Feb 12

Trump, The Fiduciary Rule And Your IRA

This article originally appeared on Forbes.com, authored by Adam Bergman –

On February 3, 2017, President Trump announced that he will use a memorandum to ask the labor secretary to consider rescinding a rule, better known as the fiduciary rules, set to go into effect in April 2017 that orders retirement advisers, overseeing about $3 trillion in assets, to act in the best interest of their clients.

The fiduciary rule, rolled out by the Obama administration, took many years to develop. The fiduciary rule aimed to protect retirement savers from bad advice and keep more money in their pockets. It also sought to indirectly change the way the industry structures its products and advisor compensation policies.

Trump, The Fiduciary Rule And Your IRAUnder the fiduciary rules, broker-dealers would be required to act in their clients’ best interest rather than encouraging money moves that directly benefit the broker’s bottom line.  Among the requirements in the rule, brokers have to justify the varying compensation they can receive for recommending one investment product over another to a retirement saver. Brokers said that rule makes sales fees on some mutual funds, known as sales loads, and some funds’ differing share-class prices problematic for accounts that charge investors for each transaction made.

Currently, if you work with a financial advisor who is a registered broker, he or she only has to recommend investments that are “roughly suitable” for you. That means if your advisor has the option between two similar mutual funds, but one pays out a higher commission, he or she can put you in that one—even if the other fund has lower fees and would boost your portfolio in the long run. In rescinding the fiduciary rules, the Trump administration wants to keep this system in place, arguing that the fiduciary rule will limit investment choices and burden the industry with unnecessary regulations.  According to The industry’s top lobby group, the Securities Industry and Financial Markets Association estimated the fiduciary rule would cost firms $5 billion to implement and another $1.1 billion annually to maintain.

The Obama Administration believed that fiduciary rules would help lower costs for American retirement account investors as well as better protect the average retirement investor from bad advice and unnecessary fees.  On the flip side, the financial industry has attacked the rules as being overly burdensome as well as potentially limiting the type of investments and advice financial advisors can offer.  To this end, in 2016, Edward Jones and some other financial advisors announced that it would stop offering mutual funds and exchange traded funds in IRA accounts that charge investors a commission and move to an account value fee based arrangement.

In the end, President Trump seemingly sided with the financial and securities industry that the fiduciary rules were overly burdensome and would limit investment options for IRA holders.  In the end, it appears that President Trump was not convinced that any lower consumer costs associated with the enactment of the fiduciary rule would be enough to overcomes its perceived shortfalls. Because the fiduciary rules have not yet been enacted into law, President Trump’s executive order rescinding the rule will have no current impact on IRA investors, however, the long-term impact could be significant for both investors and financial advisors.

For more information about the fiduciary rule, please contact us @ 800.472.0646.

IRA Financial Group Facebook pageIRA Financial Group Twitter pageamazon-logoIRA Financial Group Tumblr pageIRA Financial Group Pinterest page

Feb 07

Workplace Retirement Plan May Limit IRA Deductions

This article originally appeared on Forbes.com

Shutterstock

Shutterstock

In general, one may be able to claim a deduction on their individual federal income tax return for the amount contributed to a pre-tax Individual retirement account (“IRA”), also known as a Traditional IRA.  Whereas, after tax or Roth IRA contributions are not tax deductible.  For 2017, the maximum IRA contribution is $5500 and $6500 if over the age of fifty. However, in the case of an individual that is covered by an employer qualified retirement plan, such as 401(k) plan, the IRA contribution amount that individual can deduct could be limited by his or her modified adjusted gross income (“AGI”).  An individual’s AGI is essentially the amount of gross income earned during the year, less certain adjustments. One can find the allowable reductions to your income on the front page of IRS Form 1040.

