Tax Cuts! What the TCJA Means for Small Businesses

Many of our clients and customers own or operate small businesses, including corporations, partnerships and LLCs. The Tax Cuts and Jobs Act of 2017, or TCJA, provides a number of tax breaks that benefit small businesses as well as individual investors in self-directed retirement accounts.

Most notably, the TCJA reduces the corporate income tax rate  from 35 percent to 21 percent. This is a substantial reduction which dramatically reduces the effects of double taxation on C-corporations.

But that is not all. The TCJA also allows for much more generous tax provisions for businesses making capital investments. The new law increases the tax benefits available to small businesses under Section 179. Beginning January 1st, small businesses can expense up to $1 million in deductions on qualified property immediately. This provides a significant cash flow benefit for any company putting qualified capital equipment to work.

Previously, the limit was up to $500,000. The remainder had to be depreciated gradually over time – up to 27.5 years for many investments in residential real estate. The relaxed depreciation rules allow businesses much greater cash flow than they otherwise would have enjoyed.

The new tax law also expands the types of property and capital equipment that is eligible for first-year expensing or bonus depreciation.

Additionally, the new law allows for simplified accounting. Previously, most businesses with less than $5 million were permitted to use the simpler cash method of accounting. Under the TCJA, businesses with qualified revenues of up to $25 million are allowed to use the cash method. This method recognizes revenues and expenses as they actually come in, and not as they are contracted.

Luxury car fans get a treat: Business owners can now expense a greater dollar amount for luxury cars. Under the previous rule, business owners could only deduct up to $15,000 for cars over five years. However, the new rule lets you deduct up to $47,000 over five years.

It is much easier to deduct costs for computers as they have been removed from the definition of listed property. This means that you do not have to jump through hoops to show IRS officials that you actually used the computer in your business. Just keep the receipts!

Drawbacks

The new tax law has a couple of drawbacks for small businesses. First, interest deductions are limited to 30 percent of the business’s adjusted taxable income. Interest expenses are  deductible against income dollar for dollar.

Businesses that have been taking operating losses, or have uneven revenues from year to year, should beware of the restriction on claiming net operating losses against income. Previously, businesses with a net operating loss in a given year could use that loss to offset income. Businesses could offset income going back two years, or going forward 20 years.

The new rules say you can only offset 80 percent of your business income in a given year with net operating losses. You can carry these losses indefinitely into the future, but only certain losses can be carried backwards to offset income in prior years.

Don’t Make These Self-Directed IRA Rollover Mistakes

Blowing the 60-day Deadline. If you take out money from an IRA account, including a Self-Directed IRA account, planning to roll it into another IRA or Self-Directed IRA, consider it a game of hot potato: You have 60 days to get that money out of your hands and into the new IRA. The transaction must be completed in 60 days, or the IRS will deem you to have taken a distribution and charge applicable taxes and penalties on the withdrawal.

Forgetting about the 20 Percent Withholding on 401(k)s. The same 60-day rule applies to rollovers from 401(k)s, but with an added complication: If you take money out of a 401(k) directly, the custodian will withhold 20 percent of what you took out and send it to the IRS, to be credited against taxes. But the 60-day rollover deadline still applies, except that you have to roll over 100 percent of what you took out. You must come up with the other 20 percent from somewhere until you file your taxes, when you will either get credited or get a refund.

If you don’t roll over the entire balance you withdrew from your 401(k) into a new IRA within 60 days, including the 20 percent the custodian withheld to send to the IRS, you’ll have to pay taxes and penalties on the shortage.

Don’t make too many rollovers. In the past, many people would make multiple IRA rollovers involving several accounts, believing that any direct rollovers would be tax-free. A recent tax court decision put an end to that, however, ruling that IRA owners can only execute one IRA-to-IRA rollover per year. This is true even if the rollovers involve different IRAs. The limit is one IRA-to-IRA rollover per year per investor, not one per account.

Note that Roth conversions are not counted as rollovers for this purpose.

Failing to do trustee-to-trustee transfers. A trustee-to-trustee transfer is a transfer directly from one custodian or administrator to another. With a trustee-to-trustee transfer, the cash or assets never enters your hands. You don’t have direct control of the asset, and the 60-day clock doesn’t start ticking. Furthermore, when you do a trustee-to-trustee transfer from a 401(k) custodian, they won’t withhold the 20 percent in taxes. So you don’t have to scramble to deposit another 20 percent out of pocket to avoid paying taxes and penalties like you would if you took a withdrawal directly, intending to complete a rollover to an IRA yourself.

