Nov 13

How To Invest in Coins with a Self-Directed IRA LLC

The 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.

The categories of transactions that are not permitted to be purchased using a Self-Directed IRA LLC can be found in Internal Revenue Code Sections 408 & 4975.

When it comes to coins or metals, Internal revenue Code Section 408 is generally the provision that applies. In general, collectibles such as artworks, rugs, stamps, certain coins, beverages and antiques, etc. are not allowed within a Self-Directed IRA LLC, pursuant to Internal Revenue Code Section 408.

How To Invest in Coins with a Self-Directed IRA LLCInternal Revenue Code Section 408 is specific as to what defines a collectible. Some notable exceptions are allowed for certain gold (such as American Eagle) and silver coins and any coins issued by a state. Legislation in 1997 further liberalized the rules for IRAs by making reference to specific definitions of acceptable coins in USCS, title 31; IRC sections 5112(a), (e) and (k); the Commodity Exchange Act; and IRC section 408(m)(3).

This change, in general, resulted in a windfall for individual collectors as well as coin and precious metal dealers (all of the coins allowed must be minted by the U.S. government or the states).

The Law

Internal Revenue Code Section 408(m):

(3) Exception for certain coins and bullion

For purposes of this subsection, the term “collectible” shall not include —

(A) any coin which is —

(i) a gold coin described in paragraph (7), (8), (9), or (10) of section 5112 (a) of title 31, United States Code,

(ii) a silver coin described in section 5112 (e) of title 31, United States Code,

(iii) a platinum coin described in section 5112 (k) of title 31, United States Code, or

(iv) a coin issued under the laws of any State, or

(B) any gold, silver, platinum, or palladium bullion of a fineness equal to or exceeding the minimum fineness that a contract market (as described in section 7 of the Commodity Exchange Act, 7 U.S.C. 7) requires for metals which may be delivered in satisfaction of a regulated futures contract if such bullion is in the physical possession of a trustee described under subsection (a) of this section.

Subsection (a) states:

(a) Individual retirement account

For purposes of this section, the term “individual retirement account” means a trust created or organized in the United States for the exclusive benefit of an individual or his beneficiaries, but only if the written governing instrument creating the trust meets the following requirements:

(1) Except in the case of a rollover contribution described in subsection (d)(3) in section 402 (c), 403 (a)(4), 403 (b)(8), or 457 (e)(16), no contribution will be accepted unless it is in cash, and contributions will not be accepted for the taxable year on behalf of any individual in excess of the amount in effect for such taxable year under section 219 (b)(1)(A).

(2) The trustee is a bank (as defined in subsection (n)) or such other person who demonstrates to the satisfaction of the Secretary that the manner in which such other person will administer the trust will be consistent with the requirements of this section.

(3) No part of the trust funds will be invested in life insurance contracts.

(4) The interest of an individual in the balance in his account is non-forfeitable.

(5) The assets of the trust will not be commingled with other property except in a common trust fund or common investment fund.

(6) Under regulations prescribed by the Secretary, rules similar to the rules of section 401 (a)(9) and the incidental death benefit requirements of section 401 (a) shall apply to the distribution of the entire interest of an individual for whose benefit the trust is maintained.

Hence, it is clear that in the case of physical metals, such as gold, the metals must be held in the physical possession of a U.S. trust (i.e. bank or depository), however, the “physical possession” requirement does not appear to relate to the possession of coins. A more detailed analysis will follow below.

31 U.S.C. 5112 refers to Denominations, specifications and design of coins.

(a) The Secretary of the Treasury may mint and issue only the following coins:

(1) a dollar coin that is 1.043 inches in diameter.

(2) a half dollar coin that is 1.205 inches in diameter and weighs 11.34 grams.

(3) a quarter dollar coin that is 0.955 inch in diameter and weighs 5.67 grams.

(4) a dime coin that is 0.705 inch in diameter and weighs 2.268 grams.

(5) a 5-cent coin that is 0.835 inch in diameter and weighs 5 grams.

(6) except as provided under subsection (c) of this section, a one-cent coin that is 0.75 inch in diameter and weighs 3.11 grams.

(7) A fifty dollar gold coin that is 32.7 millimeters in diameter, weighs 33.931 grams, and contains one troy ounce of fine gold.

(8) A twenty-five dollar gold coin that is 27.0 millimeters in diameter, weighs 16.966 grams, and contains one-half troy ounce of fine gold.

(9) A ten dollar gold coin that is 22.0 millimeters in diameter, weighs 8.483 grams, and contains one-fourth troy ounce of fine gold.

(10) and contains one-tenth troy ounce of fine gold.

