Choosing Non-Traded and Private REITs For Your Self-Directed IRA

Real estate is a popular investment within self-directed IRAs. Investors love the tangible nature of land and property, the current income, potential for growth in rental income, and the potential for capital appreciation. There are also a number of tax advantages that apply to real estate that don’t accrue to other asset classes.

But not everyone wants to be a landlord. For those people, owning shares in a real estate investment trust (REIT) may be an option.

Often, people attracted to self-directed IRAs are also attracted to non-traded REITs… that is, real estate investment trusts that are not traded on the stock market and are not rated by investment analysts or widely followed.

About Non-traded REITs

Like exchange-traded REITs, non-traded REITs invest in real estate. They are also subject to the same IRS requirements that an exchange-traded REIT must meet, including distributing at least 90 percent of taxable income to shareholders. Like exchange-traded REITS, non-traded REITs are registered with the Securities and Exchange Commission and are required to make regular SEC disclosures, including filing a prospectus and quarterly (10-Q) and annual reports (10-K), all of which are publicly available through the SEC’s EDGAR database.

Private REITs

Not all REITs are subject to the SEC requirements above. There’s another category called ‘private REITs,’ which are exempt from the requirements listed above. These REITs may carry a higher yield, but they are also higher risk to investors. Generally, these are only available to accredited investors. They call for extra-thorough due diligence. But you can still own them with  a self-directed IRA.

The Liquidity Premium

Yes, shares in these companies can be difficult to sell, and you may have to pay a broker’s commission to unload shares for you. That’s true for direct real estate ownership in a self-directed IRA, as well.  But in the meantime, investors can enjoy a much greater income yield on the dollar. Why? Because liquidity and convenience come at a price. Investors tend to bid up prices on highly liquid publicly-traded REITs – which in turn forces down dividend yields.

If you’re really sharp about real estate, and you know how to do your own due diligence, and you want to maximize your income yield on the dollar, you might consider a privately-held, non-traded REIT for your self-directed IRA.

Before you invest, though, be sire to follow these tips for selecting the best REIT for your portfolio:

  1. Have a healthy appreciation for risk. It wasn’t that long ago that many REITs lost half their value as real estate values collapsed. Some cities like Miami, Las Vegas and Phoenix were particularly hard-hit. Geographic diversification matters – though some investors like making targeted bets on individual markets. If you choose a focused strategy rather than a diversified one, just be sure you have a reason for what you do, and it fits in your overall investment strategy.
  2. Have a long holding period. Because transaction costs with non-traded REITs are high (up to 15 percent), the best way to own a non-traded REIT is to plan on keeping it for many years. Think of it as a marriage, not a fling.
  3. Look closely at the dividend. Is it really from rental income? Or is part of it a return of capital? Return of capital is more tax-efficient, but it’s also kind of like eating your seedcorn. Besides – if you’re holding the REIT in a self-directed IRA, tax-efficiency is not a concern for you.
  4. Does the dividend exceed operating cash flow? If so, the REIT is eating itself alive trying to attract yield-chasing investors. They could be selling good properties or they could be paying dividends with borrowed money. Don’t get so hungry for yield that you don’t care where it comes from.
  5. How’s the balance sheet? High leverage can make a REIT shine for a while – in a good economy. But the more leveraged the balance sheet, the bigger the hit when markets turn on you.
  6. Is the REIT compliant with SEC filing requirements? If it’s behind or if its filings are incomplete, this is a very bad sign.
  7. What are the early redemption policies? Some REITs and private placements place restrictions on your ability to access your money for a number of years. Make sure your time horizon is longer than the lockout period!

The Case for Real Estate In Your Real Estate IRA

It was a nasty crash, but it was eight years ago. Since then, real estate asset prices have been relentlessly marching upward. While nothing is ever certain when it comes to investment, there are indications that the real estate bull market still has room to run – and that’s good news for Real Estate IRA investors.

Yes, the Federal Reserve has been gradually increasing interest rates. But that hasn’t helped bond yields as much as it probably should: Interest rates on CDs, money markets and shorter-term bonds are still much lower than historic averages, while interest rates on mortgages remain quite low compared to rent yields in most markets, combined with the potential price appreciation upside of real estate investing. Again, Real Estate IRA owners know that while there is obviously no certainty that real estate prices will continue to rise, assets are likely to continue to flow into real estate from weak-yielding bond markets as long as yields from traditional income-producing assets common to retirement accounts remains low.

