Owners of Self-Directed IRAs Benefit from Japanese Pension Fund Shift to Alternative Asset Classes

Internationally, the ‘smart money’ is starting to move more toward alternative asset classes, and away from traditional fixed income assets. That means that IRA investors are in the catbird’s seat, as institutional money begins to flow in their Self-Directed IRAs direction.

A new report from J.P. Morgan indicates that the traditionally conservative, staid pension funds in Japan have allocated a whopping 17.1 percent to alternative investment classes as of last March (2018), up from just 11.4 percent as of just five years ago. The survey also found that a majority of these pension funds – 60 percent – intended to increase their exposure to alternative investment classes over the next year.

Meanwhile, Japanese pension funds dumped Japanese government bonds – reducing their exposure to 21.7 percent, the lowest allocation to government debt in the last 11 years – going back to the beginning of the survey.

Alternative Assets Going Mainstream in Japan

It is no mystery why: Years of government policy promoting growth at the risk of inflation and at the expense of savers resulted in the 10-year government issue yielding just 0.02 percent!

“We expect to see investors continue to ‘push the envelope’ on alternatives to boost return and increase portfolio resilience,” said Akira Kunikyo, an institutional investment specialist with J.P. Morgan to editors of the Financial Times.

Those are precisely the two biggest reasons individual investors should consider increasing their own exposure to alternative asset classes within their retirement portfolios.

These accounts, including Self-Directed IRAs, 401(K)s, Self-Directed SEP IRAs, Self-Directed SIMPLE IRAs and even Self-Directed CESAs (Coverdell Education Savings Accounts) and Self-Directed HSAs (health savings accounts) allow individual investors to direct their own retirement assets into alternative asset classes just as large institutions do. Examples of alternative asset classes include:

  • Direct ownership of real estate
  • REITs
  • Private equity
  • Venture capital
  • Hard money lending
  • Oil and gas
  • Limited partnerships and MLPs
  • Tax liens and certificates
  • Land banking
  • Private lending
  • Hedge funds

“Alternative assets have truly become a mainstream asset for Japanese pension funds, adds Kunikyo.

Often, these alternative asset classes can be very illiquid. That is a feature, not a bug, as Self-Directed IRA investors usually have very long-time horizons. There is simply no need to give up expected return in exchange for liquidity they do not need. When you have years or decades before you are likely to need to access the money, an illiquid 6 percent is better than a liquid 2 percent.

The long-time horizons of Self-Directed IRAs for most investors make them ideal homes for alternative asset classes: There is lots of time for compounding to take place, relatively unmolested by income taxes, dividend taxes and capital gains on any trades. Rental income in a Self-Directed Roth IRA, for example, is tax-free, provided the assets have been in the Self-Directed Roth IRA for at least five years. And even in traditional Self-Directed IRAs, taxes on growth and income are deferred until you begin taking money out of the account, generally in retirement. (There may be some exposure to unrelated debt income tax if you borrow money within your retirement account to invest with, depending on the circumstances.)

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.

Four Common Retirement Fears – And How Self-Directed IRAs Can Help

Many Americans are feeling insecure about retirement. And it is no wonder. The days of staying with one company for forty-five years and then enjoying a comfortable retirement thanks to a generous pension are no longer the norm. Plus, everyone hears those rumors—true or not—that Social Security might not be around (at least in its present form) when it is their turn to collect from it.  A Self-Directed IRA may be able to help.

Add to those worries an unpredictable stock market and “safe” investments like treasury bills and CDs that do not yield enough to keep up with moderate inflation, and it is easy to understand why there’s little peace of mind for future retirees.

But there is hope for safeguarding your plans for the future. It is called a Self-Directed IRA, and it gives retirement investors more options—private stock, real estate, precious metals, and more—from which to diversify and gain some sense of security.

Take a look at how Self-Directed IRAs can help you and other investors overcome many of those common fears about retirement:

Inflation will devastate my savings

Every one of us has experienced inflation. Here’s an example: Five years ago, you set aside $18,000 in your savings account for your next car. Today, that same car costs $21,000, while your money has “grown” to $18,050! Your dollars are less valuable than they were five years ago, and your savings could not keep up with inflation.

