Alabama Self-Directed IRA
Alabama is an excellent spot for Alabama Self-Directed IRA owners, and thanks to extremely low property taxes and affordable housing for both owners and renters, it is ideal for Alabama Self-Directed Real Estate IRA owners. However, high state and local sales tax rates mean you may not want to do too much spending within the state if you can help it. However, that’s not a problem for absentee landlords and those thinking of owning Alabama Self-Directed Real Estate IRA properties from out of state.
Why an Alabama Self-Directed IRA?
Stocks. Mutual funds. CDs. Bonds.
For years, you have heard that these are the types of investment vehicles through which to secure your retirement. The stock market tends to appreciate over the long haul, after all, and bonds are conservative and low on risk. Mutual funds have popped up in recent decades as one of the most popular investment vehicles as well, closely monitoring certain aspects of the stock market.
What most people do not know is that these are not the only investment types available for retirement.
In fact, if you choose self-direction, you will find that the IRS allows for all sorts of different types of investments in a retirement account. You can invest in gold and precious metals, real estate, private companies, and more. There are a few select limits on the sorts of investments you can make, but the good news is: you often have more legal options than you have limits.
For many people, an Alabama Self-Directed IRA means freedom, opportunity, and self-determination. It means not being satisfied that the “market” is the only market that exists. It does not mean you have to switch away all of your old investments. But if you want to invest in real estate or gold to help ensure a secure retirement, those options are indeed open…
And, like other IRA types, Alabama Self-Directed IRAs come with all sorts of investment protections.
Understand Your Alabama Self-Directed IRA Plan Options
Let’s take a moment to consider the various retirement account types:
- Traditional Self-Directed IRA: A retirement account in which you can invest pre-tax or after-tax dollars, and in which your investments grow tax-deferred, meaning you will pay taxes on them once you begin withdrawing them. When you start making retirement withdrawals–defined as withdrawals after you turn 59.5 years old–the money is treated as income.
- Self-Directed Roth IRA: Similar to a Traditional IRA, except you make after-tax dollar contributions so you are paying taxes on the front end. This allows your investments to grow tax-free. After the account has been established for 5 years and after you turn 59.5, your withdrawals are tax and penalty-free.
- Traditional 401(K): A qualified plan that allows employees to make pre-tax elective deferrals. Business owners who want to self-direct can use these as well and allow employees to self-direct their accounts.
- Self-Directed SEP IRA: A Simplified Employee Pension plan allows employers to make contributions to the retirement of their employees. An employer can also contribute to their own retirement with a Self-Directed SEP IRA.
- Self-Directed SIMPLE IRA: Savings Incentive Match Plan for Employees. A “tax-favored” plan that small businesses and individuals can set up for their employees.
- Self-Directed Solo 401(K): A 401(K) plan that a self-employed individual can use for retirement that offers high contribution limits.
As noted throughout, these same accounts offer a high degree of self-direction if you want to direct your own accounts.
A Variety of Investments
One of the chief benefits of directing your own retirement account is that you get to choose your investments from a wide range of options:
- Real estate: Apartment buildings, commercial property, retail space, raw land, etc. If you want to earn an immediate income for your retirement account with your investments, rent can be one of the most powerful ways to ensure that. You can also use leverage in a Alabama Self-Directed Real Estate IRA when using non-recourse loans.
- Private IRA Lending: You can negotiate the terms, interest rate, and length of the loan, as well as other variables like the monthly payment amounts and whether the loan is secured or unsecured.
- Private companies: Public stocks are what most people think of as “investments,” but there are also private stocks to consider. There is a lot of opportunity for growth in private company stock, but also plenty of risk to consider.
- Tax liens: With a high rate of return, these investment types are ideal for self-directing investors with smaller accounts.
- Precious metals: Gold, silver, platinum, palladium. These metals are famous as a “hedge” against economic downturn, which is why many people turn to them as a way to avoid putting all of their eggs in the stock market basket.
