Nov 16

The Secret to the Self-Directed Roth IRA

In 1997, Congress 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 701/2).

NEW RULES FOR CONVERSIONS FROM IRAS TO ROTH IRAS

For tax years starting in 2011, the $100,000 modified adjusted gross income limit for conversations to Roth IRA is eliminated and married taxpayers filing a separate return can now convert amounts to a Roth IRA.

The Self-Directed Roth IRA LLC Secret

Alternative investments such as real estate have always been permitted in IRAs, but few people seemed to know about this option- until the last several years. This is because large financial institutions have little incentive to recommend something other than stocks, bonds or mutual funds which bring in extremely profitable commissions and fees for them.

The Secret to the Self-Directed Roth IRAThere are approximately 2.5 million Self-Directed IRA accounts in the United States, a large portion of which are Roth IRA accounts. In the last several years, the number of Self-Directed IRA LLC accounts has grown significantly. The significant increase in the number of Self-Directed IRAs formed can be largely attributed due to the poor performance of the stock market, the growth of the real estate market, the lack of liquidity in the small business loan market, and the increase in media coverage by the Wall Street Journal, CNBC, The New York Times, Business Week, and some of the other major financial media companies.

It is not entirely uncommon for a tax or financial advisor to have not heard of self-directed IRAs given the fact that the traditional financial institutions have concealed their benefits due to their focus on selling the more profitable equities, bonds, and mutual funds.

The Self-Directed Roth IRA LLC Solution

The Self-Directed IRA LLC structure was affirmed in the Tax Court case Swanson v. Commissioner, 106 T.C. 76 (1996), and further confirmed by the IRS in Field Service Advisory (FSA) 200128011 (April 6, 2001).

A Self-Directed Roth IRA LLC offers one the ability to use his or her retirement funds to make almost any type of investment on their own without requiring the consent of any custodian or person. Tired of being forced to invest in stocks or mutual funds? Have an investment opportunity, such as real estate or a business investment that you would love to make with your Roth IRA funds? Then the Self-Directed Roth IRA LLC is your solution. In addition to the tremendous Roth IRA benefits (tax-free profits, tax deductions, asset protection and estate planning), the Self-Directed Roth IRA LLC allows you to invest tax-free in investments that you know and understand. Aside from life insurance, collectibles and certain “prohibited transaction” investments outlined in Internal Revenue Code Section 4975, a Self-Directed IRA can invest in most commonly made investments, including real estate, private business entities, public stocks, private stocks, and commercial paper.

The self-directed Roth IRA LLC, similar to a Self-Directed IRA LLC, allows the IRA holder to:

  • Use the same Self-Directed Roth IRA LLC to purchase domestic and foreign real estate, private mortgages, gold and stocks, bonds and mutual funds inside the same plan and generate profits tax-free.
  • Purchase real estate foreclosures and tax liens on the spot, or make personal loans by simply writing a check and generate profits tax-free.
  • Buy your retirement home now at today’s prices, rent it out, and then move in tax-free at the age of 59 1/2!
  • Buy a vacation home now at today’s prices anywhere in the world, rent it out, and then use it tax-free at the age of 59 1/2!
  • Buy an office building now at today’s prices, rent it out, and then move your business in tax-free at the age of 59 1/2.

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 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.

To learn more about the Self-Directed Roth IRA LLC structure, contact one of our IRA Professionals at 800-IRA-0646 today!

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Oct 19

Factors To Consider When Contemplating A ‘Backdoor’ Roth IRA

The following article, written by Adam Bergman, originally appeared on Forbes.com –

There have been no income level restrictions for making Roth IRA conversions since 2010, hence a high income earner can do a conversion of after-tax (non-deductible) IRA funds to a Roth IRA, which is known as a ‘backdoor’ Roth IRA. In other words, the ‘backdoor’ IRA allows a high- income earner, who has exceeded the Roth IRA annual income contribution limits, to circumvent those rules and make a Roth IRA contribution. However, as detailed below, a tax could be due on the conversion under the pro rata (aggregation) rules if the IRA holder has other traditional pre-tax IRAs that have not been taxed. In general, the taxes owed on the conversion will depend on the ratio of IRA assets that have been taxed to those that have not, making the ‘backdoor’ IRA unattractive for some.

