The Case for “Real Assets” Inside a Self-Directed IRA

Self-Directed IRAsIt’s been a spectacular run for stocks. As of this writing, the trailing 12-month return for stock, as measured by the S&P 500 Index of U.S. large-cap stocks, is 24 percent. Over the last three years the stock market has averaged 16.44 percent. And over five years, the average return has been 18.69 percent for traditional investors and even better for Self-Directed IRA investors who realized those returns tax-free and/or tax-deferred.

You don’t get too many runs like that. And they don’t last forever.

Meanwhile, what investment theorists call “real assets” have been lagging. Asset classes like real estate, natural resource stocks and funds and commodity futures have logged their worst returns – compared to the S&P 500 – since 1970, according to John Ruff, an investment advisor and author of PracCap.com.

Don’t blame real estate, though: It’s been engaged in a broad and substantial price recovery right along with stocks, since both stocks and real estate crashed at close to the same time, in 2008-2009 – to the chagrin of those who where too heavy in stocks and over leveraged in their homes, thinking stocks and real estate by themselves provided adequate diversification.
That didn’t work out well.

Meanwhile, Americans are starting to face the prospect of inflation in certain sectors – the inevitable result of years of rock-bottom interest rates just a few points above zero, quantitative easing and massive deficit spending. The consumer price index remained over 2 percent for June 2014, though it was energy (+3.2 percent) and food prices that were responsible for the bulk of it (Hamburger has just reached a record high, for example.) Excluding food and energy, inflation was clocked at 1.9 percent for June, or 2.1 percent with all items included.

If this is true, then producers are starting to find some pricing power – and price gains could continue. This bodes well for a variety of real asset classes, which are natural hedges against inflation.

As we transition through this inflection point in monetary policy, with the Fed gradually taking its foot off the money creation gas pedal, Jon Ruff believes that these unsung asset classes will once again soon take their places in the limelight.

This isn’t just good news for Ruff’s investors (Ruff heads the Real Asset Strategies desk at AllianceBernstein); it’s good news for open-minded, flexible and diversified investors – the kind who elect to use self-direction to diversify their own retirement portfolios.

As we never fail to point out, there is no law that limits your Self-Directed IRA, Solo 401k, SIMPLE, SEP or even Coverdell accounts to the usual mundane asset classes of stocks, bonds and CDs. Indeed, with stocks at such heady heights, interest rates still near historic lows, a Fed that is pulling back on the throttle, and murmurings of inflation, these traditional asset classes may not be where you want to be concentrated.

Using Self-Directed IRAs, you can take the same tax advantages these retirement savings vehicles offer to the standard asset classes, and bring them to bear on these potential investments:

  • Real estate
  • Raw land
  • Commodities
  • Foreign stocks
  • Limited partnerships
  • Oil and gas development
  • Pipelines
  • Farming and ranching
  • LLCs, partnerships or closely-held C corporations
  • Private lending
  • Gold and precious metals
  • Mining interests
  • Wineries and breweries (but not direct ownership of alcoholic beverages such as wine collections)
  • Tax liens and certificates
  • … and many more.

All these different asset classes allow the individual to maximize his or her individual expertise and find new ways to diversify away from vulnerable assets that have already had a good run.

 

Investing in Oil and Gas in Your Self-Directed IRA

Self-Directed IRAWith radical Islamist groups overrunning Iraq, including a number of rich oil-producing areas, we could well be seeing a prolonged period of instability in oil supplies. Translation: Unless a resolution happens soon, oil prices are likely to rise and reach a baseline level higher than where they are today.

The best countermeasure – aside from a magic neutron bomb that only kills Al Qaeda/ISIS troops while leaving innocent Iraqis alone – is more investment into energy development elsewhere. And rising oil prices help make such investment more attractive.

The good news is, you can take advantage of rising oil prices, help reduce western dependency on middle-eastern oil, and profit at the same time by using your Self-Directed IRA to invest in oil and gas-related projects. Here are some of your options:

You can buy energy stocks. Obviously, you can take an equity position in companies like Exxon-Mobile and Chevron, right here in the U.S. You can also potentially buy ADRs (American Depositary Receipts) that allow you to take an ownership stake in oil companies from other regions, like Lukoil (Russia), Royal Dutch Shell (Holland), BP (Great Britain) and PetroChina (you guessed it! China!).