Failing to properly name the IRA assets. If you’re putting assets in a Self-Directed IRA or any other Self-Directed IRA account, be sure to title them properly. For example, if you purchase a rental home for your Self-Directed IRA, something has to go on the title. But you can’t put the property directly in your own name. You aren’t the owner – your IRA owns the property on your behalf. Title the property in your IRA’s name, not your own. For example: “IRA For the Benefit of John K. Doe.”

Note: Transfers don’t count as rollovers. If you have a choice, it is nearly always better to move money from one tax-advantaged account to another via a trustee-to-trustee transfer than via a rollover. Transfers are not reportable to the IRS and you can make an unlimited number of direct trustee-to-trustee transfers period in any given year. The problem tends to arise when IRA owners try to give themselves interest-free 60-day loans from their IRAs.

If you want to take direct control of your IRA assets, and declare independence from Wall Street while opening your IRA to all manner of alternative asset classes, call us at American IRA, LLC today at 866-7500-IRA (472), or visit us online to open an account at www.americanira.com.

Once you open an account, transferring money from another IRA, 401(k) or other tax-advantaged retirement account, or funding it with new money is very easy – and enables you to invest in all kinds of opportunities that most broker-dealer reps can’t or won’t discuss with you.

For more information, call us today! We look forward to working with you!

You Don’t Have to be Rich to Use a Self-Directed IRA Like the Wealthy

A recent article in USA Today pointed out the various ways wealthy investors use IRAs to maximize their investment dollar. But left out was one crucial point: with a Self-Directed IRA, anyone of legal age can use these tax protections to their benefit, diversifying their portfolio to include more than just stocks. Even so, there are enough tips and tricks for IRA usage here that investors of all income levels will want to know how they fit with the Self-Directed IRA.

Examples of Wealthy People and Their Self-Directed IRA Strategies

One of the most powerful ways to build wealth is to get in on the ground floor of a company that’s just beginning to realize its growth potential. In the Self-Directed IRA world, we call this holding equity in private companies. Max Levchin of PayPal was able to hold some share of the company before its Initial Public Offering—you’re free to guess at the results of that move. Some believe the retirement account ballooned to a worth of as much as $100 million to $200 million.

Private equity investment can be high-risk, high-reward—and it doesn’t mean that the next PayPal is around the corner. But it’s a great way to diversify some risk out of the stock market, if you know how to sniff out opportunities. The advantage of using a Self-Directed IRA is that you might have some wealth built up in order to make private company investments.

Leaving an IRA to the Youngest Beneficiary

Another example of how the wealth use IRAs: estate planning. If you leave money in your retirement account after you pass, these retirement assets can then be transferred to someone young in your family. According to USA Today, “The rules for inheriting IRAs allow a named beneficiary to stretch the annual minimum distributions that they’re required to withdraw from their inherited IRAs over the course of their lifetimes.” These strategies can grow complicated, so it’s best to talk with an estate lawyer before planning out who receives which assets from a retirement estate.

Going Beyond the Scope of One Article

Though the USA Today article is a great stepping stone for many to see the potential of using their Self-Directed IRA, because it shows the raw growth potential of assets outside of the stock market. Of course anyone with a Self-Directed IRA should exercise caution when putting their eggs in just a few baskets, but it’s important to remember that a Self-Directed IRA can be used to realize quick gains if you play your cards right.

Simply put, there are more options. Private company investing is great, and can realize huge gains before an IPO. But not everyone has access to these. Think of all of the options outside private equity that aren’t mentioned here. You can use an IRA to invest in:

  • Precious metals
  • Rental real estate
  • Commercial real estate
  • Tax Liens & Sales
  • Private lending
  • Partnerships and joint ventures

By placing his PayPal interest in an IRA, Levchin will realize maximum tax protection for his investment, potentially saving him millions of dollars. But you don’t need to be a well-connected Silicon Valley investor to see how a Self-Directed IRA can open up new possibilities in your retirement portfolio.