Meanwhile, though the stock market seems very high at current levels, corporate bonds have been very highly correlated to stocks in recent years, giving investors very little reason to accept the meager yields available in them. This, again, tends to drive assets to alternative asset classes, including real estate – boosting prices in the aggregate.

The wealthiest investors and institutions are quite aware of this, and they are increasing their allocation to real estate in their own portfolios. A recent survey by Tiger 21 found that wealthy investors have an all-time record high (since they began tracking it in 2007) of 33 percent of their portfolios committed to real estate, including a Real Estate IRA.

The allocation to real estate and a Real Estate IRA comes at the expense of hedge fund exposure and equities. So the much-followed “smart money” appears already to be cutting back on their exposure to the stock market in favor of alternative assets.

Hedge fund allocation is at a record low of 4 percent, with hedge fund managers in the proverbial dog house as the traditional “two-and-twenty” compensation proves unwieldy in a low interest rate environment: Two percent fees takes up half the yield when interest rates are at 4 percent! And that pushes hedge funds further and further out on the risk curve.

Meanwhile, real estate continues to outperform, with REITs (real estate investment trusts) returning an average of 7.91 percent per year over the long term. Leveraged, those who own real estate directly using a self-directed IRA can potentially do much better – though leverage increases risks as well.

Here in the Southeast, real the real estate market is humming along, with South Carolina real estate experiencing a full-on boom. Vacancy rates have plummeted while new construction is racing to meet demand. Commercial vacancy rates in Lowcountry areas is below 10 percent, thanks to a local unemployment rate of just 3.8 percent in the area. Upstate South Carolina is experiencing a job boom, as well, with BMW leading the way, and attracting more job creation in its wake.

“The commercial real estate market in South Carolina is in exceptionally good shape,” said Mark Vitner, senior economist for Wells Fargo of Charlotte.

But experts are saying that prices here in the southeast have not caught up with the economic reality. Property can still be had at a very reasonable price for Real Estate IRA investors.

“We haven’t seen property values skyrocket because we haven’t seen as much foreign capital come into the state to overheat the market,” he said.

Real Estate IRA – Special Considerations for Vacant Properties

We are seeing more interest among Real Estate IRA enthusiasts in purchasing distressed and vacant properties.

Many times, the Real Estate IRA investor can purchase a promising vacant property at a substantial discount to its intrinsic value, which make these properties attractive value investments – especially for those Real Estate IRA investors who have the capital to upgrade these properties and make them once again attractive to tenants at a reasonable rent.

But as long as a property is vacant, there are some special considerations that investors need to consider:

  • Vacant properties are susceptible to vandalism
  • They are attractive nuisances to children.
  • They may attract vagrants
  • Vacant properties are sometimes occupied by squatters
  • If a child, vagrant or squatter is injured on the property, you (or your Real Estate IRA) could be held legally liable for the injury.
  • Leaks, mold and other problems can go unobserved for weeks or months – making repairs much more expensive than they would be had a tenant been there to help you nip it in the bud.
  • Vacant properties are more vulnerable to burglary and theft

Naturally, you’ll want to carry insurance on your Real Estate IRA investment – normally the standard landlord insurance policy for a property of similar size, type, value and number of units works fine.

But these standard insurance policies are not designed to cover the additional risks posed by a wholly vacant property. They are generally priced with your locality’s typical vacancy rates in mind. If your property has been vacant for more than a few months, and you have a claim, and your insurer finds out, they have grounds not to pay the claim.

That’s why insurance experts recommend owners of vacant properties purchase specialized vacant property coverage. You can buy this as a stand-alone policy, but it’s more commonly sold as a rider or additional feature or benefit of a standard landlords’ insurance policy.

The premiums are slightly higher than you would normally see on an off-the-shelf landlords’ policy, at any given deductible and coinsurance level. But the coverage is probably worth it, as it helps to plug a hole in your insurance protection plan that could result in devastating liability.

Note that just because your investment property is unoccupied doesn’t mean that it’s a vacant property for insurance purposes. The law expects and anticipates that landlords will have occasional vacancies of a few days or weeks between tenants, and during repairs and upgrades.

