With IRA Financial Group, you no longer have to spend $2,000 to $5,000 or more to set up your Self-Directed 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, IRA Custodian approved Self-Directed IRA LLC Operating Agreement
Generate a special purpose, IRA Custodian approved 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 IRA LLC Structure
Expedited Service Guarantee!
The IRA Financial Group will take care of the entire set-up of your Self-Directed 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 on-site greatly reducing the setup time and cost. Most importantly, each client of the IRA Financial Group is assigned a tax retirement tax professionals to help with the establishment of the Self-Directed 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 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 IRA LLC, an FDIC backed IRS approved passive custodian is used. By using a Self-Directed 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.
What Type of retirement Funds May be Transferred Tax-Free?
Plans for Self-Employed (Keoghs)
Money Purchase Pensions Plans
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 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 IRA LLC, you will have the freedom to make all investment decisions for your Self-Directed 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. Because an LLC is treated as a pass-through 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!
Self-Directed IRA LLC Structure
To view a diagram of the Self-Directed IRA LLC structure, please select the image below.
For more information about the Self-Directed IRA, please contact us @ 800.472.0646.
The IRA Financial Group will take care of setting up your entire Self Directed IRA LLC structure in a matter of days. Our in-house tax and ERISA professionals will work with you directly to customize a structure that satisfies your tax and investment goals.
The whole process can be handled by phone, email, fax, or mail. Our expert tax and ERISA professionals are on site greatly reducing the set-up time and cost. Our in-house retirement tax professionals will complete all the necessary IRA rollover or transfer paperwork and assist you in transferring your funds to the new passive custodian so that your funds will be available for investment in a matter of days. Typically it takes anywhere between 7 and 21 days for your funds to be transferred to your new “Checkbook Control” Self Directed IRA LLC. In most cases, we are able to complete the IRA LLC facilitation aspects of the transaction within a few days; however, the transfer of funds from one custodian to another can take some time depending on the financial institution and the type of assets being transferred. Most importantly, you will find that our fee for this service is significantly less than other companies that perform the same or similar services.
To get started or to learn more about the Self-Directed IRA LLC Structure, please contact one of our IRA Experts at 800-472-0646.
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.
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.
Here’s a recent article from usnews.com about investing in private equity with an IRA –
When saving for retirement is the order of the day, you may think your options are limited to stocks and bonds. Investing in a self-directed individual retirement account, however, can open up new possibilities.
Self-directed IRAs allow you to invest in alternatives like real estate, precious metals and an asset class that’s typically the domain of the uber-wealthy: private equity.
From an investment perspective, private equity can be lucrative. According to the Private Equity Growth Capital Council, private equity outperformed the Standard & Poor’s 500 index by 5.2 percent during the 10-year period ending in 2015. Private equity investments are not without certain risks, though, and they may not be appropriate for every investor.
Hunter Unschuld, president of Albuquerque-based Fractal Profile Wealth Management and founder and CEO of the American Society of Fiduciary Education, cautions that investing in private equity is the epitome of all or nothing.
“It’s a home run or a strikeout in investing,” Unschuld says. “The main advantage is if you hit the home run, all of those gains are much bigger than what you would get in the stock market and they grow in your account tax-free.”
On the other hand, the big disadvantage of investing in private equity via a self-directed IRA comes if you strike out.
“If you take a loss, you can’t write that off on your taxes like you can with a loss in a regular investment,” Unschuld says.
If you’re considering an investment in private equity through a self-directed IRA, here are some best practices to observe.
Get familiar with the self-directed IRA guidelines. Self-directed IRAs share the same tax advantages as a traditional or Roth IRA but the Internal Revenue Service imposes certain restrictions on the management and use of these accounts.
Adham Sbeih, CEO and founder of Socotra Capital in Sacramento, California, says investors sometimes have a tendency to overlook the importance of these rules.
“I think the one that’s broken most frequently is that you can’t personally benefit from your self-directed IRA – only your IRA can benefit,” Sbeih says.
The IRS specifically prohibits self-directed IRA investors from conducting transactions that result in an indirect benefit. For example, you’re not allowed to lend yourself money from the IRA or use IRA funds to purchase a vacation home. These kinds of activities fall under the umbrella of self-dealing, which is a major no-no in the eyes of the IRS.
Jeffrey Kelley, senior vice president and chief operating officer at Equity Institutional in Westlake, Ohio, says investors should also be aware transactions involving certain individuals are verboten. That includes transactions between an IRA and disqualified persons, which covers fiduciaries, certain family members, and businesses that are controlled by the investor who owns the IRA or another disqualified person.