- Single Member LLC: An investor can create an LLC to be owned by their Alabama Self-Directed IRA, managing it themselves. This gives a significant degree of protection; however, you will likely want to consult with a professional to learn how to do this properly.
What You Can’t Do with an Alabama Self-Directed IRA
As fun as it is to talk about the various options you can have with a self-directed retirement account, it should be noted that there are certain limits, as well. You cannot self-direct a retirement account to invest in life insurance, collectibles like art, gems/jewelry, coins, alcoholic beverages, and tangible personal property. As enticing as it might be to put that wine cellar under a Self-Directed IRA protection, it’s simply prohibited–so look for your protected retirement investments elsewhere.
Who You Cannot Do Business With
A disqualified person is anyone the Self-Directed IRA has decided is not “arm’s length” from the IRA. Your IRA cannot engage in any transactions with these individuals or you risk the tax-status of your IRA.
A Disqualified Person is:
- Your spouse
- Any of your lineal ascendants or descendants (parents, children, grandchildren, and the spouses of children, grandchildren, etc. – including legally adopted children).
- Any investment providers or fiduciaries of the IRA.
- Any entity (a corporation, LLC, trust, etc.) where a disqualified person owns more than 50%.
- Any entity (like previously listed) where the IRA account holder is an officer, director, a 10% or more shareholder, or a highly compensated employee.
Although we have thrown a lot of abbreviations and words at you, you should know that self-directing your retirement is not as complicated as it might sound. The steps are very simple:
- Open an Alabama Self-Directed IRA with American IRA. Make sure to put thought into the type of account you would like to open; review the options available to you and select the one that makes the most sense for your individual situation.
- Fund your account. This is where the options can throw people off. Let’s take a look at them quickly:
- Contribution: Simply putting money into the account throughout the year. This is what a lot of the funding will look like once the account is already opened.
- Conversion: Withdrawing part or all of the cash/assets from a Traditional IRA and putting them into a Roth IRA is called a conversion. Once the cash/assets are distributed, you have 60 days to put them in the Roth IRA account.
- Rollover: A tax-free distribution of cash/assets from one account to be put in another retirement account. You are permitted one rollover per year.
- Transfer: Transferring cash/assets directly from one retirement account to another retirement account. Because you do not take direct possession of the cash/assets, you are allowed unlimited transfers and there is no tax.
How it Works
1.) Open an American IRA Self-Directed IRA
- Select the type of account that you would like to open.
2.) Fund Your Account
- Move money into your account by transfer, rollover or contribution.
3.) Select an Investment
- Find an asset you want your IRA to purchase and submit an Investment Form. American IRA will work with you and your professionals for a smooth closing.
4.) Review the Instructions
- Visit the “How it Works” page on our website to review the instructions for the asset you want to purchase and submit the paperwork required for the investment you have chosen.
5.) Provide Payment Authorization
- Submit Payment Authorization Forms for expenses that pertain to the asset your IRA has purchased.
6.) Submit Deposit Coupons
- Deposit income generated from the asset your IRA purchased by submitting a Deposit Coupon along with the funds.
Tax and Financial Considerations for Alabama Self-Directed IRA Owners
The cost of living in most of Alabama is relatively low – making it an attractive destination for retirees living off of portfolio income. According to Sperling’s Best Places, Alabama is about 11 percent less expensive than the national cost-of-living average.
The median home cost in Alabama is $125,500, compared to $216,200 for the median average across the U.S., and rent costs are commensurately lower as well. For city lovers, three of Alabama’s cities – Huntsville, Montgomery and Mobile – are among the most affordable major urban centers in the country, according to Niche.com’s ranking of cities with the lowest cost of living. All three rank in the ten most affordable cities to live in.
The average health care cost for retirees is somewhat higher than the national average, according to Sperling’s data – about 5 percent higher than the national average.
Alabama is definitely in the Deep South: As is usually the case for the Gulf states, winters are mild and usually pleasant, while summers are very hot and humid. Expect an air conditioning bill.