The two key factors in determining the amount an individual can deduct from their pre-tax Traditional IRA contribution in a given year are (i) whether the individual is covered by an employer 401(k) plan and (ii) their AGI. For individuals that are not covered by an employer 401(k) plan, they are free to deduct the full amount of their IRA contribution up to $5500 or $6500, if over the age of fifty, for 2017.  For example, if Bill Gates was no longer employed by Microsoft or any other company and was not covered by a retirement plan at work, he would be able to deduct the full amount of his IRA contribution for 2017, notwithstanding his annual gross income amount.  Whereas, if Bill Gates was still employed at Microsoft and was covered by the company’s retirement plan, he would not be able to take a deduction for his IRA contribution because his income would exceed the maximum threshold amount.   Interestingly, the Internal Revenue Service (“IRS”) rules do not distinguish whether the individual that is covered by an employer retirement plan actually participated and made contributions to the plan.  The rule states, however, that so long as the employee is covered by the employer retirement plan, that individual’s AGI will determine whether he or she can take a tax deduction for the IRA contribution.  Thus, if an individual is covered by an employer sponsored retirement plan, notwithstanding whether that individual actually made a contribution to the plan, the individual’s AGI will be the determining factor whether he or she can deduct his or her IRA contribution.  An individual that does not have access to an employer 401(k) plan has no such limitation.

For 2017, if an individual is covered by a retirement plan at work, the following table provided by the IRS will help one determine what amount of his or her IRA contribution for 2017 is tax deductible.

 
Filing Status Your Modified AGI IRA Deduction Amount
single or
head of household
$62,000 or less
______________more than $62,000 but less than $72,000________________
$72,000 or more
A full deduction up to the amount of your 2017 contribution limit
_______________Partial deduction
________________
No deduction
married filing jointly or qualifying widow(er) $99,000 or less
________________more than $99,000 but less than $119,000________________
$119,000 or more
A full deduction up to the amount of your 2017 contribution limit
_______________
Partial deduction
________________
No deduction
married filing separately Less than $10,000
______________
$10,000 or more
Partial deduction
_______________No deduction

Having the ability to contribute and deduct IRA contributions is an important aspect of many Americans’ retirement strategy.  In order to best take advantage of the existing IRA contribution and deduction rules available, it is vital that Americans with access to an employer retirement plan have a solid understanding of how the IRA contribution deduction rules work.

For more information about IRA Contribution Rules, please contact us @ 800.472.0646.

IRA Financial Group Facebook pageIRA Financial Group Twitter pageamazon-logoIRA Financial Group Tumblr pageIRA Financial Group Pinterest page

Dec 09

What’s the Difference Between a Self-Directed IRA with Checkbook Control and a Regular IRA?

An Individual Retirement Account (IRA) is a tax-deferred retirement account for an individual that permits individuals to set aside money each year, with earnings tax-deferred until withdrawals begin at age 59 1/2 or later (or earlier, with a 10% penalty).

The Difference Between a Traditional IRA and a Checkbook Control Self Directed IRAMany “traditional IRA” custodians advertise themselves as offering a Self Directed IRA with “checkbook control”, but what that really means is that you can direct your IRA as long as you direct into one of their offerings. In other words, in a “traditional IRA” with no “checkbook control”, you are generally only permitted to invest your IRA funds in investments in equities, mutual funds, bonds or investments offered by the custodian. Whereas, in the case of a “truly” Self Directed IRA LLC with “checkbook control”, a limited liability company (“LLC”) is established that is owned by the IRA account and managed by the IRA account holder. The IRA Holder’s IRA funds are then transferred by the Custodian to the LLC’s bank account providing the IRA holder with a “truly” Self Directed IRA LLC.

With a “truly” Self Directed IRA LLC, you will have total control over your IRA funds and you will no longer have to get each investment approved by the custodian of your account like in a “traditional IRA”. Instead, all decisions are truly yours. When you find an investment that you want to make with your IRA funds, simply write a check or wire the funds straight from your Self Directed IRA LLC bank account to make the investment. A “truly” Self Directed IRA allows you to eliminate the delays associated with an IRA custodian, enabling you to act quickly when the right investment opportunity presents itself.

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

IRA Financial Group Facebook pageIRA Financial Group Twitter pageamazon-logoIRA Financial Group Tumblr pageIRA Financial Group Pinterest page

Dec 07

Can You Have Both a Traditional IRA and Roth IRA in One Self-Directed IRA LLC?

Yes – you may have a Traditional IRA and Roth IRA account as members of your Self Directed IRA LLC.  Note: you should keep separate records for each account as the distribution and tax rules are somewhat different.

Can You Have Both a Traditional IRA and Roth IRA in One Self-Directed IRA LLC?There are advantages to having both types of accounts.  A traditional IRA is a tax-deferred account which gives you an upfront tax deduction on your contributions.  Taxes are not charged until you take distributions during retirement.  A Roth IRA is funded with after-tax dollars (no tax-deduction) but all qualified withdrawals are tax-free.  Plus, there are no required minimum distributions and you can contribute to it for as long as you have earned income.  Having both keeps your portfolio diversified.