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A regular contribution to a Roth IRA is generally limited to the lesser of the annual contribution limit or 100 percent of the individual’s compensation. The Roth IRA contribution limit is the same as the traditional IRA limit. For the year 2017, the annual contribution limit for an individual under the age of 50 is $5,500, and $6,500 for an individual over the age of 50.

An individual making Roth IRA contributions must reduce those contributions by the amount of any contributions made to a traditional IRA.  However, not all individual taxpayers are eligible to make Roth IRA contributions.  For taxpayer’s filing as single, one must have a modified adjusted gross income under $133,000 to contribute to a Roth IRA for the 2017 tax year, but contributions are reduced starting at $118,000.  Taxpayers filing as married, the combined modified adjusted gross income must be less than $196,000, with reductions beginning at $186,000.

Before considering a “backdoor” Roth IRA strategy, there are a number of important items to consider.  The first is the concept of the IRA pro rata aggregation rules.  Under Internal Revenue Code Section 408(d)(2), the aggregation rules hold that when an individual has multiple pre-tax IRAs, they will all be treated as one account when determining the tax consequences of any distributions (including a distribution out of the account for a Roth conversion). In other words, the aggregation rules can cause issues for individuals looking to take advantage of the ‘backdoor’ Roth IRA strategy that have multiple IRA accounts.

For example, Amy has $100,000 of existing pre-tax IRA assets across multiple IRA accounts. Amy now makes over $200,000 so is not eligible to make a Roth IRA contribution for this year. Amy wishes to make a $5,500 Roth IRA contribution by taking advantage of the ‘backdoor’ Roth IRA strategy, which involves making a non-deductible IRA contribution and then converting those funds into a Roth IRA.  However, since Amy has $100,000 of pre-tax IRA funds prior to the Roth IRA conversion, the aggregation rules will limit how much Amy can convert to a Roth IRA.

If Amy attempted to do a $5,500 Roth conversion (from combined IRA funds that now total $100,000 plus new $5,500 contribution equals $105,500), the return-of-after-tax portion will be only $5,500 / 105,500 = 5.2%. Which means the net result of his $5,500 Roth conversion will be $286 of after-tax funds that are converted, $5,214 of the conversion will be taxable, and she will end out with a $5,500 Roth IRA and $100,000 of pre-tax IRAs that still have $5,214 of related after-tax contributions. Hence, the net result of the IRA pro rata attribution rules is that a large portion of the after-tax funds linked with the new after-tax IRA contribution will not end up in the Roth IRA and will instead be connected with the existing pre-tax IRA funds.

Based on the example, the IRA attribution rules significantly limited the tax benefit of the ‘backdoor” Roth strategy for Amy as only a very small amount of the $5,500 after-tax funds were able to be converted tax-free to the Roth IRA. In addition, the IRA attribution rules only apply to pre-tax IRAs of the taxpayer, not his or her spouse, inherited IRAs, or any employer retirement plans (i.e. 401(k)), which can offer some interesting tax planning opportunities.

In addition to being mindful of the IRA attribution rules when considering a ‘backdoor’ Roth IRA conversion, one must also consider the step-transaction-doctrine. The step-transaction doctrine, which arose from a Supreme Court case, holds that a court can invalidate a transaction if the separate steps involved in the transaction have no independent substantial business purpose. In the context of the ‘backdoor’ Roth IRA strategy, the thinking goes that if the separate steps of the non-deductible IRA contribution and subsequent Roth conversion are done too quickly or simultaneously there is some risk the IRS could attempt to invoke the step-transaction doctrine in order to invalidate the Roth conversion.

