Arizona Self-Directed IRAsRetiring in Arizona –A Guide for Arizona Self-Directed IRAs

Arizona cities are frequent features in media guides listing the top X places to retire to, and for good reason: The moderate climate of most of the state (it’s not all 120 degrees in August like Phoenix!), relatively low cost of living, and moderate tax burden make it an attractive place for many of our clients nationwide who own Self-Directed IRAs and who are looking for a great place to retire to. Cities like Prescott, Flagstaff, Sedona, Winslow, and even off-the-beaten path places like Jerome and Show Low offer a great balance of lifestyle and affordability – while the affluent Phoenix suburb of Scottsdale offers all the attractions of living in a major city – without the big city costs you find near the coasts.

And you can’t beat the natural beauty of the Grand Canyon and the Painted Desert.

Taxation

Arizona’s overall tax burden is relatively low – especially compared to its high-tax neighbor to the West, California. Indeed, California individuals and businesses have been migrating to Arizona in large numbers for precisely this reason.

Income Taxes

First $10,000 of taxable income 2.59 percent
Taxable income between $10,001 and $25,000 2.88 percent
Taxable income between $25,001 and $50,000 3.36 percent
Taxable income between $50,001 and $150,000 4.24 percent
Taxable income more than $150,000 4.54 percent

Sales Tax

Arizona charges a transaction privilege tax, currently of 5.6 percent. Food for consumption at home or prescription drugs are generally excluded. 15 counties in Arizona charge an additional income tax, on top of the state transaction privilege tax. You can find them here.

Property Tax

At the state level, Arizona charges property tax – on everything except real estate property. This gives real estate IRAs and other real estate-focused Arizona Self-Directed IRAs a bit of a boost compared to other kinds of investments in Arizona. Furthermore, while the tax covers commercial and business property other than real estate, household goods and furnishings, personal wardrobes and jewelry and recreational possessions are not subject to this tax. More details are available here.

Estate and Inheritance taxes

Arizona is one of the best places in the United States to die: There are no state-level estate or inheritance taxes, nor are there any state gift taxes for those of you wanting to get a jump start on the will.

For more information on Arizona state taxes, here is the link to the Arizona Department of Revenue.

Housing Costs

According to Zillow.com, the median home value in Arizona is $187,000. On a square footage basis, that’s about $123 per square foot.

The median rental price in Arizona is $1,100.

Prices are higher when you get close to Phoenix and also Flagstaff, and near the resort areas. For example, the average listing price in Phoenix, according to Trulia.com, is $313,000 (though the median sales price and average price per square foot aren’t too far from statewide figures.)

Car Insurance Issues

Arizona’s mandatory minimum personal responsibility requirements for owners are very low: 15,000 in bodily injury liability for one person and $30,000 for two or more persons, and damage liability of only $10,000.

Furthermore, the high concentration of illegal aliens driving with no insurance at all indicates that you may want to carry uninsured/underinsured motorist coverage to protect yourself against an accident involving a car driven by someone carrying only the bare minimum insurance, or no insurance at all.

Asset Protection and Bankruptcy Laws[1]

Arizona allows you to exempt up to $150,000 in equity in your primary residence from creditor claims, including both judgments and bankruptcy. However, you must have acquired the home at least 1,215 days prior to the bankruptcy filing date, or federal law will restrict your exemption to $125,000.

Arizona also protects up to $6,000 in household goods from the claims of creditors, including furniture, appliances and personal items.

Treatment of IRAs

Arizona law protects IRAs from creditors under A.R.S. 33-1126(B). Furthermore, the Arizona Self-Directed IRAs receive favorable treatment in probate courts even after the owner’s death, provided the beneficiary treats the account as an inherited IRA. There is some ambiguity, however, after a ruling in Clark v. Rameker, in which the U.S. Supreme Court ruled that inherited IRAs did not receive such protection under federal law. The court did not rule on whether the law would supersede state laws like Arizona’s.

Life insurance cash value is also fully protected, provided the policy has been in force for two years. You don’t get to hide assets in a permanent life insurance contract immediately before bankruptcy. The policy must name a spouse, parent child, brother, sister or other dependent family member as beneficiary, however, to qualify for this protection. However, life insurance is not an allowable investment within Arizona Self-Directed IRAs.

After the life insurance policy owner dies, though (note, this is not the same, necessarily, as the insured), only up to 20 percent of death benefits are protected, and then only if the beneficiary is a surviving spouse or child. Everything above this amount is fair game for creditors.

Additionally, Arizona exempts $300 in cash, up to $500 in clothing, musical instruments up to $400, a wedding ring up to $2,000 in value, up to $250 in books, a firearm worth up to $1,000, a computer worth up to $1,000, a car up to $6,000 in value, and a wheelchair. Additionally, you can exempt up to $5,000 in tools of a trade.

[1] http://www.tomboumanlaw.com/exemptions.html

 

 

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