Many carriers will let you choose between a 3 month, 6-month or 12-month policy term. The best term for you probably reflects the length of time you may need to complete a repair or upgrade.

Premises liability coverage is usually optional, but is often a good idea because liability may be one of the biggest hazards to your IRA.

If you are doing upgrades or repairs, you may also consider purchasing builders risk insurance, which protects construction material and the value of those repairs and upgrades.

What should Self-Directed IRA owners do right before they retire?

Are you reaching retirement age soon? Already pushing it? Ever thought about a Self-Directed IRA? It’s time to make some important decisions about your financial strategy going forward. Here are several things you should be thinking about as you transition into the retirement stage of your financial life cycle.

  • Roll back risk exposure. Now’s the time to begin reducing exposure to uncertainty and market risk. While most Self-Directed IRA owners are not fully invested in the U.S. stock market (diversification is one of the reasons why many investors choose to self-direct their retirement accounts in the first place!) investors should conduct a sober review of their portfolio and its exposure to various kinds of risks. For example, we know from the sad experience of 2008-2010 that real estate can be subject to every bit as much risk and uncertainty as the stock market, under some circumstances.
  • Reduce leverage. If your real estate IRA or other retirement account is heavily leveraged, you may think about working on toning it down. The more of your portfolio is mortgaged, the bigger the short-term unexpected swings there may be – and you don’t want to be on the wrong side of a bear market right when you retire, because you’ll have a hard time earning your way out of the hole.
  • Enroll in Medicare. If you’re turning 65 this year or next year, don’t get so focused on your Self-Directed IRA investing that you forget your Medicare initial open enrollment period. You have a window of seven months to formally enroll in Medicare. The initial open enrollment period begins three months before the month in which you turn age 65, and closes three months after the end of the month in which you turn sixty-five.

For example: If you turn 65 in July of 2018, your open enrollment period will open April 1st, and go through May and June – then July, your birth month, and then three more months after that: August, September and October.

If you miss your open enrollment period, you will have to pay significant penalties in the form of higher Medicare premiums.

  • Assess life insurance coverage. As people get older, many times they are carrying a lot of life insurance they don’t need anymore. With no dependent children, and a comfortable nest egg for both spouses to retire on, it may make sense to convert a substantial life insurance policy into an annuity using a Section 1035 exchange. The law allows those who bought life insurance early in their lives to convert their life insurance policies into annuities, tax free, to unlock another source of retirement income. Some people choose to use the annuity to pay long term care insurance premiums. Others just convert the annuity to income, either now, or at a higher rate later.
  • Decide whether to take Social Security Benefits. You can begin taking a reduced Social Security Benefit beginning at age 62. However, the longer you wait, the greater your monthly benefit will be, until you reach full retirement age. In most cases, if you’re in poor health, it makes sense to begin taking the benefit early. If you’re in excellent health, and expect to live well past full retirement age, you’re actuarially better off waiting and maximizing your monthly benefit over a long retirement.

Is Congress Really Talking About Slashing Contribution Limits to 401ks including the Self-Directed Solo 401k ?

No. If they were, it would be big news to many of our clients, who went through the trouble of setting up a Self-Directed Solo 401k for their small businesses or consulting ventures. And there’s some talk in the media about Congressional Republicans pushing to slash allowable contribution limits to around $2,400.

The New York Times writes it up here:

House Republicans are considering a plan to sharply reduce the amount of income American workers can save in tax-deferred retirement accounts as part of a broad effort to rewrite the tax code, according to lobbyists, tax consultants and congressional Democrats.

Notably absent from the story: Any language that’s actually in a bill on the House floor. More than that, there’s also the notable absence of a single Republican lawmaker that has ever, ever publicly advocated to reduce allowable 401k contributions to that level.

Moreover, there’s not even a single named source on record saying that this is what the GOP is floating.

It would also put a major dent in the GOP brand, which at least ostensibly seeks to reduce the tax burden on working Americans and businesses.

It seems to us that a bunch of wonks at a planning session were looking at potential ways to offset revenue losses from a planned corporate income tax rate cut, and when they keyed in what they’d have to cap the allowable 401k contribution rate at to recoup the revenue loss, the computer spat out a figure close to $2,400. Nobody wanted to do it, but someone in the room ran to the media “on background,” unwilling to put his own name to the story, and the knuckleheads ran with it.