To learn more about Self-Directed IRAs, learn more about American IRA. We’re a Self-Directed IRA Administration Firm located in Asheville and Charlotte, North Carolina. You can continue reading posts and information here on our website, or feel free to call us at 866-7500-IRA(472) to find out more about what we do.

Self-Directed IRA and the ‘Backdoor Roth’

At American IRA, many of our Self-Directed IRA clients are very successful. Sometimes, extraordinarily so. And so some of them find themselves restricted from making tax deductible contributions to a traditional IRA, or even from making new contributions to their Self-Directed Roth RAs.

That’s where the so-called ‘backdoor Roth’ contribution comes in for Self-Directed IRA owners: While there are income limits to one’s eligibility to contribute money to a Roth IRA, there are no income limits when it comes to Roth IRA conversions. You can roll over hundreds of thousands of dollars into a Roth IRA, or even more, regardless of your current income. Of course, you’ll have to pay income taxes on money you roll out of a traditional IRA, 401(k), or SIMPLE IRA into a Roth IRA during the conversion process. But depending on your current and future tax brackets and expected future returns, it could be worth it – especially if you don’t convert so much that it puts you in a higher marginal tax bracket.

For 2017, the income limits for eligibility to contribute to a Roth IRA or self-directed Roth IRA are as follows:

Baseline contribution limit: $5,500, plus an additional $1,000 per year in “catch up” contributions for those age 50 and older.

Single filers: May contribute the full baseline amount up to an adjusted gross income (AGI) of 118,000. After that point the amounts they are eligible to contribute begin to phase out, until their contribution limits phase out entirely at an AGI of $133,000.

Joint (married) filers: May contribute the baseline amount of up to $5,500 (or $11,000, including a spousal IRA), plus an additional $1,000 in catch-up contributions per person age 50 and older, up to an adjusted gross income (AGI) of $186,000. Above that AGI level, their contribution limits begin to phase out at $186,000 until they reach zero at an AGI of $196,000.

Deadlines

Note: If you haven’t yet made your contribution to your Self-Directed IRA for tax year 2016, there is still time! You have until April 15th, 2017, to make your Self-Directed IRA contributions for tax year 2016. This gives you time to fill out your tax return and figure out exactly how much you may be able to convert to a Roth IRA, or self-directed Roth IRA, before you are pushed into a higher marginal tax bracket.

To execute a backdoor Roth rollover with American IRA, LLC, call us first, and we’ll send you a few forms to establish an account to hold your converted Roth IRA funds. Another form you fill out will authorize us to contact your current custodian for your traditional IRA funds and have them liquidate your account and wire the proceeds directly to us.

This direct trustee-to-trustee transfer is a non-taxable event, when you roll eligible traditional IRA, 401(k), 403(b), SEP or SIMPLE IRA funds into another IRA. But if you are rolling tax-deferred money into a Roth IRA account, it counts as a conversion, and you will be charged income tax on the money rolled over. You will not be charged an additional 10 percent early-withdrawal penalty on rollovers, whether they are straightforward trustee-to-trustee rollovers or transfers.

Getting Started

For best results, try to pay the taxes with money outside of your retirement accounts. That way you won’t be paying income taxes and penalties on money you are just using to pay taxes and penalties. You also preserve the maximum amount of assets for favorable tax treatment in the Self-Directed IRA.

If you are considering a backdoor rollover and you are interested in the advantages of self-direction of your retirement assets, we want to hear from you! Contact American IRA, LLC at 866-7500-IRA(472), or visit our website at www.americanira.com.

We look forward to working with you.

Self-Directed IRA Update: Want To Live Longer? Keep Working

A lot of our Self-Directed IRA clients are very successful. They are attracted to the Self-Directed IRA precisely because they have achieved success and specialized knowledge in specific industries. Many, if not most of them, are professionals or own their own companies.

Self-Directed IRA investors tend to be a special breed of investor: They didn’t get where they are because they don’t like to work.

If that describes you, we have some good news: People who stay in the work force even one year later than people who retire as soon as they can get a Social Security check have lower mortality rates than those who don’t.

Simply put: People who work into their retirement years live longer.

That’s according to a recent study from the Journal of Epidemiology and Community Health.

Now, the obvious criticism, at least on the surface, is this: Of course they do, because healthy people can work longer. Sick people self-select to retire as soon as eligible because they have to.

But if that criticism is so obvious that we could think of it, it was obvious enough for the study’s authors to think of it as well. And so they took steps to control for health factors.