There is no court precedent for this position, but many tax experts believe it would be wise to wait some time in between the nondeductible IRA contribution and the subsequent Roth conversion. There is also no firm rule for how long one should wait after the nondeductible contribution is made before making the Roth IRA conversion, but waiting a few months and having the IRA funds invested during the waiting period is thought to be sufficient.

Since 2010, the ‘backdoor’ Roth IRA strategy has been viewed as an attractive way for many high income earners to take advantage of the power of the Roth IRA.  Below are some tips to consider before doing a ‘backdoor’ Roth IRA:

  • Understand the Roth IRA contribution income limits for the taxable year in question
  • Determine whether you have any existing pre-tax IRA funds. If so, understanding the IRA attribution rules under Internal Revenue Code Section 408(d) is crucial
  • Are you currently participating in an employer retirement plan? If so, rolling over existing pre-tax IRA funds to an employer plan may help you circumvent the IRA attribution rules.
  • Be mindful of the step-transaction doctrine and consider waiting at least several months between the non-deductible contribution and the Roth IRA conversion
  • Consider not documenting that you are doing a ‘backdoor’ Roth IRA strategy.

It is unclear how long the ‘backdoor’ Roth IRA strategy will continue to be permitted. President Obama’s 2016 budget recommendations did attempt to end it, but the recommendation did not become law.  It is unclear what the Trump Administration’s position is with respect to it.  However, for now, the ‘backdoor’ IRA strategy continues to be a very popular way for high income earners to make Roth IRA contributions.

For more information about the ‘Backdoor’ Roth IRA, please contact us @ 800.472.0646.

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Sep 11

Taking Advantage of a Self-Directed Roth IRA When Planning Your Estate

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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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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Mar 30

Do You Have to File a Form with the IRS if You Received Distributions from Your Roth IRA?

Yes. In general, File Form 8606 if you received distributions from a Roth IRA.
Use Form 8606, Nondeductible IRAs, to report:

Do You Have to File a Form with the IRS if You Received Distributions from Your Roth IRA?

  • Nondeductible contributions you made to traditional IRAs,
  • Distributions from traditional, SEP, or SIMPLE IRAs, if you have ever made nondeductible contributions to traditional IRAs,
  • Distributions from Roth IRAs, and
  • Conversions from traditional, SEP, or SIMPLE IRAs to Roth IRAs.

Please contact one of our Roth 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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Oct 07

Tax Strategies for a Self-Directed Roth IRA LLC

Using a Self-Directed Roth IRA LLC presents a number of exciting tax planning opportunities. Whether you currently have a Traditional IRA or a Roth IRA, the IRA Financial Group’s in-house tax and ERISA professionals have significant experience helping clients use a Self-Directed Roth IRA LLC to maximize their tax benefits and investment returns.

Investment Tax Strategies:

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. This presents a number of exciting tax strategies, a few of which are described below:

  • Purchasing a vacation home in or outside of the United States with Roth IRA funds and moving in tax-free at age 59 1/2
  • Purchasing a retirement home in or outside of the United States with Roth IRA funds and moving in tax-free at age 59 1/2
  • Purchasing an office building with Roth IRA funds and then using the building for your own business after you turn 59 1/2
  • Investing in precious metals and then taking possession of the metals once you reach the age of 59 1/2
  • Investing in tax deeds and then taking possession of the property personally once you reach the age of 59 1/2
  • Investing in a distressed property – generating large gains and then withdrawing the funds tax-free for personal use upon reaching the age of 59 1/2
  • Investing in an investment fund – generating large gains and then withdrawing the funds tax-free for personal use upon reaching the age of 59 1/2

Roth Conversion Valuation Discount Tax Strategies:

The amount of taxable income on a Roth conversion is based on the fair market value of the IRA assets subject to the conversion. Tax Strategies for a Self-Directed Roth IRA LLCTherefore, the lower the fair market value of the IRA assets the lower the taxes that will be due on the Roth conversion. In general, pursuant to case law, the standard of “fair market value” is an objective test using hypothetical buyers and sellers. Furthermore, in determining the valuation of an LLC, the assets to be valued must be the interests in the entity. The IRA Financial Group’s retirement tax professionals in conjunction with a number of valuation experts have developed a structure that will allow you to take a discount when determining the fair market value of the IRA assets subject to the Roth conversion, thus, reducing the amount of tax you will have to pay on the conversion.