Traditional IRA investments such as stock, bonds, and CDs usually lose money when inflation is high. Conversely, physical assets like real estate and gold will typically maintain their value during inflationary times. Diversifying into these physical assets through a Self-Directed IRA can help you protect your retirement funds from inflation.

The stock market will collapse, and I will lose everything

Many investors still feel the pain of watching their portfolios cut in half during the stock market collapse of 2008. The fear of it happening again is magnified because now they are ten years closer to retirement. And while 2008 was an extreme case, downturns in the market occur regularly, and it is next to impossible to predict how any future corrections will impact your portfolio.

Self-Directed IRAs give you more investment options to expand your portfolio into different asset groups. This diversified investment tactic can protect your investments by reducing risk—some of your assets may decrease in value while others remain stable or increase. That is why it is important to have asset classes that are complimentary. For instance, gold compliments stocks because there is very little correlation between the two. In other words, when stocks are struggling, gold is shining.

I will not have sufficient income in retirement

After you retire, you will be counting on your savings to generate income for you. Many retirees turn to bonds and CDs because they believe these are low-risk alternatives. Unfortunately, they do not produce enough income to keep up with inflation, so these investors end up trading one risk for another.

One investment that’s available with a Self-Directed IRA, real estate, is an excellent option for generating streams of income. Investment properties can be one good option for post-retirement income streams. Investment properties can create a reliable rental income that is typically higher than those you would earn from the low-risk choices. And unlike stocks, you need not be concerned with market volatility.

I have trouble understanding my investments

Stocks, bonds, and other financial assets are complex, and they can be difficult for the average retirement investor to comprehend. Just tune in to one of the financial channels and listen to the experts. Even they cannot agree on which stock is your best investment choice.

Physical assets, like real estate and precious metals, are easier to understand. Everyone has seen, touched, and experienced these during their lifetime. And with a Self-Directed IRA, you can shift some of your funds into these assets to give yourself more confidence in your overall portfolio.

At American IRA, we believe that a diversified Self-Directed IRA is the best vehicle for growing your retirement account. And we have the experience to handle your transactions, no matter which of the various options you choose to utilize.

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.

How to Take a Distribution from a Self-Directed IRA Owned Single-Member LLC

If you have a Self-Directed IRA retirement account that owns a single-member limited liability corporation (LLC), you probably understand that when you used your retirement funds to purchase the LLC, the LLC became a separate entity. You may purchase assets and make investments through the LLC, and you might even have check-writing privileges.

One thing you cannot do, however, is to take a distribution from your LLC. Although a Self-Directed IRA owned single-member LLC can be used as its own investment vehicle, IRA distribution rules are still in effect, and any distributions must come from the IRA and not the LLC. Here is a brief review of distributions. In other words, what happens when you take money from your Self-Directed IRA?

What is a distribution?

A distribution takes place when funds are removed from a Self-Directed IRA and paid to the IRA’s owner. The IRA owner is then required to declare the distribution amount as income and pay taxes on it. The funds that are removed from the Self-Directed IRA lose their tax-deferred protection and are treated as income. The money is no longer subject to IRA rules, and the owner is free of any restrictions on what he or she may and may not do with it.

Also keep in mind that if you have reached the age of 70 ½, you must take into account that you will have required minimum distribution (RMD) rules to consider. The rules state that you must begin liquidating your tax-deferred plans when you reach that age. Once again, this does not change the distribution rules. Your RMDs must come from your Self-Directed IRA and may not be taken directly from your LLC.

How do you take a distribution if you have an LLC?

Taking a distribution can be confusing, especially if you have only recently opened your Self-Directed IRA LLC. The LLC will require an extra step whenever you take a distribution. Here is an example to show you how it works:

In the following scenario, the owner of the Self-Directed IRA LLC wants to take a $20,000 distribution. Since most of the owner’s funds are in the LLC, there is not enough cash in the IRA to cover the distribution. Many Self-Directed IRA owners mistakenly believe they can take the distributions from the LLC. After all, that is where the funds are located.