Even then, the message is clear: Even accounting for the tendency of sick people to retire or leave the work force at an earlier age, people who retired later tended to have much lower mortality rates than individuals who retired at the first opportunity.

Specifically, over the period studied, researchers found that working into retirement years improved mortality by 11 percent for healthy people and 9 percent of unhealthy people. That is, on average, people who were working were about 11 percent less likely to die in a given year if they were healthy, and 9 percent less likely to die if they were unhealthy.

That’s not just good for your health, it’s good for your Self-Directed IRA, because the more years you can stay in the work force, the more years you have to contribute up to $6,500 to your Self-Directed IRA (including your catch-up contribution, available to those aged 50 or older), but the more years of tax-deferred or tax-free growth is available.

You may also benefit in another way: When you can stay working, you can afford to make more aggressive investments in hopes of achieving higher returns in the long run. As long as you are working, you can afford to take more risks.

This comports well with another recent study finding that people engaged in ‘meaningful work’ enjoyed a number of health benefits compared to those who did not.

Advantages included lower blood pressure, better musculoskeletal agility, lower rates of depression, higher cognitive function compared to those not engaged in meaningful work.

The health effects were roughly equivalent to those that would be gained from exercising three days per week.

So good news for workaholics: If you can manage the stress, so that you don’t have a stressed induced hypertension or stress-related cardio issue, you may well be able to live a longer, healthier life than your couch potato peers.

If you’re one of those investors who likes to work, and you’re interested in Self-Directed IRA investing, we’d like to work with you. Call us today at 866-7500-IRA(472) for a no-obligation consultation. Or visit us online at www.americanira.com

Thank you very much for your time. We look forward to working with you.

 

 

Self-Directed IRA Minimize Taxes on Large Accounts

You’ve worked hard. You’ve saved a lot of money, made sacrifices and deferred consumption. And you have been diligent, skilled and yes, lucky, when it comes to making investment decisions within your Self-Directed IRA. So you’ve accumulated a large balance. And you want to be able to maximize the benefit of your accumulation for yourself and your loved ones.

Congratulations! As problems go, that’s a nice one to have. But income taxes are steep when it comes to higher income levels. Unless everything’s in a Roth account, the IRS is going to expect a substantial cut. Owning a large or jumbo Self-Directed IRA can feel like holding a tiger by the ears: You know you’re going to get mauled as soon as you let go – but you can’t hold on to the thing forever!

Of course, that’s what we call a ‘first world problem.’ But there are some things you can do to maximize the after-tax benefit of your retirement assets for yourself and your family:

Maximize use of Roth Accounts. You can contribute to Roth IRAs, provided you meet the income limits. You can also establish a designated Roth account within a solo 401(k) for your company or for your self-employed income and use that. In years where income is high, you may want to make deductible contributions to lower your AGI and expose less of your income to your highest marginal tax rate. In years when your income is low, you can lean towards the Roth and take advantage of tax-free growth.

Bump Up Distributions in Low-Income Years. If you have an off year in business and you’re age 59 ½ or older or you otherwise qualify for a penalty-free distribution from a tax-deferred retirement account, and you think your income and income tax rate will be higher in retirement than it is now, go ahead and take the distribution now to even out your income.

Execute a Section 72(t) Plan. The sooner you start taking regular, systematic distributions, the lower those distributions will be. This can help lower your income while giving you access to the capital now. You can use this to make investments that are taxable under lower long-term capital gains tax rules, or real estate or life insurance moves that qualify for 1031 or 1035 tax-free exchanges down the road.

Have a plan for selling accumulated company stock. If you are sitting on a large amount of company stock you received by participating in your 401(k) plan, you can take advantage of net unrealized appreciation (NUA) rules. This may allow you to pay income taxes on the purchase price of the stock, and a lower capital gains tax on the rest. This is normally preferable to paying full-boat ordinary income tax on the whole shebang, which you will eventually have to do if you just let it ride within your 401(k) or IRA.

For details, speak with your tax advisor.