 

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

IRA Financial Group Facebook pageIRA Financial Group Twitter pageamazon-logoIRA Financial Group Tumblr pageIRA Financial Group Pinterest page

Nov 08

Can You Rollover Funds from One IRA to Another IRA?

A distribution from an IRA to the individual for whose benefit the account or annuity is maintained is not taxable to the recipient if reinvested within 60 days in another IRA (other than an endowment contract) for the benefit of the same individual. The rule operates on an all-or-nothing basis. The entire amount received from the old IRA must be transferred to the transferee IRA. If anything is held back, the rollover rule does not apply, and everything received from the old IRA, including any amount transferred to another IRA, is treated as a taxable distribution. However, the distribution from the old IRA need not include the taxpayer’s entire interest. An IRA can be split, for example, by rolling a portion of it into a new IRA.

Can You Rollover Funds from One IRA to Another IRA?If property other than money is received from the old IRA, that property, not substitute property of equal value or the cash proceeds of the property’s sale, must be included in the transfer to the new IRA. According to the Tax Court, the rollover contribution must be of cash if the distribution is in cash.

The privilege of rolling over from IRA to IRA may be exercised only once in a 12-month period.

 

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

IRA Financial Group Facebook pageIRA Financial Group Twitter pageamazon-logoIRA Financial Group Tumblr pageIRA Financial Group Pinterest page

Oct 25

What Exactly is a Rollover IRA?

To permit tax-free transfers of retirement savings from one type of investment to another, as well as to increase the portability of qualified plan rights for employees moving from one job to another, Congress included a complicated web of rollover provisions in ERISA. These provisions cover transfers from one IRA to another, transfers from qualified pension, profit-sharing, stock bonus, and annuity plans to IRAs, and transfers from IRAs to qualified plans. An IRA may also, under limited circumstances, make a rollover distribution to a health savings account (HSA). In other words, if you receive a distribution from a qualified plan, you might decide to put some or all of the distribution amount into an IRA. The IRA that receives the qualified plan distribution is called a rollover IRA.

What Exactly is a Rollover IRA?

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

IRA Financial Group Facebook pageIRA Financial Group Twitter pageamazon-logoIRA Financial Group Tumblr pageIRA Financial Group Pinterest page

Sep 08

Your IRA Can Be A Lousy Business Partner

The following originally appeared on Forbes.com:

With the median retirement account value in the U.S. at around $91,800 as of June 2015 according to Fidelity, it is not uncommon for retirement account holders looking to make real estate and other alternative asset investments to consider using some personal funds in combination with their retirement funds.  With real estate and other alternative asset prices rising over the last several years, seeking additional funding from non-retirement account sources has become far more commonplace for retirement account investors.  The Internal Revenue Code (“IRC”) does not specifically address this type of transaction, although, it does discuss what types of retirement account investments are “prohibited”.

The IRC does not describe what a retirement account can invest in, only what it cannot invest in. IRC Sections 408 & 4975 prohibits Disqualified Persons from engaging in certain types of transactions. A disqualified person is generally defined as the IRA holder and any of his or her lineal descendants as well as any entity controlled by such persons.  The foundation of the prohibited transaction rules are based on the premise that investments involving retirement accounts and related parties are handled in a way that benefits the retirement account and not the IRA owner.

The legality of partnering with ones retirement funds to make real estate and other alternative asset investments has finally been reviewed by a Court of Law.  In KELLERMAN, 115 AFTR 2d 2015-1944 (531 B.R. 219) (Bktcy Ct AR), 05/26/2015, a bankruptcy case, the court held that a partnership formed by a self-directed IRA and an entity owned by the IRA holder and his spouse personally was a prohibited transaction.

In the case, Barry Kellerman and his wife each own a 50 percent interest in Panther Mountain personally.  To effect the acquisition and development of the four-acre property, the IRA and Panther Mountain formed a partnership whereby the IRA contributed property and Panther Mountain contributed property and cash.  The case is a clear example that using retirement and personal funds in the same transaction can potentially trigger a self-dealing prohibited transaction under IRC 4975(c)(1)(D).  By entering into a transaction with IRA funds that in some way directly or indirectly involves a disqualified person, in this case Panther Mountain, which was owned by the Kellermans personally, the IRA owner then is saddled with the burden of proving the transaction does not violate any of the self-dealing or conflict of interest prohibited transaction rules under IRC Section 4975, a burden that as this case shows could be difficult to satisfy.