If your investment activity moves beyond the scope of what’s allowed by the IRS, the result could be damaging to your bottom line. In the worst-case scenario, your IRA could lose its tax-advantaged status and you may incur taxes or penalties on prohibited transactions. That could wipe out any gains you’ve made by investing through the IRA in the first place.
Understand the risks associated with private equity investments. Private equity can add diversification to your investments but it’s important to understand where it fits in terms of your risk tolerance.
“Investing in private equity through a self-directed IRA will raise an investor’s risk profile,” Unschuld says. “There’s a higher risk, but also a higher reward and to offset that, the investor should be more conservative with other investments in his or her portfolio.”
Erik Davidson, chief investment officer for Wells Fargo Private Bank in San Francisco, says investors should take a holistic view when introducing private equity investments through a self-directed IRA.
“It’s very important to look at investments in the context of the entire portfolio,” Davidson says.
Davidson says investors should be focused on balancing private equity with investments that offer greater liquidity and a different risk-and-return profile. He also encourages investors to consider their broader timeline until retirement.
“Investors who need liquidity soon, as well as those who lack substantive other assets for diversification, wouldn’t be appropriate for this strategy,” Davidson says.
He says that investors who are pursuing private equity investments through a self-directed IRA should perform exhaustive due diligence beforehand. Davidson further recommends diversifying within private equity investments to avoid significant deal-specific exposure.
Sbeih says investors should consider diversifying into an investment that counterbalances any weaknesses a particular private equity investment may bear. Investors also need to understand how the investment winds down, as well as the process and timeline involved to make an exit, he says.
Compare the costs to any potential upside of investing in private equity. Anthony Glomski, principal and founder of Los Angeles-based AG Asset Advisory, says the cost of private equity in a self-directed IRA can be prohibitive for some investors.
“Many private equity investments that our firm would advocate require the investor to be a qualified purchaser (QP),” Glomski says, meaning an individual with at least $5 million in investable assets.
“As you go down the food chain, away from investments that do not require an individual to be a QP, fees and expenses are increased and performance can be compromised,” Glomski says.
If you’re planning to invest through a private equity fund, venture capital fund or funds of funds, scrutinize the fee schedule carefully so you have a realistic picture of what the investment will cost on an annual basis. You can then compare that to the fund’s performance to determine whether it’s worth any gains you anticipate over the long term.
Beyond that, you’ll also need to consider the tax implications.
“Returns from a self-directed IRA investment can be tax-deferred or tax-free, depending upon the account type,” Kelley says. “However, some investments made using self-directed IRAs, such as limited partnerships, limited liability companies and other entities, may also generate unrelated business taxable income.”
Don’t assume that your IRA custodian will do the legwork of managing your tax burden.
“If you’re in a self-directed IRA, it’s your responsibility to be aware of tax liabilities,” Unschuld says. “For example, if you invest in private equity in a manufacturing business that generates income and it’s not paid out as a dividend, you have to pay tax on that income or face a penalty.”
Even if the money is in your IRA in that scenario, it’s still subject to tax in the year it’s distributed. It’s advantageous to know beforehand how private equity could reshape your tax outlook.
“The potential tax implications that can come with private equity can be a big problem for some people,” Unschuld says.
For more information about the Self-Directed IRA, or to open one up, please contact an IRA Expert from the IRA Financial Group @ 800.472.0646.
Most people mistakenly believe that their IRA must be invested in bank CDs, the stock market, or mutual funds. Few Investors realize that the IRS has always permitted real estate to be held inside IRA retirement accounts. Investments in real estate with a Self-Directed IRA LLC are fully permissible under the Employee Retirement Income Security Act of 1974 (ERISA). IRS rules permit you to engage in almost any type of real estate investment, aside generally from any investment involving a disqualified person.
In addition, the IRS states the following on their website: “…..IRA law does not prohibit investing in real estate but trustees are not required to offer real estate as an option.”
Advantages of Using a Self-Directed IRA LLC to Purchase Real Estate
Income or gains generated by an IRA generate tax-deferred/tax-free profits. Using a Self-Directed IRA LLC to purchase real estate allows the IRA to earn tax-free income/gains and pay taxes at a future date (in the case of a Roth IRA the income/gains are always tax-free), rather than in the year the investment produces income.
With a Self-Directed IRA LLC, you can invest tax-free and not have to pay taxes right away – or in the case of a Roth IRA – ever! All the income or gains from your real estate deals flow through to your IRA tax-free!
