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Self-Directed IRAs Help You Diversify Against the Next Stock Market Crash

April 13, 2018/in Articles, Blog, Individual Retirement Accounts, Roth IRA, Self-Directed IRA, Self-directed IRA Account, Traditional IRA /by Jim Hitt

It is not a matter of “if,” but “when.” Stock markets fluctuate. And while none of us knows the day or the hour, at some point stocks will suffer a correction, and even a collapse of 40 to 50 percent from their highs. Those relying heavily on equities for their short-term to intermediate-term financial needs are the ones most likely to suffer a severe economic setback. Conversely, investors adopting Self-Directed IRA strategies sidestep stock market volatility to some extent and, likely, may fare much better in the next bear market.

It has happened before.

During the 2008-2010 mortgage crisis, the S&P 500 fell 56 percent from its October 2007 high.
The Internet bubble collapse caused the S&P 500 to fall 49.1 percent from its March 2000 high.
The S&P 500 fell 33.5 percent from its high in August 1987 – including a 22.6 percent drop in a single day, “Black Monday,” October 19^th, 1987.
The S&P 500 fell 27.8 percent from its November 1980 high as the Volker Fed tightened the nation’s money supply to combat inflation – taming inflation but sparking the painful “Reagan Recession” of 1981-82.

Diversify.

Many people diversify out of one paper asset and into two more – selling stocks and buying bonds and going into cash and think that constitutes meaningful diversification. For the most part, that is all the big Wall Street brokerage houses can sell. That is how they make their money. But they will not tell you a truly diversified portfolio includes much more than stocks, bonds and cash equivalents.

Diversifying by opening a Self-Directed IRA means you can invest in assets unable to be held by Wall Street brokerage type firms. As such, your Self-Directed IRA has the freedom of investing in:

Direct ownership of real estate properties that you
Interests in closely-held businesses (partnerships, LLCs and non-publicly-traded C corporations) that you can control.
Actual, physical gold, silver, platinum and palladium coins and bullion.
Private lending at above-market interest rates to borrowers that you identify and select yourself, on terms you
Tax liens and certificates generating safe returns which are completely uncorrelated with stock markets.
Private placements, debentures and venture capital opportunities that occur below Wall Street’s radar.
Coin and token offerings and opportunities that Wall Street simply does not comprehend.

… and much more.

Yes, stocks have a solid history of performing reasonably well over time periods exceeding 25-30 years. A truly diverse portfolio should contain elements which perform well even when stocks are in the doldrums.

If a 25 percent to 50 percent stock decline is a deterrent, then you probably need to be more diversified, and take more direct control of your retirement investments. You cannot just leave it in the hands of a broker.

The time to diversify is before the crash.

Be prepared to go on offense.

Diversification is not just a defensive strategy. It gives you some offensive capability, too. Diversification allows you to take advantage of investment opportunities as they arise. With an array of assets in your portfolio, you could have something overpriced in your portfolio you can sell to by reduced-price assets. This process helps you stay diversified, pruning assets that could outgrow your portfolio ratios while concentrating your position in underpriced asset classes.

Diversify against tax risk.

Congress can change income tax rates at any time. They just passed a large tax cut at the end of 2017. The $1.3 trillion omnibus spending bill passed in March of 2018 will have to be paid for somehow, and it is probably not going to be offset with spending cuts. Now may be a good time to beef up Roth IRA holdings, convert Traditional IRA assets to Roth IRA for tax-free growth, and even establish a Roth Solo 401(k) option for your business.

Self-directed investing supports all these options. Roth IRA assets help insulate you from future increases on income and capital gains taxes.

Those of you with “jumbo” Self-Directed IRAs – those worth about $5 million or more – may be especially at risk of future income tax increases.

To learn how to get started attaining true diversification using Self-Directed IRAs and other retirement account strategies, call American IRA, LLC today at 866-7500-IRA (472).

How We Finally Stopped Worrying and Learned to Love the Self-Directed Roth IRA

December 26, 2014/in Articles, Blog, Roth IRA, Roth IRA, Roth IRA, Roth IRA /by American IRA

With the recent resounding GOP victory in the mid-terms, the chances of the repeal of the essential promise of the Roth IRA – that future Congresses would respect the pledge that in return for foregoing the immediate tax deduction, investors would enjoy the tax-free growth of Roth IRAs seem a lot lower.

President Obama is probably the most progressive President we have seen in generations, whose base is likely the most willing to tolerate or even endorse tax hikes on retirement account owners in generations – but the chances of any such policy making its way through the Republican-dominated Congress for the next two years appears vanishingly small. And it is unlikely a future president will be as progressive as this one for a while.

So a big part of the downside risk of the Roth IRA – that Congress would break its promise to the American people and start taxing Roth distributions – seems to have largely evaporated for garden-variety IRAs.

We still see some risk for inherited IRAs and “jumbo” Roth IRAs of over, say, $5 million in value, however.

So this calls for a renewed consideration of the value of Roth IRAs and whether they deserve a place in your portfolio.