As the court stated, “Further, and cumulatively, Barry Kellerman transferred or used “the income or assets of [the IRA]” for the benefit of each of the aforementioned disqualified persons and as a fiduciary dealt with “ the income or assets of [the IRA]” in his own interest or for his own account.  The real purpose for these transactions was to directly benefit Panther Mountain and the Kellermans in developing both the four acres and the contiguous properties owned by Panther Mountain. The Kellermans each own a 50 percent interest in Panther Mountain and stood to benefit substantially if the four-acre tract and the adjoining land were developed into a residential subdivision.”

Anyone thinking of combining retirement and personal funds in the same retirement account investment should think twice.  The Kellerman case is a great example why using retirement funds and personal assets in the same transaction is not advisable and highly risky as it can potentially trigger the IRC Section 4975 prohibited transaction rules.

Adam Bergman is a tax partner with the IRA Financial Group and founder of the Bergman Law Group, LLC. Contact him via email at adamb@irafinancialgroup.com or call him at 800-472-0646 Ext. 12.

IRA Financial Group Facebook pageIRA Financial Group Twitter pageamazon-logoIRA Financial Group Tumblr pageIRA Financial Group Pinterest page

Sep 02

What Rights Does the Surviving Spouse as Sole Beneficiary of a Traditional IRA Have After the Death of a Spouse?

A surviving spouse who is sole beneficiary of an IRA and has an “unlimited right to withdraw” from it may, at any time after the owner’s death, elect to treat the IRA as though he or she were its owner, rather than its beneficiary. The election may only be made if the spouse is the only beneficiary of the IRA and is not available if a trust is a beneficiary, even if the surviving spouse is sole beneficiary of the trust. It may, however, be made by a surviving spouse who rolls over into an IRA a distribution from a qualified plan of a deceased spouse’s employer or former employer.

What Rights Does the Surviving Spouse as Sole Beneficiary of a Traditional IRA Have After the Death of a Spouse?Minimum distributions to an electing surviving spouse are determined under the rules for IRA owners, not the rules for beneficiaries, except that the election may not cause there to be a minimum distribution for the year of the owner’s death if the owner died before his or her required beginning date. For example, if a surviving spouse is 72 years old when a 68-year-old owner dies, no distribution is required for the year of death, even if the spouse makes the election, even though the spouse’s required beginning date occurred before that year. An electing spouse is treated as IRA owner “for all purposes under the Internal Revenue Code,” including the premature withdrawal penalty imposed by Internal Revenue Code Section 72(t) , which generally applies to distributions to owners before age 59 1/2 but does not apply to distributions to beneficiaries.

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

IRA Financial Group Facebook pageIRA Financial Group Twitter pageamazon-logoIRA Financial Group Tumblr pageIRA Financial Group Pinterest page

May 02

How Do You Decide Between A Traditional IRA And A Roth IRA?

There’s no right or wrong answer. The decision usually depends on a variety of factors and circumstances.

If you are not eligible to take advantage of tax-deductible contributions to a traditional IRA but qualify for after-tax contributions to a Roth IRA, then the Roth IRA is the better choice. Roth IRA contributions are made in after-tax dollars, while earnings are usually not taxable.

If contributions to a traditional IRA are tax deductible and you are also eligible to contribute to a Roth IRA, here are some considerations in making your decision:

  • If you expect your retirement tax rate to be equal or higher than it is today, a Roth IRA could yield the greatest benefit.
  • If you expect your retirement tax rate to be much lower than it is today, you may want to choose to make contributions to a traditional IRA.
  • If you expect your investment to generate strong returns, then a Roth IRA could be a better option.

Finally, if you are younger, the Roth IRA is more attractive because you will have more time to grow your retirement without paying any tax.

Essentially there are three different types of Self-Directed IRAs, each providing the IRA holder with different levels of investment and control options:

  1. Traditional financial institution Self-Directed IRA
  2. Custodian-controlled Self-Directed IRA without Checkbook Control
  3. Self-Directed IRA LLC with Checkbook Control

For more information, please contact an IRA Expert @ 800.472.0646.

IRA Financial Group Facebook pageIRA Financial Group Twitter pageamazon-logoIRA Financial Group Tumblr pageIRA Financial Group Pinterest page