Our take: It is exceedingly unlikely that the GOP tax reform bill will contain any large reduction in allowable 401k contributions – at least not without a corresponding increase in contribution limits to alternative investment vehicles like IRAs and self-directed IRAs. Messing with 401ks – the primary retirement savings vehicle of the middle class – would be likely to cause an electoral revolt. The Obama administration had to quickly abandon a push to tax Section 529 plans a few years ago, as the Times notes in their article.

There is some legislative risk to those sitting on so-called “jumbo” IRAs, including jumbo self-directed IRAs, with assets above about $5 million. If any tax-advantaged investment account counts as ‘low-hanging fruit’ to revenue-hungry Congressional representatives, it’s those.

Naturally, self-directed IRA owners are over-represented among jumbo IRA account owners, because people that are able to amass $5 million or more in IRAs tend to be successful real estate and venture capital or private equity investors.

At this point, we don’t see any major legislative risks to the Self-Directed Solo 401k structure, though we’ll be keeping an eye on developments as the Republicans in Congress cobble together their expected proposal for tax reform.

Is Your Self-Directed IRA Too Complex? Here’s How to Break It Down

Admit it: you sometimes struggle with the concept of a Self-Directed IRA. It was hard enough to figure out an IRA where someone else was helping you a long, such as a 401(k) through your employer. And while there are a tremendous amount of rules and regulations with IRAs—and, hence, plenty of things for you to figure out when you self-direct—the truth is that the entire process is much more simple to break down than you might imagine.

That just leaves one question: how do you do it? Here are a few of our tips.

Ask the Basic Self-Directed IRA Questions

Forbes acknowledged the reality of the difficult-to-figure-out IRA recently. But what’s great about Forbes’ approach is that they were able to break it down into basic questions for your Self-Directed IRA:

  • Are you double-dipping? In other words, do you personally benefit from your ownership in the IRA, or is it separate from you? The IRS wants it to be separate.
  • Is your investment type allowed in the IRA? Most investment types are—in fact, the IRS explicitly marks down which investment types are not allowed. But it’s important to know which ones are prohibited.
  • Have you received a legal opinion about the investment? Until you talk to an expert, you’ll never truly know whether or not you’re crossing the line. And it’s always better to know.

These three questions do a good job of breaking down whether or not you’re following the rules—or planning on following them. And they’re simple enough that most people understand what the main issues are with Self-Directed IRAs. Even so, let’s see if we can break it down in even simpler terms so most investors can see just how accessible the strategy of a Self-Directed IRA truly is.

The Self-Directed IRA at its Most Basic

It’s that phrase “Self-Directed” that throws off many investors. We’re so used to seeing unfamiliar words in front of “IRA” that we think this means a completely new type of headache. But the truth is, all of your investments are self-directed. It’s your money, after all—you’re the one in charge of making the decisions. And that means that you’re self-directing your own retirement strategy, even if you have none at all.

Once you take that element out of the equation, you realize that a Self-Directed IRA is, at its heart, simply an IRA. You just use your own control over this IRA rather than outsource it to a fund manager’s. For example, if you buy real estate within your IRA, it’s your responsibility to seek out that real estate and secure the loan for your IRA, for example. Rather than trust someone else’s opinion entirely, you’re making investments based on what you see.

Another type of IRA is a Self-Directed IRA that holds precious metals like gold and silver. These are very simple, as well—your IRA holds the precious metals. That’s not difficult to figure out. The Self-Directed nature of the IRA means that you’re deciding what kinds of precious metals to holds, and how much. You’re in charge.

But there are plenty of prohibitions and restrictions that do deserve your attention. And therein lies the complexity of the Self-Directed IRA. Like fire, it’s a powerful tool when you know how to harness it. But if you don’t bother to learn, you might find yourself in need of someone who does know how to handle an IRA.

Help your own cause by working with a Self-Directed IRA administration firm. To find out more, call 866-7500-IRA or keep reading here at

How New Investors Can Avoid Self-Directed IRA Common Pitfalls

Although investing in a Self-Directed IRA doesn’t have to be a complicated mess in the slightest, there are some investors out there who are new to the concept. And when people plunge into new things they don’t understand, mistakes sometimes happen. The prudent investor is willing to take his or her time, have patience, and get to know a strategy before jumping in the deep end of the pool.