(e) Notwithstanding any other provision of law, the Secretary shall mint and issue, in quantities sufficient to meet public demand, coins which —

(1) are 40.6 millimeters in diameter and weigh 31.103 grams;

(2) contain .999 fine silver;

(3) have a design —

(A) symbolic of Liberty on the obverse side; and

(B) of an eagle on the reverse side;

(k) The Secretary may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.

How do I hold IRS Approved Coins with a Self-Directed IRA LLC?

Now that you have a clear idea of the types of coins that the IRS allows to be purchased using retirement funds, the next questions becomes how can the coins be held without violating IRS rules.

Most people don’t realize that a coin can be treated as bullion. As a result, based on the language in IRC 408(m)(3)(B), all coins defined in IRC 408(m), including American Eagle and State minted coins must be held in the ‘physical possession’ of a U.S. trustee, just like all precious metals (i.e. pure gold and silver bars). Since IRS approved coins, such as American Eagle and State minted coins are considered bullion for purposes of Internal Revenue Code Section 408(m), all IRS approved coins, just like precious metals, should be held in the “physical possession” of a U.S. bank or depository.

Although, bullion may be cast into bars or minted into coins. The defining attribute of bullion is that it is valued by its mass and purity rather than by a face value as money. Hence, it appears that the “physical possession” requirement outlined for bullion in IRC 408(m)(3)(B) does pertain to coins, such as American Eagle coins, as defined in IRC 408(m)(3)(A), since they can be defined as bullion. That being said, it is best for retirement account holders to hold all IRS approved coins outlined in IRC 408(m) at a depository or bank safe deposit box and not in their personal possession. It is best practice to hold all IRS approved coins at a bank or depository, including the American Eagle and State minted coins.

Holding IRS Approved Coins in a Safe Deposit Box

IRC Section 408(m) clearly states that gold, silver, or palladium bullion, which includes IRS approved coins, must be held in the physical possession of a U.S. trustee, otherwise known as a U.S. bank or financial institution.

Here is the exact language from the tax code under IRC 408(m)(3)(B):

“Any gold, silver, platinum, or palladium bullion of a fineness equal to or exceeding the minimum fineness that a contract market (as described in section 7 of the Commodity Exchange Act, U.S.C.) requires for metals which may be delivered in satisfaction of a regulated futures contract, if such bullion is in the physical possession of a trustee described under subsection (a) of this section.”

The tax code clearly states that any IRS approved metals (bullion) must be held in the physical possession of a trustee, which we now know means a U.S. bank. So the question then becomes is whether holding IRS approved coins (bullion) in a safe deposit box at a U.S. bank in the name of the Self-Directed IRA LLC or Solo 401(k) plan that would be considered to be in the ‘physical possession’ of a U.S. trustee or bank and satisfy the definition under IRC 408(m)?

An argument can then be made that holding precious metals (bullion) at a U,S. bank safe deposit box would not be considered to be in the physical possession of the IRA holder since the bullion will physically be held in a safe deposit box of the bank in the name of the IRA LLC or Solo 401(k) plan. However, the safe deposit box is in the constructive control of the Self-Directed IRA LLC manager or Solo 401(k) plan trustee. That being said, the Internal Revenue Code under Section 408 clearly states ‘physical possession’ and not possession or ‘constructive control.’ From a legal standpoint, possession is not defined to represent control, meaning you can be in possession of an item but not in control or ownership of it. Therefore, many tax practitioners take the position that holding bullion in a safe deposit box in the name of the Self-Directed IRA LLC or Solo 401(k) plan would satisfy the ‘physical possession’ requirement under Internal Revenue Code Section 408(m).”

Unfortunately there is no IRS guidance on this. What is clear is that, IRS approved precious metals should not be stored in the home or personal possession of the Self-Directed IRA holder, individual Solo 401(k) plan participant, or any person that does not satisfy the definition of a trustee according to the Internal Revenue Code. It is good practice to hold IRS approved precious metals or coins owned by a retirement account at an IRS approved depository where it is clearly in the ‘physical possession’ of a US Bank (trustee as defined under IRC 408(a).

To learn more about purchasing and holding coins with a Self-Directed IRA LLC, please contact one our tax professionals at 800-472-0646.

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Aug 04

Why the Need for a Special Custodian for Self-Directed IRAs?

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 the Need for a Special Custodian for Self-Directed IRAs?So 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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Aug 01

Why Should I Establish a Self-Directed IRA?

