Filing Separately (and you did not live with your spouse during the year) with modified adjusted gross income up to $117,000 can make a full contribution.  Contributions are phased-out starting at $117,000 and you cannot make a contribution if your adjusted gross income is in excess of $132,000.
  • Joint filers with modified adjusted gross income up to $184,000 can make a full contribution.  Once again, this contribution is phased-out starting at $184,000 and you cannot make a contribution if your adjusted gross income is in excess of $194,000.

Funds can be used to purchase a variety of investments (stocks, real estate, precious metals, notes, etc.)

Funds can be used to purchase a variety of investments (stocks, real estate, precious metals, notes, etc.)

IRA investments grow tax-free until distribution (tax deferral)

All earnings and principal are 100% tax free if rules and regulations are followed – No tax on distributions so maximum tax-deferral

Income/gains from IRA investments are tax-free

Income/gains from IRA investments are tax-free

Purchasing a real estate property and taking possession of the property after 59 1/2 would be subject to tax

Purchasing a domestic or foreign real estate property then taking possession after 59 1/2 would be tax-free

To learn more about the advantages of converting a Traditional IRA to a Self-Directed Roth IRA LLC please contact one of our IRA experts at 800-472-0646.

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Feb 23

Check Out Our Roth IRA Calculator to Understand the Power of 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. In general, the longer the time period, the more advantageous the Roth IRA is because of the powerful advantages of compounding.

Check Out Our Roth IRA Calculator to Understand the Power of Tax Free InvestingOne of the most important determinants impacting how large your retirement can get is the length of time you let your savings grow. The reason for this is that the effects of compounding can become a very powerful tool. Unlike a Traditional IRA, income and gains generated from a Self-Directed Roth IRA grow tax-free. In contrast, income and gains generated by a traditional Self-Directed IRA are only deferred, as taxes must be paid upon distribution, which are vulnerable to future increases in tax rates. The power of tax-free compounding can best be viewed by way of example: Assume Joe, who is thirty years old, decided to start a Self-Directed Roth IRA. Joe had a current Roth IRA balance of zero at that time. Assume Joe decided to make annual Roth IRA contributions of just $3500 each year until he reached the retirement age of 70. Further assume that Joe was able to generate an average annualized rate of return of 9% and the prevailing tax rate was 25%. At age $70 with a Roth IRA, Joe would have $1,289.022 tax-free in his Self-Directed Roth IRA. In contrast, if invested outside of a retirement account, assuming a 25% tax rate, the individual would have just $699,475. Hence, the Self-Directed Roth IRA allowed the individual to accumulate an additional $589,547 of wealth.

Americans love to spend and hate to save. Americans have one of the lowest savings rates for developed countries. Americans are the ultimate consumers and that definitely plays a role. Most people don’t understand the basic concepts of retirement planning and how crucial it is, largely because they’re not widely taught in our high schools or even our colleges and universities. For example, if young workers were shown that if they began funding a self-directed Roth IRA with $3,000 per year at age 20 and continue on through age 65, they will wind up with $2.5 million at retirement (assuming they earn the long-run annual compound growth rate in stocks, which was 9.88 percent from 1926 to 2011). Not a bad result for investing only $3,000 a year.

Calculate Your Self-Directed Roth IRA LLC Plan Contributions Please click here to see for yourself how little it requires to become a millionaire upon retirement by using a Self-Directed Roth IRA:

Saving just $10 a day can make you a millionaire when you retire.

Start saving with a Self-Directed Roth IRA and you will be rolling in money when you retire.  For more information, please contact us at 800.472.0646.

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Dec 10

Take Advantage of These Roth IRA Advantages

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 click 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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Apr 06

Invest in Options with a Self Directed Roth IRA

When it comes to making investments with a self-directed Roth IRA LLC, the IRS generally does not tell you what you can invest in, only what you cannot invest in.  The types of investments that are not permitted to be made using retirement funds is outlined in Internal Revenue Code Section 408 and 4975.  These rules are generally known as the “Prohibited Transaction” rules.