That’s why it’s important to take some time out and talk about the common Self-Directed IRA pitfalls…and how new IRA investors can avoid these same pitfalls.

Common Self-Directed IRA Mistake: Not Understanding the Withdrawals

According to USAToday, which recently wrote an article on this very topic, one of the most common mistakes was actually on the back end of investments—when investors start to take the money out of the account. Or, rather, when they forget that they’re actually supposed to.

Taking the proper RMD’s includes an onus on the taxpayer, which means that the IRS isn’t going to send you a letter and tell you exactly what to do. You’ll have to know that it’s time. Hopefully, you’re talking to an adequate tax professional on a regular basis who can help you in this regard, alerting you to the issues at hand. This is the kind of thing that you need to plan for well in advance, as well, because it means that those playing “catch-up” have to be aware that they’ll have to take distributions at a certain age. And, yes, you can face stiff penalties and fines if you don’t follow through on your end of the bargain in this regard.

Choosing the Wrong Type of IRA

Perhaps the most overlooked—and most important—mistake is made at the very beginning. This happens when someone chooses an account type that may not be right for their specific situation. For example, a Roth IRA means you put in taxed money on the front end. Other accounts may let you deduct your contributions, so you’re putting in “pre-tax” money into the account. Is one better than the other? Not necessarily. Your own financial situation and your goals for retirement will have an impact on the type of IRA you should choose.

If you’re unsure, it’s important to consult with a professional to get an idea of what you need. Not only will this professional help fill you in on the rules, but will help recommend the ideal vehicle for your investments—one that lines up with your goals and strategy more than the other options on the table.

Failing to Start

Perhaps one of the most important mistakes investors can make is to never get started in the first place. Sure, it’s true that there are some “catch up” rules in place with the IRS that allow late investors to get some money into their retirement accounts before reaching retirement age. But if you don’t invest early, most of the gains that come about as a result of exponential growth are left on the table. Those are gains that should ultimately go into your pocket—they shouldn’t be left out there for no one to enjoy.

That’s why it’s important to develop an investment plan and to get started as soon as possible. That means asking questions as the first step, even if you’re not sure where you want to put your money yet. Especially if you’re not sure where you want to put your money yet. You can continue to visit to learn more about the Self-Directed IRA, or you can call 866-7500-IRA to learn  more.

Motel, Hotel and Real Estate IRA vs. a REIT

A well-located and well-run hotel is a proven moneymaker. Paris Hilton didn’t get all those designer handbags because her family was broke! Like most real estate investments, hotels and motels provide a combination of regular income with the potential for capital appreciation. While lodging businesses are more labor and resource intensive compared to traditional residential landlording, they also provide more revenue opportunities, such as vending, restaurant leasing, event hosting, banqueting, catering and advertising, to name a few. And it’s perfectly legal to own them within a Real Estate IRA.

REITs vs. a Real Estate IRA

If you like REITs, you should love Real Estate IRAs, if you’re a long-term investor. Many investors are attracted to owning real estate  within a REIT, or real estate investment trust, because of the tax efficiency. The problem with owning a straight C corporation is taxation: Dividends are not tax deductible to the corporation. So the C corporation owner pays taxes at the high corporate level, and then has to pay them again as ordinary personal income when he or she receives income from the underlying properties. That’s a tax double whammy.

The advantage of a REIT is that as long as the REIT pays out at least 90 percent of its revenues as dividends, and as long as the company maintains at least 75 percent of its portfolio in real estate and receives at least 75 percent of its income from real estate. If all three requirements are met, then the REIT does not pay tax at the corporation level. Everything flows through to the individual tax return, and you pay tax on the income, though you can still qualify for capital gains rates when you sell REIT shares at a profit.

That’s a big tax efficiency improvement compared to C corporations. But if you are tax sensitive, or if you are in a high-income tax bracket but you still want income, then consider direct ownership of real estate within a Real Estate IRA.

With a Real Estate IRA, all income from rents is tax deferred, as are all capital gains. This is true as long as the assets remain in the account. If you own the property within a Roth IRA, then all income and all capital gains are tax free, provided the money stays in the Roth account for at least five years.