Why Buy Real Estate Using a Self-Directed IRA LLC
Gains are tax free
Positive cash flow is tax free
No time limit for holding property
IRA can borrow money – Leverage your investment with non-recourse financing
Potential to earn a larger rate of return on invested capital
Tax Advantages of Buying Real estate with a Self-Directed IRA LLC
When purchasing real estate with a Self-Directed IRA LLC, in general, all income and gains generated by your pre-tax retirement account investment would generally flow back into the retirement account tax-free. Instead of paying tax on the returns of a real estate investment, tax is paid only at a later date, leaving the real estate investment to grow unhindered. Generally, self-directed IRA real estate investments are usually made when a person is earning higher income and is taxed at a higher tax rate. Withdrawals are made from an investment account when a person is earning little or no income and is taxed at a lower rate.
For example, if Joe established a Self-Directed IRA LLC with $100,000 to purchase real estate and make other investments. Assume Joe kept his Self-Directed IRA LLC open for 20 years. Further assume that Joe was able to generate an average annual pre-tax rate of return of 8% and the average tax rate was 25%. By using a tax-deferred Self-Directed IRA LLC strategy, after 20 years Joe’s $100,000 investment would be worth $466,098 – a whopping $349,572 after taxes on the earnings. Whereas, if Joe made the investments with taxable funds (non-retirement funds) Joe would have only accumulated $320,714 after 20 years.
Types of Real Estate Investments
Below is a partial list of domestic or foreign real estate-related investments that you can make with a Self-Directed IRA LLC:
Real estate notes
Real estate purchase options
Tax liens certificates
Investing in Real Estate with a Self-Directed IRA LLC is Quick & Easy!
Purchasing real estate with a Self-Directed IRA LLC is essentially the same as purchasing real estate personally.
Purchase the investment property with the Self-Directed IRA LLC – no need to seek the consent of the custodian with a Self-Directed IRA LLC with “Checkbook Control”
Title to the investment property and all transaction documents should be in the name of the Self-Directed IRA LLC. Documents pertaining to the property investment must be signed by the LLC manager
All expenses paid from the investment property go through the Self-Directed IRA LLC. Likewise, all rental income checks must be deposited directly in to the Self-Directed IRA LLC bank account. No IRA related investment checks should be deposited into your personal accounts.
All income or gains from the investment flow through to the IRA tax-free!
Structuring the Purchase of Real Estate with a Self-Directed IRA LLC
When using a Self-Directed IRA LLC to make a real estate investment there are a number of ways you can structure the transaction:
1. Use your Self-Directed IRA LLC funds to make 100% of the investment
If you have enough funds in your Self-Directed IRA LLC to cover the entire real estate purchase, including closing costs, taxes, fees, insurance, you may make the purchase outright using your Self-Directed IRA LLC. All ongoing expenses relating to the real estate investment must be paid out of your Self-Directed IRA LLC bank account. In addition, all income or gains relating to your real estate investment must be returned to your Self-Directed IRA LLC bank account.
2. Partner with Family, Friends, Colleagues
If you don’t have sufficient funds in your Self-Directed IRA LLC to make a real estate purchase outright, your Self-Directed IRA LLC can purchase an interest in the property along with a family member (non-disqualified person – any family member other than a parent, child, spouse, daughter-in-law, son-in–law), friend, or colleague. The investment would not be made into an entity owned by the IRA owner, but instead would be invested directly into the property.
For example, your Self-Directed IRA LLC could partner with a family member (non disqualified person – any family member other than a parent, child, spouse, daughter-in-law, son-in–law), friend, or colleague to purchase a piece of property for $150,000. Your Self-Directed IRA LLC could purchase an interest in the property (i.e. 50% for $75,000) and your family member, friend, or colleague could purchase the remaining interest (i.e. 50% for $75,000).
All income or gain from the property would be allocated to the parties in relation to their percentage of ownership in the property. Likewise, all property expenses must be paid in relation to the parties’ percentage of ownership in the property. Based on the above example, for a $2,000 property tax bill, the Self-Directed IRA LLC would be responsible for 50% of the bill ($1000) and the family member, friend, or colleague would be responsible for the remaining $1000 (50%).
Isn’t Partnering with a family member in a Real Estate Transaction a Prohibited Transaction?