A Self-Directed IRA LLC will offer you the ability to make traditional (stocks, mutual funds) as well as non-traditional investments (real estate, precious metals, etc.) tax-free and without custodian consent. Tired of seeing all your hard earned retirement assets lose value in the stock market? Worried that the value of your IRA or 401(k) will take a dive over the next four years? Protect and better diversify your retirement portfolio with a self-directed IRA LLC. Take control of your retirement future and have the opportunity to make the investments you want when you want them.

Why Should I Establish a Self-Directed IRA?With IRA Financial Group’s Self-Directed IRA LLC, a special purpose limited liability company (“LLC”) is created which is owned 100% by the IRA and managed by you or any third-person. The advantage of using an LLC to make the investment is that an LLC is treated as a passthrough entity for tax purposes meaning the owner of the LLC would be subject to the tax not the LLC itself. However, as per Internal Revenue Code Section 408, IRAs are exempt from tax. As a result, in most cases, all income and gains generated by the IRA LLC would flow back to the IRA tax-free. In addition, the LLC investment vehicle allows the IRA owner to take more control of his or her retirement funds by keeping the IRA funds at a LLC bank account and not with a far away custodian offering “checkbook control” and greater flexibility to make investments quick and without delay.

With an IRA Financial Group Self-Directed IRA LLC, work with our in-house retirement tax professionals and gain the ability to protect your retirement future from a turbulent stock market or future inflation by having the opportunity to re-allocate your retirement portfolio into different asset classes, such as real estate, precious metals, private business, peer-to-peer lending, foreign currency or options. Don’t let Wall Street blow your retirement – diversify your retirement portfolio with a self-directed IRA LLC.

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”. Take control of your retirement funds now! It’s quick & easy and we can have your Self-Directed IRA LLC structure established in days.

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Jun 29

Top Self-Directed IRA Provider – IRA Financial Group – Announces New Self-Directed IRA Prohibited Transaction Review Service

New self-directed IRA prohibited transaction review service will be offered to all IRA Financial Group clients

IRA Financial Group, the leading provider of “checkbook control” self-directed IRA and solo 401(k) Plans, announces the introduction of a self-directed IRA prohibited transaction review service. IRA Financial Group’s new self-directed IRA prohibited transaction review service will be available to anyone seeking expert consultation on the complex prohibited transaction rules surrounding Internal Revenue Code Sections 408 and 4975. “Understanding how the IRA prohibited transaction rules apply to a self-directed IRA transaction is crucial in order to stay out of any IRS problems,” stated Adam Bergman, a partner with the IRA Financial Group.

Top Self-Directed IRA Provider - IRA Financial Group - Announces New Self-Directed IRA Prohibited Transaction Review ServiceThe Internal Revenue Code does not describe what a Self Directed IRA or Solo 401(k) plan can invest in, only what it cannot invest in. Internal Revenue Code Sections 408 & 4975 prohibits Disqualified Persons from engaging in certain type of transactions. The purpose of these rules is to encourage the use of retirement accounts for accumulation of retirement savings and to prohibit those in control of retirement accounts from taking advantage of the tax benefits for their personal account. “The partners at the IRA Financial Group have spent thousands of hours reviewing all available IRS materials and case law on all facets of the IRS prohibited transaction rules and have developed a platform for advising clients on the rules,” stated Mr. Bergman.

IRA Financial Group is the market’s leading provider of self-directed IRA LLC 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. 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 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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Apr 10

IRA Financial Group Announces New Self-Directed IRA Compliance & Regulatory Service

New self-directed IRA compliance & regulatory service will cover IRS prohibited transaction and unrelated business taxable income rules

IRA Financial Group, the leading provider of “checkbook control” self-directed IRA and solo 401(k) Plans, announces the introduction of a new compliance & regulatory service will cover IRS prohibited transaction and unrelated business taxable income rules. IRA Financial Group’s new self-directed IRA compliance service will be available to anyone seeking expert consultation on the complex prohibited transaction rules surrounding Internal Revenue Code Section 4975 and the unrelated business taxable income (UBTI or UBIT) tax. “We have had many requests for a self-directed IRA compliance and regulatory service that will help people get answers to the complex questions they have concerning their self-directed IRA investment,” stated Adam Bergman, a partner with the IRA Financial Group.

IRA Financial Group Announces New Self-Directed IRA Compliance & Regulatory ServiceThe Internal Revenue Code does not describe what a Self Directed Roth IRA can invest in, only what it cannot invest in. Internal Revenue Code Sections 408 & 4975 prohibits Disqualified Persons from engaging in certain type of transactions. The purpose of these rules is to encourage the use of Roth IRAs for accumulation of retirement savings and to prohibit those in control of Roth IRAs from taking advantage of the tax benefits for their personal account.