Dump the percentage fee and go with a flat rate per transaction. If you have a large account, you’re probably also paying large AUM fees, commissions and expense ratios. But if you’re managing the money yourself, there’s no point in paying a manager an AUM fee for doing nothing. If you’re handling all the due diligence and transactions, you’re likely much better off opening an account with American IRA and paying a low flat fee for the paperwork and record keeping associated with a transaction. This is normally much more efficient than paying thousands or tens of thousands in AUM fees every year for someone to do nothing more than send you a statement (bet they charge a monthly statement fee on top of everything else, too!)

Need more ideas on how to use self-directed retirement accounts? Want more information about the rules and transactions? Want to save money on fees? Call American IRA, LLC today at 866-7500-IRA(472) or visit our website at www.americanira.com.

We look forward to working with you.

 

 

Interested in a Self-Directed IRA -Ask Your Advisor These Key Questions

Many of our clients come to a Self-Directed IRA relatively late in life, after they have been investing for a while.

Only after spending a number of years in the work force and saving and investing do they even discover that a Self-Directed IRA or other retirement account is even an option!

By that time, of course, many of them have saved up some significant assets in their more conventional retirement accounts – and they may have some comfortable relationships with advisors.

It’s important not to let those relationships become too comfortable, however. Any financial advisor worth his or her salt should be ready to answer some questions. The answers they give you may tell you that you have a terrific all around advisor, or they may tell you it’s time to scale back or change that relationship.

More often, we find that a financial advisor may be a fantastic stock and fund picker, but at this stage of your life you may need to diversify beyond stocks and mutual funds into different asset classes in which your advisor doesn’t have much expertise.

And that’s where the Self-Directed IRA concept comes in.

Next time you meet with your advisor, ask these questions:

  • If the S&P 500 falls by 40 percent next month, what happens to my portfolio?
  • If interest rates fall by 20 percent, what happens to my income?
  • If interest rates rise by 20 percent (say, from 5 to 6 percent), what happens to the value of my bonds?
  • What is my current allocation?
  • How are you compensated? How much is in commissions versus fees?
  • Have these funds you recommended to me outperformed their benchmark indexes?
  • Can you explain each of these funds to me and tell me why you chose this fun, rather than an index fund?
  • Am I paying 12-b-1 fees? If so, what do I get in return for those fees?
  • What is the total amount in fees, expenses and commissions I’ve paid out last year?
  • What aspects of financial planning are you best at?
  • Are you compensated differently for selling A-shares versus B-shares?
  • Can I see the sales loads? How are they calculated?
  • (For annuity salespeople) Can you tell me what the M & A fees are?
  • Can you tell me what the subaccount fees (in variable annuities) are, and compare them to similar mutual funds?
  • Why a variable annuity and not a mutual fund?
  • How much of this sales load do you earn, and how much goes to your broker/dealer?
  • What aspects of financial planning are you weakest at?
  • How does the cash sweep account work? Do I earn interest on uninvested money?
  • Do you or your company receive “soft dollar” money from mutual funds and other financial companies to promote them in 401(k)s?
  • Do you discount your AUM fees or commissions for larger accounts? What is the threshold?
  • Are my dividends being reinvested?
  • What is my exposure to unrealized capital gains taxes?
  • Do I pay more fees if I don’t convert to a Roth?
  • What financial designations, licenses and qualifications do you have?
  • Are you acting as a fiduciary?

These and other similar questions almost invariably spark a useful and valuable conversation – especially for clients. Most advisors do just fine – though many people find they are paying higher fees than thought they were. Or they discover that they will be much better off using a flat rate fee structure, such as the one we have at American IRA, LLC, rather than paying a 1-2 percent AUM fee or paying mutual fund expense ratios – especially on larger balances.

As always, we’re happy to take a look at your current strategy and speak with you about the exciting self-direction option. Though American IRA, LLC has offices in Charlotte and Asheville, North Carolina, we work with investors all over the country.

Call us today at 866-7500-IRA(472). Or visit our extensive online library at www.americanira.com.

We look forward to serving you.

Self-Directed IRA -Can Help Protect Your Retirement In Case of a Market Crash

In the long run, stocks have a comparatively high return on investment. But that’s compared to bonds and CDs and other less volatile asset classes. One of the advantages of a Self-Directed IRA is that it opens up your options to a lot investments beyond the asset classes that Wall Street companies are pushing – that is, the ones that generate fat commissions and assets under management (AUM) fees for their own managers, brokers and advisors.