Likely not if the transaction is structured correctly. Investing in an investment entity with a family member and investing in an investment property directly are two different transaction structures that impact whether the transaction will be prohibited under Code Section 4975. The different tax treatment is based on who currently owns the investment. Using a Self-Directed IRA LLC to invest in an entity that is owned by a family member who is a disqualified person will likely be treated as a prohibited transaction. However, partnering with a family member that is a non-disqualified person directly into an investment property would likely not be a prohibited transaction. Note: If you, a family member, or other disqualified person already owns a property, then investing in that property with your Self-Directed IRA LLC would be prohibited.
3. Borrow Money for your Self-Directed IRA LLC
You may obtain financing through a loan or mortgage to finance a real estate purchase using a Self-Directed IRA LLC. However, two important points must be considered when selecting this option:
Loan must be non-recourse – A “prohibited transaction” is a transaction that, directly or indirectly involves the loan of money or other extension of credit between a plan and a disqualified person. Normally, when an individual purchases real estate with a mortgage, the traditional loan provides for recourse against the borrower (i.e., personal liability for the mortgage). However, if the IRA purchases real estate and secures a mortgage for the purchase, the loan must be non-recourse; otherwise there will be a prohibited transaction. A non-recourse loan only uses the property for collateral. In the event of default, the lender can collect only the property and cannot go after the IRA itself.
Tax is due on profits from leveraged real estate – Pursuant to Code Section 514, if your Self-Directed IRA LLC uses non-recourse debt financing (i.e., a loan) on a real estate investment, some portion of each item of gross income from the property are subject to Unrelated Business Income Tax (UBTI). “Debt-financed property” refers to borrowing money to purchase the real estate (i.e., a leveraged asset that is held to produce income). In such cases, only the income attributable to the financed portion of the property is taxed; gain on the profit from the sale of the leveraged assets is also UDFI (unless the debt is paid off more than 12 months before the property is sold). There are some important exceptions from UBTI: those exclusions relate to the central importance of investment in real estate – dividends, interest, annuities, royalties, most rentals from real estate, and gains/losses from the sale of real estate. However, rental income generated from real estate that is “debt financed” loses the exclusion, and that portion of the income becomes subject to UBTI. Thus, if the IRA borrows money to finance the purchase of real estate, the portion of the rental income attributable to that debt will be taxable as UBTI.
For example, if the average acquisition indebtedness is $50 and the average adjusted basis is $100, 50 percent of each item of gross income from the property is included in UBTI.
A Self-Directed IRA LLC subject to UBTI is taxed at the trust tax rate because an IRA is considered a trust. For 2017, a Self-Directed IRA LLC subject to UBTI is taxed at the following rates:
$0 – $2,500 = 15% of taxable income
$2,501 – $5,900 = $375 + 25% of the amount over $2500
$5,901 – $9,050 = $1,225 + 28% of the amount over $5,900
$9,051 – $12,300 = $2,107 + 33% of the amount over $9,050
$12,300 + = $3,179.50 + 39.6% of the amount over $12,300
Why Work With the IRA Financial Group?
The IRA Financial Group was founded by a group of top law firm tax and ERISA lawyers who have worked at some of the largest law firms in the United States, such as White & Case LLP, Dewey & LeBoeuf LLP, and Thelen LLP. Over the years, we have helped thousands of clients establish IRS compliant Self-Directed IRA LLC solutions. With our work experience at some of the largest law firms in the country, our retirement tax professionals’ tax and real estate IRA knowledge in this area is unmatched.
What types of services can you do personally when you flip a house with a Self-Directed IRA? Call us to learn more.
To learn more about using a Self-Directed IRA LLC to invest in real estate, please contact one of our Self-Directed IRA Experts at 800-472-0646 for more information.
IRA Financial Group, the leading provider of self-directed IRA LLC and solo 401(k) plan solutions has designed a cost effective solution for peer-to-peer lenders looking to generate tax-deferred or tax-free returns without high annual IRA custodian costs.
As a result of the very strong demand from peer-to-peer IRA investors looking to have more control over the loan process without the high transaction fees, we have developed a special self-directed IRA LLC solution specifically tailored for peer-to-peer investors. Because of the attractive returns that many peer-to-peer investors have generated over the last several years, a growing number of peer-to-peer lenders are eager to use their IRA funds to make loans and generate tax-deferred income or gains.
A Self-Directed IRA LLC offers one the ability to use his or her retirement funds to make almost any type of investment, including peer-to-peer lending, on their own without requiring the consent of any custodian or person in a tax-efficient manner. The IRS only describes the type of investments that are prohibited, which are very few. The main advantage of using a Self Directed IRA LLC to make peer-to-peer lending investments is that the loan can be made by simply writing a check. In addition, all income and gains associated with the self directed IRA hard money loan would grow tax-deferred.