In addition, to the Prohibited Transaction rules, the IRS imposes a levy or tax on certain transactions involving IRA funds.  In general, when one uses IRA funds to invest in an active business, such as a restaurant, store, factory that is operated through a passthrough entity such as a Limited Liability Company or Partnership or used nonrecourse financing, such as a nonrecourse loan or margin in a stock or trading account, a percentage of net profits or income generated by that activity could be subject to a tax. The tax imposed is often referred to as Unrelated Business Taxable Income or UBIT or UBTI.  The UBTI rules are generally outlined in Internal Revenue Code Sections 512-514.

Invest in Options with a Self Directed Roth IRAThe reason the UBTI tax rules do not impact most retirement investors, is that Internal Revenue Code Section 512(b) provides a general exemption for the following categories of income generated by a retirement account:  dividends, interest, royalties, rental income, and capital gain type transaction, As a result, since the majority of retirement investors purchase publicly traded company stock, which is exempted from the UBTI tax pursuant to Internal Revenue Code Section 512, the UBTI tax rules are not widely known.

When it comes to investing in options with a self-directed Roth IRA LLC, the question then becomes whether the investment would trigger the UBTI rules. An option is a contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price on or before a certain date. An option, just like a stock or bond, is a security. It is also a binding contract with strictly defined terms and properties.

According to the IRS , any gain from the lapse or termination of options to buy or sell securities is excluded from unrelated business taxable income. Note – the exclusion is not available if the organization is engaged in the trade or business of writing options or the options are held by the organization as inventory or for sale to customers in the ordinary course of a trade or business. Hence, if option trading is not being done as an active trade or business, then using a self-directed Roth IRA LLC to invest in options would not trigger the UBTI tax rules.

For more information on using a self-directed Roth IRA LLC to invest in options, please contact a tax professional at 800-472-0646.

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Mar 23

Using a Roth IRA for Estate Planning

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”).

With 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 2015 – estates over $5,430,000) 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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Mar 11

Growing Demand in 2015 from 1031 Exchange Real Estate Investors for Self-Directed Roth IRA

Using a self-directed Roth IRA to buy real estate allows one to eliminate tax on gains whereas a 1031 exchange only differs the tax

IRA Financial Group, the leading provider of “checkbook control” self-directed Roth IRA LLC solutions internal survey showed that in 2015 a growing demand from 1031 exchange real estate investors who are looking to buy real estate and generate tax-free returns. Whereas, a 1031 exchange, also called a like kind exchange, is a swap of one business or investment asset for another. If one comes within a 1031, you will either have no tax or limited tax due at the time of the exchange. Essentially, the investor or owner of a real property can change the form of investment without cashing out or recognizing a capital gain. That allows the investment to continue to grow tax deferred. The gain can be rolled from one piece of investment real estate to another. While there may be profit on each swap, one can avoid tax until the property is sold for cash many years later. Then one would pay the tax on the gain at a long term capital gain rate.

“Using a self-directed Roth IRA to buy real estate allows for tax-free returns in contrast to a 1031 exchange which only defers tax, “ stated Adam Bergman, a tax partner with the IRA Financial Group.

The primary advantage of using a Self Directed Roth IRA LLC to buy real estate is that the transaction can be made by simply writing a check. In addition, all income and gains associated with the self directed Roth IRA LLC would grow tax-free.

Growing Demand in 2015 from 1031 Exchange Real Estate Investors for Self-Directed Roth IRAIRA Financial Group’s Self-Directed Roth IRA LLC is an IRS approved structure that allows one to use their retirement funds to make purchase real estate 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 Roth IRA (care of the Roth IRA custodian) and managed by the IRA holder or any third-party. As manager of the Roth 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 by simply writing a check

Using IRA Financial Group’s self directed Roth IRA LLC with “checkbook control” solution to make real estate transactions quickly without any custodian delay. “By using a “checkbook control” self-directed IRA LLC our clients have been able to make real estate quickly and without any custodian delay,” stated Mr. Bergman. “Using a Roth IRA to buy real estate is a far more tax advantageous than using a 1031 exchange, “ stated Mr. Bergman. “With a self-directed Roth IRA, there is no reason to use a 1031 exchange since all the income and gains will be tax-free,” 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 “checkbook control” Self Directed IRA Facilitator. 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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