This week, the S&P 500 moved into positive territory for the year in a bull market that appears to be getting pretty long in the tooth. As any experienced Self-Directed IRA investor knows, the U.S. stock market could fall by 20, 30, 40 percent or more very quickly, at any time. Can your portfolio withstand the risk?

Here are some ideas that may help you weather any market storms on the horizon.

Rental real estate. Historically, real estate moves very differently than stock prices. Markets are local, rather than global. And even where prices are falling, rental real estate kicks off a steady stream of income that can be an important stabilizer – particularly for those who need cash flow to meet living expenses or to execute their investment strategy.

Rental real estate is also ideal for leveraged strategies that can help you increase your individual return on invested assets. And yes, you can have your IRA or other self-directed retirement account borrow money to invest – especially in real estate. But be mindful of the increased level of risk that come with leverage, as well.

Gold and Precious Metals

Gold, silver, platinum and copper are all hedges against economic declines and collapses that have stood the test of time. And with a Self-Directed IRA or other type of retirement account, you can take a direct position in gold or any of these other precious metals.

The catch: You can’t take personal possession of gold and silver or any other precious metal held directly by your IRA or other self-directed retirement account. You also can’t hold jewelry or gems in your Self-Directed IRA. Rather you must hold certain forms of bullion or coins that meet minimum legal standards for purity. For more information, download our exclusive guide to gold and precious metal IRAs, available at www.americanIRA.com.

Tax Liens and Tax Certificates. If a homeowner fails to pay required property taxes, many cities and municipalities will allow investors to pay the property tax on their behalf. In exchange, the investor has a lien on the home until the homeowner pays the investor back the money he or she paid in taxes on the owner’s behalf. Meanwhile, the home cannot be sold unless the lien is satisfied – plus interest. The interest rate is normally far superior to rates offered in other income-oriented investments, and the loan you make to the homeowners by paying their property taxes is secured by plenty of collateral, in most cases.  After a certain amount of time, the investor can foreclose on the home – occasionally receiving a windfall of a home for a fraction of the market rate.

Historically, however, the loans are eventually repaid with interest, as homeowners are loath to lose homes because of such relatively small unpaid tax bills.

You can take advantage of these programs using a Self-Directed IRA or other retirement account.

Cash flows are not regular or predictable, as they are with bond portfolios or even with rental real estate. However, they are not correlated with the stock market, historically.

All three of these asset classes can help you achieve above-market returns – especially with the skillful use of leverage – while helping you reduce your exposure to stock market risk.

American IRA, LLC is among America’s foremost authorities in providing administrative services to owners of Self-Directed IRAs who are attracted to outside-the-box investment ideas, and who want to increase their diversification without necessarily sacrificing potential investment returns.

We have offices in Charlotte and Asheville, North Carolina, but we serve clients all over the country. Call us today at 866-7500-IRA (472), or visit our website, www.americanIRA.com,  and see our vast library of informational articles and resources.

We look forward to serving you.

 

 

Self-Directed IRA -Can I Self-Direct an Inherited IRA?

Yes, you can use Self-Directed IRA strategies using inherited IRA assets.

This means that even if you inherit a very conventionally-invested IRA full of mutual funds, stocks, money markets, bonds and CDs, you can direct IRA assets into a Self-Directed IRA account. This allows you to invest in a much broader array of asset classes, including but not limited to:

  • Rental real estate
  • House flipping
  • Partnerships
  • LLCs
  • Oil and gas
  • Land banking
  • Private lending
  • Private banking
  • Gold and precious metals
  • Limited partnerships
  • Non-publicly traded REITs, business development companies and other closely held corporations
  • Farms and ranches

…And much more. The only things you are restricted from owning within a Self-Directed IRA are life insurance, alcoholic beverages, jewelry and gemstones, collectibles and certain kinds of precious metal coin or bullion of uncertain or insufficient purity and consistency.

However, if you inherit an IRA from someone other than your spouse, or you are approaching age 70 or older, you should be aware of IRA rules that require you to begin taking money out in the form of required minimum distributions, or RMDs. You will need to have enough liquidity in your IRA to take your RMD every year.

If you inherit an IRA from your spouse, you have a couple of options not available to others. For example, you can roll your late spouse’s IRA into your own IRA, or you can elect to treat it as your IRA in your own name instead of your spouse’s. If you are younger than your late spouse, this may help you put off required minimum distributions and defer taxes on earnings in your inherited IRA until later. As a surviving spouse, you may also be able to access some income prior to reaching age 59 ½, if needed, without paying the 10 percent penalty that normally applies to early distributions. Speak with your tax planner for more information.