The primary natural disaster threats are hurricanes within 100 miles of the coast, and the possibility of tornados throughout the state.
State income taxes on Alabama Self-Directed IRA Income
Alabama is relatively friendly toward retirees when it comes to state taxes. Income tax bracket range from 2% on the first $500 of taxable income for single filers up to 5% on taxable income over $3,000/year. For married couples, the thresholds are double what they are for single filers.
Some Alabama cities charge an occupational tax of up to 2 percent on wages and salaries, but not on retirement income, which is just taxed as ordinary income.
The net state and local tax burden amounts to 8.7% of income, according to the Tax Foundation.
Sales Taxes in Alabama are Significant
Additionally, Alabama also charges a state sales tax of 4 percent, while local governments add up to 6 percent of additional sales tax. As a result, Alabama has relatively high total sales taxes, and food is not exempt. The average local sales tax rate is 5.10 percent, according to the Tax Foundation, which makes the average combined state and local tax rate 9.10% – the 5th highest in the country.
The state also imposes a gasoline tax of 20.91 cents per gallon, which is modest compared to national averages.
Alabama has no inheritance or estate taxes.
Alabama Self-Directed Real Estate IRAs
Alabama Self-Directed Real Estate IRA owners benefit not just from the modest state taxes on real estate rental income but also from some of the lowest property taxes in the country. On average, Alabama residents pay an effective property tax rate of just 0.43 percent, according to SmartAsset.com, amounting to an average annual property tax bill of just $550 per year – about 1/4th the national average. It is the lowest average property tax rate in the country, according to the Tax Foundation. Senior citizens may qualify for a number of exemptions which make their property tax bills even lower. Those 65 years old or older can claim an exemption on 100 percent of the value of their personally-owned residence.
Benefits of Retiring in Alabama
If you are interested in seeking retirement in Alabama, or if you simply want to think about it as a long-term option, you might consider a Self-Directed IRA. An Alabama Self-Directed IRA will allow you to handle plenty of different investments under your own control—all while enjoying the tax protections of retirement accounts.
Are you interested in retiring in Alabama? Want to learn more about how to take advantage of all of the retirement capabilities you have? Then it’s time to think about a Self-Directed IRA. Continue browsing this website to learn more about an Alabama Self-Directed IRA or contact us at 828-257-4949 to learn more about how you can secure a retirement for yourself.
About American IRA, LLC
American IRA, LLC is one of the leading third-party administrators for self-directed retirement accounts in the United States. The custodian New Vision Trust Company is a South Dakota regulated trust company. Founder and president Jim Hitt has been investing his own personal assets in Self-Directed IRAs, including Self-Directed Real Estate IRAs, for more than 35 years, and has helped thousands of others declare independence from Wall Street investment companies with their high fees and limited investment menus and become successful Self-Directed IRA investors.
American IRA has offices in Asheville and Charlotte, North Carolina, and Atlanta, GA, but we serve investors from all over the United States and even expats who want to realize the benefits of self-directed retirement investing techniques in Alabama Self-Directed IRAs, Self-Directed Roth IRAs, Self-Directed SEP IRAs, Self-Directed SIMPLE IRAs and even Self-Directed CESAs and Self-Directed HSAs.
An Alabama Self-Directed IRA with American IRA, LLC can help you achieve greater diversification by making it easier to invest in alternative asset classes not commonly available from large investment companies. Self-Directed IRAs also allow you to take more direct control of your retirement assets, while minimizing exposure to needlessly high expense ratios, commissions, wrap fees, 12-b-1 fees and AUM fees commonly charged by Wall Street investment companies. Our much more efficient flat-fee, menu-based fee schedule frequently allows investors to save thousands in fees each year – particularly with larger accounts and buy-and-hold investors.
With a Alabama Self-Directed IRA from American IRA, LLC, you can quickly and easily invest in alternative asset classes like direct real estate ownership, tax liens and certificates, mortgage lending, precious metals, and much more.
To get started, click here to open an account, or call American IRA today at 866-7500-IRA(472).