But those funds must flow back to the Self-Directed IRA first, and then they can be distributed to the owner. Remember, you are the owner of the IRA, but the Self-Directed IRA owns the LLC. So, the LLC would need to send funds back to its owner, your IRA. As the manager of the LLC, you would send a $20,000 check to the IRA, after which you would request a distribution from the Self-Directed IRA’s administrator. The administrator processes the request, cuts a check for $20,000 to you personally, and issues a 1099 for the distribution amount.

You must declare the $20,000 as income for the year in which you took the distribution, and you must pay taxes on it by the following April 15th.

You cannot take a distribution from the LLC!

In summary, Self-Directed IRA owned single-member LLCs do not change the rules and requirements of distributions. As the manager of the LLC, you may not write yourself a check and call it a distribution. You, your IRA, and the LLC are three separate legal entities. Do not confuse yourself with your IRA. And do not confuse your Self-Directed IRA with the LLC!

Let us use our experience to help you

At American IRA, we work with Self-Directed IRAs every day. With our simplified process, you can quickly and easily take care of your investment transactions.

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.

What to Know Before You Open a Self-Directed IRA

As equity prices soar – and arguably become more dangerous – more Americans are looking to diversify into other asset classes by opening a Self-Directed IRA. These are IRAs that enable them to think beyond Wall Street financial products like stocks, bonds and mutual funds and get into alternative asset classes like gold, silver, direct ownership of real estate, closely-held corporations, partnerships and LLCs.

There are loads of advantages to doing so: A Self-Directed IRA can help diversify your portfolio and may help protect you in the event of a stock market decline, a sudden increase in interest rates or bond yields, or a major spike in inflation that would devastate paper assets. But there are some things to understand before you make your first actual Self-Directed IRA transactions:

  • Your Self-Directed IRA cannot transact with certain family members.

You cannot use IRA funds to engage in self-dealing, nor to enrich certain immediate family members. Specifically, your Self-Directed IRA may not buy or borrow from, nor sell or lend to, yourself, your spouse, your descendants or ascendants or those of your spouse, an advisor who services your IRA account or provides advice on it in the role of a fiduciary, nor can you transact with any entities any of these individuals control.

If you do so, you will violate prohibited transaction rules, and the IRS may disallow the transaction and potentially revoke the tax-preferred status of the entire Self-Directed IRA. This would potentially result in a significant current-year income tax hit. It would also potentially expose you to penalties, if you are under age 59½.

  • You need a specialized third-party administrator or custodian. You cannot run a Self-Directed IRA on your own, because IRA rules prohibit you from taking direct personal possession of assets. You will need to partner with an independent firm to hold assets and conduct transactions for the Self-Directed IRA on your behalf.

Few traditional banks or Wall Street firms will do this for alternative asset classes. They do not get any revenue streams if your Self-Directed IRA buys a rental property down the block. Generally, you will need to enroll the services of a company like American IRA, which specializes in handling Self-Directed IRA assets, and executing, recording and reporting transactions in a way that is compliant with the law and with IRS regulations.

Additionally, while these companies do not provide individualized investment or tax advice, they may be able to identify potential compliance pitfalls such as prohibited transaction rules and obvious signs of potential fraud.

  • You can buy almost anything, but not

The Self-Directed IRA is a remarkably versatile vehicle. You can use the Self-Directed IRA structure to invest in nearly anything whether it is publicly traded or not. You can also use it to conduct transactions with nearly any private party, as long as they are not on the list of prohibited counterparties, above, or if doing so would violate U.S. sanctions against foreign governments and other entities.

The only things you cannot own within a Self-Directed IRA are life insurance contracts, collectibles, art, jewelry and gemstones, alcoholic beverages and certain forms of gold or bullion that is of insufficient or uncertain purity and provenance.