If you inherit an IRA from someone other than your spouse, you can’t just roll the assets over into your own IRA. Instead, you must take the same RMDs as the late IRA owner would have had to take had he or she not passed away. Alternatively, you can take a full distribution of the entire IRA. But that would result in substantial taxes and penalties, potentially at a higher marginal tax rate than you would be paying if you spread the income out over multiple years.

American IRA has worked with many owners of inherited IRAs over the years. The rules concerning inherited IRAs are complex and sometimes counterintuitive. You don’t want to be making decisions regarding your inherited IRA without some outside help. Mistitling an asset, for example, or accidentally taking physical possession of an IRA asset can cause substantial tax liability and penalties. Our role is to handle the transactions on your behalf  – whatever the investment – and help you stay in compliance with applicable IRA regulations and tax laws. We work with your existing tax expert and financial advisor to ensure that the transactions they recommend and you authorize are executed with timeliness, efficiency and accuracy  – normally at a fraction of the assets under management fees normally charged by conventional investment companies!

Have you inherited IRA assets? Are you interested in a Self-Directed IRA? Then visit us online at www.americanira.com, or call us at 866-7500-IRA. We look forward to working with you!

 

 

 

Self-Directed IRA Owner’s Guide to Tax on Social Security Benefits

Many Self-Directed IRA investors reach retirement age, begin taking Social Security Benefits and IRA distributions, file their taxes, and get a nasty surprise: Up to 50 percent of their Social Security benefits are taxable as income under current law.

The higher your income in retirement (whether from a Self-Directed IRA or otherwise), the higher the percentage of your Social Security benefits subject to income tax. Currently, the average American retiree pays taxes on about 44 percent of his or her Social Security Benefits.

It wasn’t supposed to be this way, originally. Back in 1984, when Congress first established an income threshold, above which Social Security Benefits would become taxable, the tax was only supposed to affect a small percentage of wealthier taxpayers. But Congress never indexed the threshold for inflation, and as the dollar became worth less and less and as the nominal dollar amounts of retirement income grew and grew, the effects of the tax crept further and further into the working class. A similar dynamic is now affecting an increasing number of Americans subject to the alternative minimum tax.

So how can you shield as much Social Security Income as possible from the tax? If you’re collecting a substantial pension from a former employer, there’s probably not much you can do, other than trying not to take benefits before you have to. But most people can benefit from adopting one or more of the following strategies to lower Social Security income tax exposure.

  1. Convert traditional Self-Directed IRA and conventional IRA assets to Roth IRAs. Yes, you’ll have to pay income taxes on the entire amount you rollover. And that will impact the amount of Social Security Income subject to the tax – but only in the year of the rollover. After that, any distributions from Roth IRAs or Self-Directed IRA assets will not count against you for the purposes of counting Social Security income tax.
  1. Tap your Self-Directed IRA or conventional IRA for income relatively early in retirement. Use your IRA to allow yourself to put off taking Social Security income. Yes, you deplete your IRA faster. But in later years, you’ll qualify for a larger Social Security benefit. This, in turn, may reduce the amount of IRA income you will need. Meanwhile, since your Social Security benefits are a larger percentage of your income and your taxable IRA distributions are lower, your income will be more tax efficient. A larger percentage of your Social Security Benefits will be exempt from tax than would otherwise be the case. (Research indicates that the ‘sweet spot’ for this strategy seems to be for people with retirement portfolios between $200,000 and $600,000, according to research by Social Security Solutions.
  1. Don’t rely on municipal bond income to sidestep the tax on Social Security benefits. Yes, the IRS excludes muni interest from ordinary income taxes in most cases. But they do force you to include it in Social Security Tax calculations.

American IRA, LLC specializes in assisting people who choose to self-direct their retirement accounts, rather than leave the decisions to Wall Street. Whether your interests are in real estate IRAs, gold and precious metal IRAs, private equity IRAs, or anything in between, we want to work with you to ensure your transactions are handled efficiently, while saving you thousands in fees in many cases.

To learn more, call us today at 866-7500-IRA(472), or visit us online at www.americanira.com.

We look forward to working with you.