According to Mr. Bergman, with a lack of adequate expertise in the marketplace on the self-directed IRA prohibited transaction and self-directed IRA UBIT rules, it is vital to offer the general public a service to help them navigate these complex rules which are so important to helping keep their self-directed IRA structure in full IRS compliance.

IRA Financial Group is the market’s leading provider of self-directed IRA LLC 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 call 800-472-0646. 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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Apr 07

What is the Penalty for Engaging in a Disqualified Transaction with a Self-Directed IRA?

Your investment may be disallowed under Internal Revenue Code Section 408 or result in a “Prohibited Transaction” under Internal Revenue Code Section 4975 and could result in the immediate disqualification of your IRA.

Although IRAs are generally not ERISA plans, the Department of Labor has jurisdiction over these plans for purposes of the prohibited transaction rules, including individual requests for exemptions from those rules.   There are two different consequences for incurring a prohibited transaction under the Code:

  • For the IRA owner, the IRA is deemed immediately disqualified as of January 1 of the year in which the prohibited transaction occurred (an extremely severe tax consequence), resulting in current income tax treatment of a traditional IRA and possible excise tax penalty for a premature withdrawal from an IRA. If this deemed “distribution” occurs, it will be subject to ordinary income tax and, if you were under the age of 59 1/2 at that time, a ten (10%) percent excise tax on premature distributions may also be assessed.
  • For the Disqualified Person involved in the transaction, the initial tax on a prohibited transaction is 15 percent of the amount involved for every year (or portion thereof) in the “taxable period,” which is the period beginning when the transaction occurs and ending on the date of the earliest of (1) the mailing of a notice of deficiency for the tax, (2) assessment of the tax, or (3) correction of the transaction. The 15% excise tax is followed by an additional tax of 100% if the disqualified person is recalcitrant.

The prohibited transaction rules are extremely broad. Thus, the IRA owner self directing his investments must be especially cautious in engaging in transactions that could compromise his best judgment or result in indirectly benefiting him.

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

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Nov 28

What is Considered a Disqualified Transaction with an IRA?

Under Internal Revenue Code Section 408, the acquisition by an IRA or an individually-directed account under a qualified retirement plan of any collectible is treated as a distribution from the IRA or account in an amount equal to the cost to the IRA or account of the collectible (Code Sec. 408(m)(1)). A collectible is any work of art, rug or antique, metal or gem, stamp or coin, alcoholic beverage, or any other tangible personal property specified by IRS for this purpose (Code Sec. 408(m)(2)).

What is Considered a Disqualified Transaction with an IRA?

In general, under Code Section 408, an IRA cannot invest in life insurance contracts or collectibles defined below:

  • Any work of art
  • Any metal or gem
  • Any alcoholic beverage
  • Any rug or antique
  • Any stamp
  • Most coins
  • Baseball cards

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

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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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Aug 15

The SDIRA Operating Agreement

The LLC Operating Agreement is the core document that is referred to when issues concerning the LLC need to be resolved. The LLC Operating Agreement is the most important document for your Self Directed IRA. It is extremely important that you create an Operating Agreement for your Self Directed IRA LLC.

The SDIRA Operating AgreementThe standard LLC Operating Agreement will not meet the requirements for your Self-Directed IRA LLC. In general, a self directed IRA LLC Operating Agreement should include special tax provisions relating to “Investment Retirement Accounts” and “Prohibited Transactions” pursuant to Internal Revenue Code Sections 408 and 4975. In addition, since the LLC will be managed by a manager and not the member, the Operating Agreement would need to include special management provisions.

It is extremely important to have a properly prepared Operating Agreement to fit the needs of your LLC and meet the requirements of the Internal Revenue Service for a Self Directed IRA LLC. In fact, a copy of the LLC Operating Agreement will be required by the Custodian and also by the bank where you will have your LLC’s checking account.

IRA Financial Group will generate a special purpose self-directed IRA LLC Operating Agreement that has been approved by all IRA passive custodians. The special purpose self-directed IRA LLC operating agreement has been drafted by tax professionals who worked at some of the largest law firms in the country such as White & Case LLP, Dewey & LeBoeuf LLP, and Thelen LLP. With our work experience at some of the largest law firms in the country, our tax knowledge in this area is unmatched.

Our low one time service fee includes not only the special purpose self-directed IRA LLC operating agreement, but also includes the setting up of the entire Self Directed IRA LLC structure for you, including LLC formation, acquiring a Tax ID#, assisting with the completion of all transfer documents, and self-directed IRA tax advisory service from our in-house tax and ERISA professionals.

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

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