If you have any doubts about a possible investment, call us today at 866-7500-IRA (472) and speak with one of our compliance professionals. We cannot advise you on the suitability of the investment for your portfolio, but we can tell you if the investment may cause a compliance issue.

  • Do your due diligence. At American IRA, our clients are naturally attracted to alternative investments that are usually unregistered. This means that the investor is taking on much more of the burden for due diligence. There are often no financial statements vetted by a third party as there are with publicly-traded companies in the United States. It is up to you to secure financial statements and other material information and weigh their accuracy prior to investing.

 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.

Self-Directed Real Estate IRAs Can Help Close the Retirement Savings Gap

Most Americans know they really should be saving and investing for retirement. But most Americans are also clueless about how much they realistically need to have saved up in order to provide for a secure and acceptably comfortable retirement income. Self-Directed IRAs are just part of the retirement picture that also includes conventional assets, Roth IRAs, pensions, 401(K)s, 403(b)s, Thrift Savings Accounts (for federal employees), annuities and private savings outside of retirement accounts.

The problem is pervasive: A new study from Bankrate.com finds that more than 60 percent of Americans surveyed have no understanding of how much they need to save to accomplish their retirement goals. 69 percent of millennials between ages 18 and 67 do not know – which is excusable, considering their youth. But Baby Boomers didn’t fare much better: Fully 58 percent of Boomers are unable to calculate their required requirement savings or budgets. 56 percent of Generation Xers surveyed reported they didn’t know.

Other findings:

  • 8 percent of those responding indicated they never plan to retire – though disability and economic dislocation have a way of taking those decisions out of individuals’ hands.
  • 8 percent estimated they needed over $1 million to retire, and 15 percent estimated they would need to amass between $250,000 and $1 million.
  • 8 percent reported they believed they would need $250,000 or less to retire.
  • 61 percent reported they did not know. Which makes it impossible for them to make rational decisions about how much they need to save each week, month and year as their retirement dates march inexorably closer.

Self-Directed Real Estate IRAs can help

One way to close the gap: More Americans should consider Self-Directed IRAs – particularly Self-Directed Real Estate IRAs. The Self-Directed Real Estate IRA technique provides a number of powerful benefits that are not easily replicated using other types of asset classes:

  • Tax-deferred growth of Self-Directed IRAs, Self-Directed Solo 401(K)s, Self-Directed SEP IRAs and Self-Directed SIMPLE IRAs
  • Tax-free growth of Self-Directed Roth IRAs and Roth 401(K)s
  • Protection from creditors in the event of bankruptcy
  • Consistent rental income that can be reinvested or used to support you and your family in retirement
  • Potential for increasing income over time as you are able to increase rents
  • Potential for capital appreciation
  • Easily obtainable leverage – lenders are generally more willing to lend on real estate than most other kinds of assets, and on better terms.

Few other types of investments provide this combination of benefits to the individual investor.

Fortunately, the Self-Directed IRA structure is flexible enough for investors to build quite significant real estate portfolios over time by leveraging the tax benefits of IRAs and other retirement accounts.

Real estate prices can be volatile, of course. But rental real estate tends to pay investors handsomely via rental incomes while they wait for prices to recover. You do not need to sell at a loss: You can continue to collect regular rental income from your Self-Directed Real Estate IRA investment property for years.

Self-Directed Real Estate IRA owners should be aware of unrelated debt-financed income tax: If you borrow money to purchase an investment property, part of your income and part of your capital gains on sale of a Self-Directed Real Estate IRA property will not be entirely tax-free. Any earnings and realized capital gains attributable to borrowed money, rather than your own savings and contributions, will generally be taxable as income, under UDIT rules. However, as you pay down the mortgage on the property, less and less of your income and capital gains will be taxable.

(Tip: Consider paying off any loans on Self-Directed Real Estate IRA properties, if possible, before selling them, to avoid having to pay UDIT on capital gains attributable to other peoples’ money.)

Another idea: Self-Directed Solo 401(K) accounts also support self-directed real estate investing. If you are self-employed or own your own business, you can establish your own 401(K) or Roth 401(K) and use it to purchase investment real estate directly.