With IRA Financial Group’s self directed IRA hard money lending solution, traditional IRA or Roth IRA funds can be used to make secured or unsecured private loans to small business owners or home builders.
IRA Financial Group’s Self-Directed IRA for hard money investors, is an IRS approved structure that allows one to use their retirement funds to make hard money loans, either secured or unsecured, to any non-disqualified third-party by simply writing a check. The Self-Directed IRA LLC involves the establishment of a limited liability company (“LLC”) that is owned by the IRA (care of the IRA custodian) and managed by the IRA holder or any third-party. As manager of the IRA LLC, the IRA owner will have control over the IRA assets to make traditional as well as non-traditional investments, such as hard money loans by simply writing a check.
IRA Financial Group is the market’s leading provider of “checkbook control” Self Directed IRA and Solo 401(k) plans. IRA Financial Group has helped thousands of clients take back control over their retirement funds while gaining the ability to invest in almost any type of investment, including real estate without custodian consent
For additional information on the advantages of using a Self-Directed IRA LLC with “Checkbook Control” to make investments, please contact one of our IRA Experts at 800-472-0646.
This article recently appeared at usnews.com by contributor Rebecca Lake:
Investing in an individual retirement account is an effective way to supplement savings in a 401(k) or another employer-sponsored plan. According to a 2015 TIAA-CREF IRA survey, 18 percent of Americans save in an IRA and 56 percent of those who don’t have one said they would consider including an IRA in their retirement plans.
While traditional and Roth IRAs are relatively well-known, there’s a third option that retirement savers should be aware of: the self-directed IRA.
Self-directed IRAs, in a nutshell, put you in control of your investment choices. In addition to stocks, mutual funds and bonds, you can invest in real estate, precious metals, energy and other alternative investments.
“The primary advantage of saving for retirement in a self-directed IRA is that you’re able to invest in the kinds of investments you have specific knowledge of or expertise in,” says Mark Goldstein, president of SAFE-Money Alliance in Las Cruces, New Mexico.
That freedom, paired with the potential for tax-deductible contributions and tax-deferred earnings makes self-directed IRAs an appealing choice for investors whose focus lies on creating lasting wealth. That doesn’t mean, however, that a self-directed IRA is right for everyone.
Before adding one of these accounts to your portfolio, it’s important to understand what makes a self-directed IRA different and how it can impact your retirement outlook.
Your investing style matters. Every investor has a distinct personality when it comes to how they manage their investments and that can’t be ignored when the question of a self-directed IRA is on the table.
Kirk Chisholm, a wealth manager and principal at Innovative Advisory Group in Lexington, Massachusetts, says self-directed IRAs are best suited to investors who are meticulous about managing their accounts and prefer a do-it-yourself approach.
“Investing in traditional assets can be as easy as pushing a button on your computer, while alternative assets can be much more paperwork intensive,” Chisholm says.
Beyond that, investors must be aware of the specific rules that go along with investing in a self-directed IRA. For example, you can’t use a self-directed IRA to invest in things like collectibles, antiques or rare coins.
David Hryck, a tax attorney and partner at New York-based Reed Smith, recommends that investors educate themselves on how self-directed IRAs operate before diving in.
“A self-directed IRA gives you far more responsibility and forces you to really understand how to invest properly,” Hryck says.
Your investment goals and risk tolerance also come into play. Even if you have no trepidation about guiding your own investment choices, a self-directed IRA may still miss the mark if it doesn’t align with what you hope to accomplish or requires you to assume more risk than you’d like.
“Self-directed IRAs are ideal for people looking for portfolio diversification in areas they’re familiar with, outside of the typical choices,” Goldstein says.
He points out that experienced investors may feel that the risk involved in investing in assets they understand may be considerably less than the risk of investing exclusively in a conventional IRA. The opposite may be true for someone with a shorter history of investing.
Your choice of investments can also influence your perspective on including a self-directed IRA in your portfolio.
For example, let’s say you’re interested in generating steady cash flow through a rental property. If you were to purchase a property directly, any rental income received each month would go right back into your pocket. When you invest in a rental home using a self-directed IRA, on the other hand, the rental income must be funneled back into the IRA.
If your long-term goal is increasing your nest egg in a tax-advantaged way, then the self-directed IRA might make more sense. On the other hand, if you need an additional income stream right now, you’d likely be better off investing in real estate outside of your retirement accounts.