While many investors choose to gain exposure to the real estate/lodging asset class via owning a REIT, or even a REIT mutual fund, skilled investors may do even better owning hotels, motels or other lodging businesses more directly within their own IRAs.

One key advantage: Investors who purchase properties directly, rather than relying on the stock market, are often able to buy at deep discounts relative to future cash flows. By avoiding a liquidity premium and a large company premium, and judiciously employing leverage, income-focused investors can frequently get a superior income on invested capital.

Before you make the leap, remember that you must obey certain rules when it comes to owning a lodging business within an IRA:

You cannot hire your spouse, children or grandchildren as staff (nephews and siblings are ok under current law). You also cannot hire them to do contracted work such as management, catering or landscaping. The same goes for your parents, your spouse’s parents and any entities they own. Otherwise you could violate prohibited transaction rules.

Furthermore, you can’t rent or lease space to yourself, nor any of the individuals mentioned above. You can’t let them stay in your property, even if they pay a fair market rent, and you cannot stay overnight in your own property. You also cannot pay yourself a salary for running the hotel on a day-to-day basis, or you could violate self-dealing rules. Doing so will likely violate

Do not mingle personal and investment funds. You can’t even stop at the market on the way to check on your policy and pick up a few light bulbs for your own property using your own checkbook or debit card. All purchases and contracts associated with your Real Estate IRA property must be paid using money from that IRA.

Hotels and motels can be liability-generating businesses, so it’s important to maintain liability, umbrella and other essential forms of insurance coverage, and to hold the property within an entity that walls it off not only form your own personal assets but from other assets held within your retirement account.

Those are the basics of owning hotels and motels within a Real Estate IRA. More information on hotel and motel purchase and ownership within a Real Estate IRA in an upcoming post.

Self-Directed IRA vs. 401(k) – Which Is Best For You?

When it comes to Self-Directed IRA investing – the practice of investing IRA or other tax-advantaged retirement funds in alternative investments and directing them yourself, personally – there are important differences between the IRA and 401(k) structures.

So knowing where to park your assets and under what circumstances is important for the Self-Directed IRA owner.

First, let’s look at what the IRA and 401(k) have in common:

  • Both protect current income and capital gains from taxation, both at the federal and state level.
  • Both offer Roth options, which don’t allow you to subtract your contributions from your taxable income for the year, but they do allow your assets within the account to compound tax-free for as long as you live, and make tax-free withdrawals of any assets that have been in the accounts for at least five years.

The rules are the same for both Self-Directed and conventional accounts – it’s just the assets within the Self-Directed accounts that are different.

But IRAs and 401(k)s have some important differences, too. For example:

  • Self-Directed 401(k)s may help shelter any leveraged assets from a special tax called unrelated debt-financed income tax. This is a tax on any current income or capital gains attributable to other people’s money, rather than your own. For example: If you buy an investment property for $200,000, and you borrow half of it, and receive $20,000 in rent the first year, and you still owe half the value of the property on the mortgage, then 50 percent of your rental income is subject to unrelated debt-financed income tax.

However, a quirk in the law means that assets held in 401(k) accounts, rather than IRAs, may be exempt from this tax.

Investors who plan to use a lot of leverage in their investing strategies may wish to lean towards a solo 401(k) for that reason – if they don’t plan on taking on any employees other than their spouse!

  • 401(k)s allow account owners to take loans. It’s illegal to borrow money directly from your IRA, with a narrow exception for a rollover not exceeding 60 days. But if you sponsor your own solo 401(k) plan, you can set up the plan to allow you to borrow against your 401(k) balance for any reason you like, for up to five years. This may be a convenient source of liquidity for small business owners undergoing a cash crunch, for dealing with a financial emergency or taking advantage of an investment opportunity. Again, the advantage here goes to 401(k) plans.
  • IRAs are better vehicles for heirs to inherit. This is because non-spousal beneficiaries who inherit a 401(k) account must empty the account – and pay income taxes on the liquidated assets – within five years of inheriting it. Often, this hits heirs during their own peak earning years, when the tax hit is at its peak. However, non-spousal IRA beneficiaries may be able to stretch the inherited IRA over their remaining expected life spans. This is a much more tax-efficient way to pass assets on to heirs. Advantage: IRAs – particularly Roth IRAs.
  • 401(k)s have much higher contribution limits than IRAs. IRA contributions are limited to $5,500 per year, with an additional $1,000 allowable for account owners over age 60 in so-called “catch-up” contributions. 401(k)s, on the other hand, allow for elective contributions of up to $18,000 (or $24,000 total for those over age 60). When you add in total potential matching contributions from the company, you can contribute up to a total combined amount of $54,000.