The Roth Conversion Valuation Discount Strategy is based on tested case law. The valuation discounts applicable to an LLC with IRA assets typically fall into two categories: (1) a discount for lack of control, and (2) a discount for lack of marketability. The retirement tax professional at the IRA Financial Group along with a valuation expert will help develop a customized Roth conversion tax strategy that will allow you to take a discount of anywhere from 15% to 35% on the value of the IRA assets subject to the Roth conversion. The Roth Conversion Valuation Discount Strategy can save you thousands of dollars in taxes and is based on established case law.

For example, if you have a Traditional IRA and want to convert to a Self-Directed Roth IRA LLC to purchase raw land, real estate, precious metals, or invest in an investment fund, using the Roth Conversion Valuation Discount Strategy can save you thousands of dollars on the conversion.

To learn more about how a Self-Directed Roth IRA LLC can offer you significant tax and investment benefits please contact one of our IRA Experts at 800-472-0646.

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Jun 03

Self-Directed Roth IRA Conversion

IRA Financial Trust Company will assist you with making a Roth IRA conversion in connection with your Self-Directed Roth IRA. A conversion to a Roth IRA results in taxation of any untaxed amounts in the traditional IRA. However, the 10% early distribution penalty will not apply.

You can convert your traditional IRA to a Roth IRA by:

  • Rollover – You receive a distribution from a traditional IRA and contribute it to a Roth IRA with IRA Financial Trust within 60 days after the distribution (the distribution check is payable to you);
  • Trustee-to-Trustee transfer – You tell the financial institution holding your traditional IRA assets to transfer an amount directly to IRA Financial Trust, the new Trustee (IRA custodian) of your Roth IRA. The distributing Trustee may achieve this by issuing you a check payable to the new Trustee – IRA Financial Trust Company;
  • Same Trustee transfer – If your traditional and Roth IRAs are maintained at the same financial institution, you can tell the Trustee to transfer an amount from your traditional IRA to your Roth IRA.

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

  • 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 the current year? 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.
  • How confident are you in the projected investment returns relating to your IRA? The more confident you are that the investment will go up significantly in the future, the more attractive a Roth IRA conversion will be.

Converting a Traditional IRA to a Roth Self-Directed Roth IRA 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, please contact one of our Self-Directed retirement experts at 1-800-472-1043.

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Apr 20

Rollover Rules for a Roth IRA

The contribution limitation does not apply to a “qualified rollover contribution,” but no rollover contribution other than a qualified rollover contribution is permitted. The term “qualified rollover contribution” includes only the following:

  • A rollover contribution from another Roth IRA.
  • A rollover contribution from a traditional IRA that satisfies the requirements for a rollover from one traditional IRA to another.
  • A rollover contribution from a qualified pension, profit-sharing, stock bonus, or annuity plan (qualified plan), tax-deferred annuity, or eligible deferred compensation plan that satisfies the requirements for rollovers from the particular type of plan.
  • A contribution to a Roth IRA by an individual who has received a military death gratuity.

Rollover Rules for a Roth IRAA qualified rollover must satisfy all of the requirements for rollovers of and into IRAs generally, which means, for example, that a rollover contribution must made within 60 days of the rolled-over distribution and the rollover privilege is denied to beneficiaries of IRA owners (other than surviving spouses). For years beginning before 2010, an individual may not make a qualified rollover from a traditional IRA, qualified plan, tax-deferred annuity, or eligible deferred compensation plan to a Roth IRA for his or her benefit if his or her adjusted gross income for the year exceeds $100,000.

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

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