What the New Tax Proposals Might Mean for Self-Directed IRA Owners

What the New Tax Proposals Might Mean for Self-Directed IRA Owners

When you do not have a lot of skin in the game, it does not move the needle when you hear about tax proposals in Washington. However, the more you invest—and the more wealth you build—the more these tax proposals can affect your ability to retire. Even if you have a lot of money in a tax-advantaged account like a Self-Directed IRA, it helps to know what is going on in Washington, and what that might mean for the future of retirement investing. Here is the latest.

A New Focus on the Very Wealthy

According to a recent article on MarketWatch, only the very wealthy may be affected by some of these changes. That is due to a shift in focus with a new presidential administration: politicians in Washington may now aim to raise taxes on certain types of wealth. One of the chief proposals was to raise tax rates on capital gains for households who make more than $1 million. At its current rate, capital gain taxes are 20% for these households. The new White House proposal would bring that rate to nearly 40%.

For people with a Self-Directed IRA, capital gains taxes within the account are not a concern—the valid transactions within the account can grow tax-free. For example, if an investor holds a stock fund within a Self-Directed Roth IRA and sells it at a gain of $10,000, that money is not taxed except in certain situations, such as an early distribution. However, because this tax proposal focuses on the very wealthy—many of whom invest beyond the contribution limits of many IRAs—it could mean that there are not any retirement vehicles available to them to shield capital gains from these taxes.

A New Tax Proposal for Real Estate Investors

Did your ears perk up? Many Self-Directed IRA investors hold real estate; in fact, it is often the reason investors seek out a Self-Directed IRA. In this case, a new proposal to Congress would eliminate a tax break known as Section 1031 exchange. Says MarketWatch:

“Under this tax break, if owners of investment and business properties use the proceeds of the sale of one property to purchase another property within 180 days, then they can forgo paying capital-gains and depreciation-recapture taxes.”

In other words, this may get rid of a tax benefit for people who quickly turn around and buy another property. If you hold real estate within a Self-Directed IRA, of course, your tax situation may be different. That is why it can be so important for investors to work with a qualified tax professional, capable of answering questions like these.

Understanding the Benefits of a Self-Directed IRA

Many real estate investors who do not put aside retirement investment money towards real estate might read the previous section and worry that one of their chief strategies is going to be taxed. Of course, there have been no major changes to the tax code as of yet. But investors with and without Self-Directed IRAs should pay attention to the new proposals, because they can have sweeping consequences for everyone with a lot of money put aside—including in real estate.

At American IRA, our role as a Self-Directed IRA administration firm means that we are not going to tell you what to do, or what to think. Our role as the custodian on the account means that your own approach to the future is in your hands. For many Self-Directed IRA investors, that is exactly what they want. They want to navigate the retirement landscape with the help of qualified advisors, making their own decisions along the way.

Interested in learning more about Self-Directed IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Download our free guides or visit us online at www.AmericanIRA.com.