However, Self-Directed IRAs and Self-Directed Solo 401(K)s are no panacea: In order to have the greatest chance of success, investors should have a clear idea of what their retirement income needs are, and what kind of savings it will take to amass an investment portfolio capable of generating the income required over many years of retirement.

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.

Self-Directed IRA Prohibited Transactions – An Overview

Establishing a self-directed retirement account is easy. But if you are new to Self-Directed IRAs and other retirement accounts, it behooves you to understand what you can and cannot invest your Self-Directed IRA assets.

Self-Directed IRAs are very flexible. Investors are attracted to Self-Directed IRAs because they allow them to free themselves from the relatively modest returns available from Wall Street products and diversify into alternative asset classes such as direct ownership of real estate, oil and gas, private lending, gold and precious metals, and many others.

The law does not restrict Self-Directed IRA investors to stocks, bonds, mutual funds or any other conventional financial product. You can invest your Self-Directed IRA funds in just about anything you like, with just a few exceptions:

  • Life insurance (but annuities are ok).
  • Jewelry and gemstones.
  • Certain kinds of precious metal coin and bullion of uncertain or inadequate purity.
  • Art and collectibles.
  • Wine collections and other alcoholic beverages.

The Internal Revenue Code Sections 408 & 4975 prohibits IRAs from transacting directly with “disqualified persons” (as defined under Code Section 4975(e)(2)), and similar rules govern Self-Directed 401(K)s and other tax-advantaged savings vehicles.

What does this mean? In a nutshell, Sections 408 and 4975 prohibit IRAs from buying or borrowing from or selling or lending to any of these persons:

  • The account owner.
  • The account owner’s spouse.
  • The account owner’s direct descendants and ascendants or those of his or her spouse.
  • Anyone who serves the account owner in a fiduciary capacity and provides advice concerning the Self-Directed IRA or other retirement account.
  • Any entities controlled by any of the above.

This also means you cannot try to use your Self-Directed IRA to benefit yourself or your immediate family, any other prohibited counterparty, by taking a salary, hiring your son-in-law to manage a property, or pay finder’s fees or any other form of compensation to a spouse, parent, child, grandchild or any corporations or LLCs they control.


The penalties for violating Self-Directed IRA prohibited transaction or prohibited counterparty laws are severe: You risk having the IRS disallow the favorable tax treatment of the entire account, potentially resulting in immediate income tax liability and any applicable penalties for early withdrawal if you are younger than age 59½ for IRAs.

American IRA is sensitive to the prohibited transaction issue. For that reason, every transaction we engage in on our clients’ behalf is reviewed for compliance with prohibited transaction and prohibited counterparty rules.

Many investors have found that besides enjoying the diversification benefit of alternative asset classes and opportunities for market-beating returns when stock markets are weak, they can also realize substantial savings in fees as a result of our simple, cost-effective fee-based menu of services.

With American IRA, you are not charged a high percentage of your assets under management even when you make few or no transactions. Instead, you pay only for the services you use, as you use them, transaction by transaction. By adopting a menu-based pricing system, American IRA, LLC routinely saves buy-and-hold investors thousands of dollars per year in AUM fees and commissions.

Though our offices are in Asheville and Charlotte, North Carolina, we serve successful, entrepreneurial and out-of-the-box thinkers all around the country.

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.

Private Equity in Self-Directed IRAs – Due Diligence Tips

One of the many advantages of opening a Self-Directed IRA account with American IRA, LLC is the ability to allocate retirement resources to private equity opportunities. These tend to be early stage or turnaround opportunities that provide the potential for outsize returns and diversification against an increasingly overheated stock market. However, Self-Directed IRA owners should be prepared to absorb a good deal of risk, as well as accept the burden of conducting thorough due diligence.

