A Brief Glossary of Self-Directed IRA Commonly Used Terms
If you are new to Self-Directed IRA investing, to include Self-Directed Real Estate IRA and Self-Directed Gold IRA investing, you may hear a number of terms bandied about that you are not yet familiar with. Here is a brief glossary of terms commonly used in the Self-Directed IRA world.
AUM fees: A fee, charged as a percentage of assets a custodian or administrator holds on your behalf, that is generally deducted from your account on a monthly or annual basis. The term AUM stands for assets under management. Many investors can save money by switching from an account with an AUM fee to an administrator such as American IRA, LLC, which charges based on a flat rate menu of common services and procedures. People who buy and hold and do not trade frequently can save hundreds or thousands of dollars each year in fees by switching to a flat rate, menu-based fee structure.
Commingling. In the Self-Directed IRA context, commingling refers to combining assets from your personal account in the same account as an IRA investment or vice versa. Commingling may be construed to be a prohibited transaction and result in your Self-Directed IRA being disqualified. Keep your assets and your retirement assets strictly segregated.
Self-Directed Coverdell Education Savings Account: A special tax advantaged college savings tool, popular among tax sensitive parents. Also called “Education IRAs.” You can self-direct these assets as well.
Fair market value: The estimated value of an asset based on an “arms length” transaction from a disinterested and neutral but informed buyer. Self-Directed IRA owners must provide a year-end fair market value estimate for all assets in their self-directed accounts.
Self-Directed Gold IRA: A Self-Directed IRA that is primarily invested in gold.
Non-recourse loan: A loan secured entirely by the property lent on. Under the terms of a non-recourse loan, if the borrower defaults, the lender must have no recourse to sue the Self-Directed IRA owner or attach any assets besides the property in order to satisfy the debt. All mortgages on property held within a Self-Directed IRA or Self-Directed Real Estate IRA must be non-recourse loans. Self-Directed IRA owners and disqualified persons cannot provide a personal guarantee on the loan, or the transaction may be considered a prohibited investment.
Prohibited investment: An investment into an asset not allowed by law. Self-Directed IRAs cannot be invested in life insurance, art, collectibles, alcoholic beverages, gems and jewelry, and gold coins and bullion of insufficient or inconsistent purity.
Prohibited transaction: A transaction prohibited to Self-Directed IRAs or other retirement accounts by law. For example, a Self-Directed IRA cannot buy or borrow from, nor lend or sell to his or her children or grandchildren, his or her spouse’s children or grandchildren, nor to his parents or grandparents or those of his spouse. Self-Directed IRAs also cannot transact with any entities controlled by any of these individuals, nor with any advisors acting in a fiduciary capacity with respect to the Self-Directed IRA investment, nor any entities he or she controls.
Self-Directed Silver IRA: A Self-Directed IRA primarily invested in silver.
Small business retirement plan: A pension plan designed for entrepreneurs, self-employed individuals and businesses with a small number of employees. Examples include Self-Directed SIMPLE IRA plans, Self-Directed SEP IRAs, and Self-Directed Solo 401(K)s
Self-Directed Solo 401(K): A streamlined type of 401(K) plan designed specifically for businesses with just one owner, or an owner and his or her spouse, and no other full-time employees.
Self-Directed Spousal IRA: A Self-Directed IRA established in the name of a spouse who does not have adequate earned income in his or her own name.
Unrelated business income tax: In the Self-Directed IRA context, income attributable to leverage, rather than to investment from the Self-Directed IRA account holder himself, or herself. Closely related to unrelated debt-financed income tax.
Interested in learning more about Self-Directed IRAs? Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation. Or visit us online at www.AmericanIRA.com.