You can do so via your Self-Directed IRA or any other retirement account quite easily, and of course you can place orders with your broker in a taxable account.

There are also a number of energy-focused ETFs and closed-end funds you can buy that may directly or indirectly reflect gains from increased crude oil prices.

For American investors, though, buying such publicly-traded stocks and funds can be problematic. That’s because publicly-traded stocks are generally C-corporations. As such, they present the investor with the problem of double-taxation: Because American companies cannot deduct the income they pay to investors in the form of dividends, every dollar the investor receives has already been taxed – at the incredible rate of 40 percent.

This means that the investor is only receiving 60 cents on the dollar of total income – and then gets taxed again on that, sooner or later – either that same tax year in a taxable account, or when the investor withdraws any dividends received from a retirement account.

Fortunately, your Self-Directed IRA – and most other types of tax-advantaged retirement savings vehicles – is flexible enough to let you explore other options, including:

o   Limited partnerships

o   Master limited partnerships

o   Closely-held c-corporations and LLCs

Many oil and gas and other energy investments generate income – commonly offset by substantial deductions for depreciation and depletion. These deductions become generally irrelevant when the interest is held in an IRA, but the general tax benefits of the Self-Directed IRA – deferral of income taxes and capital gains taxes on assets held within traditional IRAs, and generally tax-free income and growth in IRAs, still holds true.

Note: It is very common for partnership entities in these industries to use leverage. This could subject your Self-Directed IRA to a special tax called the Unrelated Business Income Tax, or UDIT.

There are a number of highly situation-dependent tax considerations when investing in limited partnerships and MLPs, both in and outside of Self-Directed IRAs. We recommend making these investments in close consultation with an experienced tax advisor. American IRA, LLC, does not provide tax advice.

Of course, if you are interested in energy investments in general, you aren’t limited to oil and gas development. You can also invest in pipelines and refineries, solar energy, windmills/wind energy and wind farms, coal, transport, storage and battery technology, and a nearly infinite variety of other opportunities. The sky’s the limit, and you are in control.

 

 

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Buying a Business With Your Self-Directed IRA

Self-Directed IRAStocks, bonds and funds are all well and good – for those seeking ordinary returns. But if you have a particular expertise, or access to a lucrative market for just about any good or service, you have the potential to earn much more by going into business for yourself than you stand to gain by investing in the broad market.

Fortunately, your Self-Directed IRA doesn’t limit you to the mundane investments you read about in the papers all the time. In fact, IRA rules only restrict you from investing in a few things: life insurance, jewelry, gemstones, art and other collectables, alcoholic beverages, and some forms of gold and precious metals of insufficient purity or standardization. Other than that, the sky’s the limit on what you can own!

Owning a Business in Your Self-Directed IRA

By using your Self-Directed IRA to start or acquire a business, you are in control. Rather than hoping against hope the market will be kind to you this year, you can make things happen yourself. Want your business to grow? You can invest in advertising, new equipment, a new truck, more staff – whatever it takes to react to the current economic environment. Many of our clients find that investments like these often pay off far better than anything the same investment reasonably earns in the stock market, at least at an acceptable level of risk. This must be an arms length business, you can’t operate the business and you can’t draw a salary from it.

Note:  A business purchased by your IRA may be subject to unrelated business taxable income (UBTI); however, this tax can be avoided by structuring the business purchase as a C-Corporation.

I’m Concerned About Cash Flow. Can My Business Borrow, If Need Be?

The great news is that you are allowed to borrow money within a Self-Directed IRA to help your account grow.  Any loans to your IRA must be on a non-recourse basis. Non-recourse means that in the event of a default, they can only seize the property used as collateral on the loan. They can’t lay claim to your personal funds, nor to other assets or funds within your IRA.