This is much greater than the potential new money contribution allowable for IRAs. And you can make pre-tax contributions to a solo 401(k) at any income level. In contrast, traditional IRAs limit your ability to make deductible contributions at higher income levels, and high incomes may limit or eliminate your ability to make Roth IRA contributions at all.

However, solo 401(k)s are suitable only for a defined market of self-employed individuals, independent contractors and those who own businesses with no full-time employees other than a spouse.

If this applies to you, then a solo 401(k) may be a terrific small business retirement plan option. Otherwise, you may want to consider a SEP IRA or SIMPLE IRA plan, depending on your circumstances. Both of them support Self-Directed IRA strategies.

American IRA, LLC is a family-owned business that focuses on helping owners of Self-Directed IRA accounts ensure their transactions are handled quickly and accurately and that they are properly documented in accordance with IRS rules. Our offices are located in Charlotte and Asheville, North Carolina, but we work with Self-Directed retirement account investors in all 50 states.

For more information on Self-Directed retirement investing, call American IRA today at 866-7500-IRA(472), or visit us online at

Real Estate IRA – Fire Insurance Claim Tips

Fires are among the most costly perils in the home insurance business. When you take out a fire insurance policy on a property you own within a Real Estate IRA, you are protecting yourself against a hazard that cost insurance companies, on average, nearly $40,000 per claim.

Sure, none of us like paying insurance premiums. But when you look at the potential costs of a fire if your Real Estate IRA owned properties aren’t insured, those premiums begin looking a lot more reasonable.

Assess smoke damage. Just because your Real Estate IRA property didn’t burn doesn’t mean it wasn’t damaged. Smoke can cause damage to a home, resulting in a claim against your fire insurance policy. You may have to replace drywall, carpeting, wallpaper, drapes, do a major paint job, and undertake a number of other repairs just from smoke damage alone. Be sure to document this damage thoroughly.

Further, cleaning your own home after a fire or major smoke event is unsafe. You will likely need professional cleaning and mitigation. Professional clean-up firms bring special protective equipment, like hepafilter masks and special vacuums to protect their workers from harmful fumes, soot and other hazardous particulates. So ensure you are prepared to support your claim for compensation for these significant expenses.

Furthermore, some do-it-yourself repair attempts backfire, making stains and other damage worse, not better!

Document early and document everything. At a minimum, keep records of the following:

  • Date of damage or loss
  • Type of damage (smoke, flame, water damage from firefighting efforts, etc.)
  • Description of damage.
  • Injuries, if any
  • Identities of all parties involved
  • Condition of the Real Estate IRA property or home at the time of the fire
  • Description of any temporary repairs you made
  • Cost of temporary repairs (include estimates and receipts
  • Police or fire department reports
  • Insurance claim ID number
  • Insurance company authorizations for any temporary repairs you do

Additionally, it may be a good idea to insist the tenants living in your Real Estate IRA own renter’s insurance. While your insurance policies will cover damage to your property, including interior and exterior damage, it won’t cover your tenants’ belongings. Furthermore, since renter’s insurance also has liability protection for your tenants, it helps protect you against any damages your tenants may cause, such as accidental kitchen fires, etc.

Some additional tips:

  • Don’t throw away damaged property before the insurance adjustor sees it.
  • Hire only licensed and ensured contractors to do repairs. Ask for certificates of insurance before starting any work.
  • Don’t sign documents allowing the contractor to collect payments directly from the insurance company. While the practice is legal, in reality the consumer almost never benefits.
  • Consider filing claims for loss of use of your property, or loss of rental income while the Real Estate IRA property is uninhabitable. Your landlord insurance policy may provide coverage against this loss.
  • Ask for an advance against your final insurance claim. This advance can help you pay for needed mitigations and to help prevent further damage, such as wet rot and mold from accumulated water from firefighting attempts.