Here are some of the most important concepts we have picked up from veteran investors in this space:

  • Do not be rushed. Professional private equity investors and venture capitalists can take entire days or weeks investigating an opportunity before actually investing. Self-Directed IRA owners should be willing to do the same. Even if the opportunity seems compelling at first, you should still take the time to verify promoters’ claims and check the accuracy of all the assumptions underlying the investment thesis.
  • Go big. When they do find a good opportunity, though, most successful private equity or venture capital investors like to commit a substantial sum of money. It takes so long to identify a good opportunity, and to thoroughly vet the opportunity and the management team, that when they do find a good investment, in or out of a Self-Directed IRA, they like to make it count!

It may be better to invest $1 million in your best five candidates than $50,000 each in the best 20.

  • Do not go it alone. Many of our most successful private equity investors and venture capitalists are active in clubs or networks of likeminded individuals. Members of these clubs often have loads of useful management, financial or technological knowledge or experience. They may well help expose you to some great opportunities.

 Even more importantly, they may help dissuade you from investing your Self-Directed IRA money in bad ones.

  •  Management counts. Even a great idea needs great leadership in order for the company to unlock value for investors. If they cannot provide that, they have no business soliciting investment from the capital markets in the first place. Find out what key managers have been doing over the past ten years. Do they have a track record of success? Is this their first venture? If so, who is helping them? Who is on the Board of Directors and what is their track record? Were their past successes in the same industry? Do any of them have rapsheets? Have they been barred from any industries by licensing bodies? What are they bringing to the table?
  •  What strategic partnerships are in place already that may help the venture succeed? Is the Board of Directors cross-pollinated with other key industry players that can help the company succeed? Has the venture already attracted other veteran angel investors or others who can help the company succeed?
  •  Are the financials and pro formas accurate and realistic? Many people have lost money by being too credulous of managements’ pie-in-the-sky assumptions and projections. Look at financial projections with a suspicious and gimlet eye.
  •  What is the plan for return of capital? Any investment should have a realistic provision for the return of capital. Sometimes it may take years – in which case you should come armed with a long-time horizon and a lot of patience. But promoters and managers should be able to walk you through their plan from investment to exit.

 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.

Is it Possible to Make a Self-Directed IRA Contribution Without Earned Income?

As you probably already know, traditional individual retirement arrangements (IRAs) were created to provide working people with a tax-deferred vehicle for accumulating savings that will supply them with income after they retire. The Self-Directed IRA contributions are deducted from taxable earned income and effectively allow savers to postpone paying taxes on the contributions until they withdraw the money, typically after they retire.

If you have earned income in 2018, you can contribute up to $5,500 (or $6,500 if you are over 50) or the amount of your earned income, whichever is less. However, the rules that govern Self-Directed IRAs make a distinction between what qualifies as income and what does not. Qualified compensation comes in a variety of forms:

  • Wages
  • Salary
  • Tips
  • Professional fees
  • Bonuses
  • Commissions
  • Self-employment income
  • Alimony
  • Non-taxable combat pay

For Self-Directed IRA purposes, compensation does not include the following:

  • Earnings and profits from property (rental income or royalties)
  • Interest and dividend income
  • Pension or annuity income
  • Unemployment income
  • Social security
  • Income from certain partnerships

It would seem that without taxable compensation, you lose all eligibility for a direct Self-Directed IRA contribution. So, is there an option for stay-at-home parents, those on disability, or the unemployed? Or are they flat out of luck?

The Self-Directed Spousal IRA is the exception

If you do not have wages and are married, there is a way to make contributions to a Self-Directed IRA—with a Traditional or Self-Directed Roth Spousal IRA. These are retirement accounts that were created specifically to allow a working spouse to make contributions on behalf of a non-working spouse.

Here is how it works: If you are married filing jointly, you may contribute the maximum into a Self-Directed IRA for each spouse—even if only one of you has earned income—as long as the spouse that is working has enough income to at least equal both contributions.

For example, you and your spouse, both 45 years of age, want to contribute the maximum of $5,500 to each of your Self-Directed IRAs. The spouse who is working must have earned income of at least $11,000 to cover both contributions.