Important Notes: You cannot sign a personal guarantee when borrowing with your Self-Directed IRA. The portion you borrow may be subject to unrelated debt-financed income (UDFI), which falls under unrelated business taxable income (UBTI).

Best Practices

Anyone who owns a business within a Self-Directed IRA should be aware of a few restrictions on what you cannot do. You cannot lend to or borrow from your IRA or the businesses it owns. Nor can certain prohibited individuals – which means ascendants, descendants, their spouses, your financial and legal advisors involved in administering your IRA, nor their spouses, nor any business entities they control.

You also cannot use your IRA for self-dealing. This means your IRA can’t do business directly with you, the prohibited individuals described above, or any entities they control. You can’t, for example, own a real estate development company in your IRA, and then use a construction company you own to build houses.

What’s Next

The next step is making a call to American IRA, at 866-7500-IRA(472) to set up a free consultation about your goals and how a Self-Directed IRA may be the right tool for you. We look at your situation and objectives and help you decide if a Self-Directed IRA account is worth pursuing.

Jim Hitt, CEO of American IRA, A National Self-Directed IRA Provider, Will Be Attending and Speaking At Scott Meyers Self Storage Academy October 25th To October 27th

Jim Hitt, CEO of American IRA, a national self-directed IRA provider, and Sean McKay, Senior Vice President, will be attending and speaking at Scott Meyers Self Storage Academy October 25th through October 27th. Scott Meyers invites everyone to enjoy the silence and the peacefulness of true, passive income in real estate by investing in self storage. Mr. Hitt speaks about how self-directed IRAs can serve as a source of funds for investments of all types, including self storage.

This event is a true testament to the large array of things a person with a self-directed IRA can invest in. Jim Hitt and Sean McKay are looking forward to sharing knowledge about self-directed IRA and self-directed 401(k) investing during this self storage event.

This 3 day event features knowledge sharing during it’s classroom portion, a networking cocktail reception, and a live facility tour.

Jim Hitt says, “As with any investment, I always stress that individuals must do their “due diligence” and consult with professionals to ensure that their interests are protected. While self storage can be lucrative…you have to thoroughly review each deal to make sure there is profit to be made. In all aspects of investing, those that do their homework end up with more wins!”

Tax Lien Investing: How About Letting The Government Collect Money For You?!?!

In What Universe Does the Government Collect Money for YOU?!

When you pursue tax lien investing for your IRA, the government actually does collect the profit for you! As an added benefit…if you purchase tax liens with your self-directed IRA and/or your self-directed 401(k), the government allows you to collect those profits tax free and/or tax deferred, depending on the retirement account type you have.

Introducing Tax Lien Investing

Tax lien investing is popular for smaller capital investments, and since many counties have unsold tax liens there is a lot out there to choose from. There are a lot of benefits in purchasing tax liens such as:

  • High Rates of Return
    • Interest rates vary by state statute: 8% to 50%
  • CAN be well collateralized
  • Every State has different procedures for Certificates or Deeds
  • Some states such as Texas have a hybrid system
    • A deed sale with the right of redemption

Tax Lien Investing Strategies

Here are some strategies that seasoned self-directed IRA and tax lien investors identify as the ‘key to successful tax lien investing”:

  • Purchase a lien that has passed the redemption period in order to obtain the property
  • Acquire the property immediately (subject to quiet title action)
  • Define your goal
    • Obtain property
        • Find owner of property to buy prior to tax lien sale in order to purchase the property direct.

      Or

    • Earn interest

Remember: Tax Lien Investing is a great tool for self-directed IRAs or Investors with limited capital!

Tax Liens ‘Due Diligence’

Due diligence is required as if you are purchasing the property. Here are some items to look into prior to the auction

  • Land condition and location
    • Swamp land
    • Environmental Issues
  • Land value
  • Probability the lien will be redeemed
    • If it is a single family, then it is most likely the lien will be redeemed.

Exactly How Do You Find Tax Liens?