Look at the bigger tax picture. Self-directed IRAs can offer some tax benefits but there are some potential pitfalls investors need to be aware of.
“The primary advantage (of a self-directed IRA) is deferred taxation on growth,” says Colby Winslow, a certified financial planner with WaterOak Advisors in Orlando, Florida.
Another advantage of using a self-directed IRA is the ability to hold investments that would typically be held as taxable assets. When taxes can be deferred, the tax that would have been paid can be reinvested to earn growth on those savings.
At the same time, investors need to be aware of how investing in a traditional self-directed IRA can affect their tax situation.
“The money coming out of the self-directed IRA will be taxable upon withdrawal,” says Jimmy Lee, CEO of Las Vegas-based Wealth Consulting Group.
For an investor who ends up in a higher tax bracket at retirement, distributions from a traditional IRA can lead to a higher tax bill. Another host of issues can crop up once you reach age 70.5.
“If someone purchases fairly illiquid assets and they’re expected to take required minimum distributions, they may be forced to sell assets within the IRA to free up enough cash to transfer out,” Winslow says.
Failing to take required minimum distributions can trigger a substantial tax penalty, equal to 50 percent of the amount you’re required to withdraw. That could add significantly to your tax burden so you need to have a plan for managing illiquid assets before RMDs kick in.
Choose your custodian carefully. The custodian holds the assets in your self-directed IRA for you and it’s important to carefully vet your options. If you need a starting point, Lee encourages investors to consider the size of the custodian, since that can be an indication of the firm’s stability.
Jaime Raskulinecz, founder and CEO of Next Generation Trust Services in Roseland, New Jersey, says it’s also important to look at the services a prospective custodian provides.
While a custodian for a self-directed IRA won’t offer direct investment advice, Raskulinecz says they should be able to answer questions about your plan, efficiently manage the paperwork and reporting and regularly review your account to ensure that you’re not engaging in prohibited transactions that fall outside of IRS guidelines.
Chisholm reminds investors to consider whether a self-directed IRA custodian accepts the type of assets you’re considering investing in. Lastly, he cautions against choosing a custodian without thoroughly reviewing the fees.
“Each company’s fee schedule caters to a certain type of investor,” Chisholm says, and ultimately, you should be looking for one that best fits your investment strategy.
IRA Annual Contribution Limits To Remain the Same as 2016
For 2017, the IRA contribution limits will remain the same as 2016. For individuals under the age of 50, the maximum Self-Directed IRA contribution for 2017 will be $5500, the same of 2016. For individuals over the age of 50, the maximum Self-Directed IRA contribution for 2017 will be $6500, the same of 2016.
The Self-Directed IRA LLC Solution
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. 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.
A World of Investment Opportunity
With a Self-Directed IRA LLC, you will be able to invest in almost any type of investment opportunity that you discover, including: domestic or foreign real estate (rentals, foreclosures, raw land, tax liens etc.), private businesses, precious metals (i.e. gold or silver), hard money & peer to peer lending, as well as stock and mutual funds; your only limit is your imagination. The income and gains from these investments will flow back into your IRA tax-free.
No Transaction Fees – Hassle Free IRA Investing
With a Self-Directed IRA structure, you will have the power to act quickly on a potential investment opportunity. When you find an investment that you want to make with your IRA funds, as manager of the LLC, simply write a check or wire the funds straight from your Self-Directed IRA LLC bank account to make the investment.
A Self-Directed IRA LLC structure will help you save a significant amount of money on custodian fees. With a Self-Directed IRA LLC you no longer have to pay excessive custodian fees based on account value and transaction fees. Instead, your IRA funds will be transferred tax-free via a passive custodian to a new LLC bank account where you, as manager of the LLC, can make investments, such as real estate, tax-free and without custodian consent.
Why Work With the IRA Financial Group?
The IRA Financial Group was founded by a group of top law firm tax and ERISA lawyers who have worked at some of the largest law firms in the United States, such as White & Case LLP, Dewey & LeBoeuf LLP, and Thelen LLP. Over the years, we have helped thousands of clients establish IRS compliant Self-Directed IRA LLC solutions. With our work experience at some of the largest law firms in the country, our retirement tax professionals’ tax and IRA knowledge in this area is unmatched.
To learn more about using a “Checkbook Control” Self-Directed IRA LLC to make real estate and other investments without tax, please contact one of our Self-Directed IRA Experts at 800-472-0646 for more information.