Self-Directed Spousal Roth IRAs work the same way except that there are income limits on contributions. For 2018, married couples filing joint tax returns have the amount they can contribute phased out when their modified adjusted gross income is between $189,000 and $199,000.

One thing to remember about the Self-Directed Spousal IRA is that if the non-working spouse goes back to work, he or she can contribute to the same Self-Directed IRA. Once it is opened, a Self-Directed Spousal IRA is an Individual Retirement Account like any other.

So, even if you cannot contribute directly to your Self-Directed IRA, a Self-Directed Spousal IRA can make it possible to have money set aside for your retirement in a tax-advantaged account.

Get the most from your portfolio with a Self-Directed IRA

At American IRA, we believe that Self-Directed IRA investing is the key to a prosperous retirement. In today’s financial environment you need the versatility and power of a Self-Directed IRA to provide you with additional returns for your portfolio–over and above conventional assets such as stocks, bonds, mutual funds, annuities and the other common assets you keep hearing about.

Investment options include:

  • Self-Directed Real Estate IRA
  • Private IRA Lending
  • Tax Lien IRA
  • Privately Held Companies
  • Precious Metals IRA
  • and much more…

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.

Property Taxes and Self-Directed Real Estate IRAs

Nothing is certain, it is said, but death and taxes. And so, it goes that even with the tremendous tax advantages of Self-Directed Real Estate IRAs, they are not totally free of taxation, either. In addition to unrelated debt-financed income tax (UDIT), which we have written about here, Self-Directed Real Estate IRAs must also pay property taxes, which vary by county.

Since property taxes come directly out of Self-Directed Real Estate IRA profits, it is critical to take these costs into consideration when buying real estate properties and setting rent rates.

The state with the highest property tax burden, on average, is New Jersey, with an average property tax burden of $8,690 as of the end of 2017. That is up 1.6 percent compared to the previous year. In New Jersey, a home assessed at $300,000 would carry an average property tax of $7,200.

In contrast, the state with the lowest property taxes nationwide is Hawaii, where a home assessed at $300,000 would carry an $810 tax burden.

Do not worry: Hawaii will make up for it in its income taxes and generally high cost of living. And good luck finding a house in Hawaii priced at $300,000! (The median home price in Hawaii is well over $530,000).

According to recent reporting from the New York Times, the five states with the highest property tax burden are:

1.) New Jersey            2.40%

2.) Illinois                   2.32%

3.) New Hampshire     2.19%

4.) Connecticut           2.02%

5.) Wisconsin              1.95%

Looking for the lowest average property tax burdens? Here they are:

1.)  Hawaii 27%

2.)  Alabama 43%

3.)  Louisiana 51%

4.)  Delaware 55%

5.)  District of Columbia 56%

Nationwide, the average American household that pays property taxes spends $2,197 on property taxes each year.

A few special cases: Texas does not have a state income tax, but property taxes are among the highest in the country, with an effective average real estate tax rate of 1.86%.

Note that while income tax is charged at a higher rate, it is only on the income. The property tax is on the entire assessed value of the property every year. However, with a median home value of $142,700, and some of the hottest markets in the country, Texas remains a popular spot for Self-Directed Real Estate IRA investors.

Fortunately for many of our clients, none of the 15 most expensive property tax states are in the southeast. It is the northern homeowners that are taking the biggest beatings. North Carolina, where we have our offices, ranks among the 15 states with the lowest property tax burdens. North Carolina residents pay an average effective property tax rate of 0.88 percent.

Durham County has the highest property tax rate in the state, at 1.22%, while Watauga County has the lowest, at 0.42%. North Carolina Self-Directed Real Estate IRA investors can find a county-by county breakdown of property tax rates in North Carolina here.

But while high property tax rates are a burden for Self-Directed Real Estate IRA investors, they may represent an opportunity for those interested in investing in tax liens and certificates: Bigger property tax bills mean more people falling behind on property taxes, creating a potentially lucrative opportunity for investors to use their Self-Directed IRAs to pay the delinquent property taxes on the owners’ behalf and get a lien on the home – all the while earning an attractive interest rate on the loan.

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.