These simple steps will help you find those tax lien investing opportunities:

  • You need to find the auction
  • Location
  • Date
  • List of available properties
  • Rules
  • List of unsold Liens

 

  • Auction and tax lien information can be found
    • In your local newspaper
    • Online: www.naco.org
    • Via service providers who purchase liens on your behalf (ask for references)
  • Bidding
    • Be sure you understand the process prior to bidding

 

  • Sales Process
    • Bid down interest rate
      • 16% buyer may agree to pay 12% – the difference goes to the county
    • Premium bid – higher than amount owed
    • Random selection for multiple bidders for same lien
  • Paying
    • Generally you must pay within 48 hours – find out in advance of the auction
  • Redemption Periods for Tax Lien Investing
    • Vary by locality – verify with the area in which you want to invest in prior to the auction
      • If your desire is to own the property, consider bidding on subsequent years.
    • 95% of all liens are redeemed

All investments have inherent risks. With proper due diligence and a professional team, risk can be managed but not eliminated-that is our job as investors. If you don’t want to take a risk whatsoever, tongue in cheek I say “Put it in U.S. Bonds or FDIC Insured CDs…though as you all know…Bonds and CDs are offering very low returns”.

Investors are Getting Smarter about Self-Directed IRAs

Although IRA accounts have been legally allowed to invest in non-traditional assets for over 35 years, few Americans were aware of their options until recently.

American IRA, LLC, one of the industry leaders in Self-directed retirement services, has been working to educate the public about their investment and retirement options. The recent numbers show that people are listening. The latest trend in retirement savings and investment is the savvy investor.

The financial community has long ignored the diversification options of IRA accounts. Non-traditional investments have been allowed in IRA accounts since the Employment Retirement Security Act (ERISA) passed in 1975. However, after more than 35 years most mainstream financial institutions continue to limit the investment options of IRA accounts to traditional investments such as stocks, bonds, and mutual funds. Until recently, most individuals holding IRA investment accounts have been unaware of their options.

Statistics show that, with the flagging economy and the increased popularity of IRA accounts, people are becoming more informed. According to a recent Associated Press poll, 73 percent of retirees are planning to work past retirement; this number is up from 67 percent just this spring. As 32 percent of those surveyed say they have lost money in their IRA account, those traditional investment methods are becoming less and less reliable.

American IRA, LLC is one of the premiere companies offering self-directed IRA accounts. With these accounts, investors have the freedom to invest in a wide variety of assets including precious metals and real estate. Currently only about 5 percent of retirement accounts are invested in such non traditional assets. However, with the greater flexibility and higher profit potential experts expect this number to rise sharply in coming months and years.

The unfortunate side effect of the growing popularity of self-directed IRA accounts is a whole new industry of scams appearing. This has prompted the Securities and Exchange committee to issue a warning. They have advised investors to beware or excessive risk, and potentially fraudulent investment companies. That is one of the reasons for the growing popularity of long established, highly credible American IRA, LLC. With nearly 7 years in business and over $250 million in assets this company has earned a sterling reputation.

All indications show that the individual investor is getting smarter. The new wave in financial planning is taking one’s future in one’s own hands. This recently increasing popularity of self directed retirement options, as well as the high percentage of investors wisely choosing established companies, such as American IRA, is just one more benchmark showing how savvy investors are becoming.

Founder, James C. Hitt has nearly 30 years of personal experience using self directed retirement accounts. It has worked for him since 1982, and now he and his company are making it work for thousands of clients. With a knowledgeable staff, and highly informative website American IRA LLC focuses on educating their clients about the benefits of self-directed IRAs.

American IRA LLC was founded in 2004, in Asheville, NC with the mission of providing the highest level of customer service in the self directed retirement industry.
Mr. Hitt and his team have grown the company to over $250 million in assets under administration. They protect your wealth by making sure that all uninvested cash under their administration is stored in FDIC-insured accounts. As administrators, they do not make any recommendations to any person or entity associated with any type of investment.

If you would like more information on this or any other type of self-directed retirement account, please feel free to contact the team at American IRA, LLC via e-mail [info@americanira.com] or via phone 1-866-7500-IRA(472), or visit their website [www.americanira.com].