We believe that for most, the answer is “yes.” Here’s why:

Tax-free retirement income. This is valuable stuff for a couple of reasons. First, it’s, well, tax-free retirement income! But above and beyond that, it doesn’t affect Social Security income. Too much taxable ordinary income and half of you Social Security benefits become taxable. But as long as the money you’re living on isn’t ordinary income, it shouldn’t affect your Social Security tax.

Mitigation of Legislative Risk. Yes, people have worried about the risk that future Congresses would start taxing Roth income for some time. Why? They were worried about legislative risk! But the very same dynamics that could have led Congresses to taxing Roth IRAs are the same dynamics that may lead future Congresses to increasing ordinary income tax rates in the future. That is, the Treasury needs cash, and income taxes are perceived as the most efficient and fairest way to raise it. The Roth IRA is a crucial tool in hedging against the possibility that the government will increase personal tax rates on ordinary income.

No Required Minimum Distributions. This is a biggie – especially if you are relatively well off and may well not even need the money to live on. An inherited Roth IRA is one of the best ways to pass wealth on to future generations, although the old advantages of the “stretch” Roth IRA have vanished.

Friendly to Self-Direction. If you like to steer investment assets into relatively long-term, illiquid investments, then having to worry about RMDs every year can be a little problematic. By eliminating RMDs, you are eliminating a major headache in retirement once you turn age 70½: Scraping up the cash from your illiquid investments in, say, raw land, tax liens, tax certificates, some rental real estate and the like can be a problem when you’re scrambling to meet your RMD deadline. Roths don’t have RMD deadlines!

Mitigates Effects of Estate Taxes. Planning on dying wealthy? If you are sitting on a big traditional IRA, 401(k) or SEP balance, converting that money to a Roth IRA and paying taxes on that money will reduce the size of your taxable estate by whatever you pay in taxes. That increases the net amount you can pass on to your heirs.

You can make contributions longer. Not ready to hang up your spurs at age 70½? If you’re a fan of this great George Jones song, you may want to reserve the right to keep making money and keep squirreling money away into an IRA for longer. Traditional IRA rules don’t allow you to keep contribution money to them after you turn 70½. But Roth rules do! All you need is earned income.

Is a Self-Directed Roth IRA in your future? American IRA, LLC is America’s leading authority on Self-Directed IRAs as well as 401(k)s and other retirement accounts. Our offices are in Asheville and Charlotte, North Carolina, but we work with investors from all 50 states – especially with issues arising from self-directed accounts. Visit us today at 866-7500-472(IRA) or download one or more of our exclusive guides to self-directed IRA investing at www.americanira.com. We look forward to hearing from you!

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Self-Directed Roth IRA Legislative Alert: Obama Targets Roth “Stretch” IRAs

December 12, 2014/in Articles, Blog, Home Link, Roth IRA, Roth IRA, Roth IRA, Self-Directed IRA, Self-Directed IRA Hub Page /by American IRA

The big selling point behind Roth IRAs, including Self-Directed Roth IRAs, of course, is the idea of practically unlimited tax- free growth. With Roth IRAs, you pay income tax on the money contributed, but the money left in the Roth is to grow tax-free, and be available to withdraw tax-free, for as long as you live.

Unlike traditional IRAs, 401(k)s, annuities and other tax-deferred retirement vehicles, Roth IRAs, under current law, are not subject to required minimum distributions. So as things stand now, you can leave money in a conventional or Self-Directed Roth IRA for as long as you live, and then pass it on to heirs, who can then “stretch” Roth distributions over their own life expectancy. It’s an extremely powerful strategy with tremendous tax advantages, as Roth IRAs are terrific long-term stores of wealth for American families.

They are so terrific, in fact, that the White House is proposing calling a halt to it.

In a recent budget proposal put forward by the Obama Administration budget team, the President is calling for Roth IRAs to be subject to the same RMDs that traditional IRAs are subject to, based on life expectancy and beginning by April 1 of the year after the Roth IRA owner turns age 70½.

Distributions would still be tax free, but once the money is taken out of the Roth the money will no longer qualify for tax-free compounding. Any money taken out of Roth accounts and reinvested would then be subject to capital gains tax, dividends and interest would potentially be subject to income tax (unless reinvested in tax-free municipal bonds).

The Administration also wants to put an end to people stretching inherited Roth IRAs over their lives. Current law allows those who inherit Roth IRAs to gradually space withdrawals over their entire life expectancy. But the Obama Administration would like to force those who inherit these IRAs from someone other than a spouse to empty those accounts within five years of the owners’ death.

The end result would be somewhat lower wealth accumulation for wealthier families, and much less money passed to the next generation under the very favorable terms of the “stretch IRA.”

So do Self-Directed Roth IRAs Still Make Sense?

The rules aren’t final yet. And with strong GOP majorities in the House and in the new Senate taking office in January 2015, it’s not likely these measures will be passed any time soon. We also don’t see much evidence the President will choose these relatively minor, out-year tweaks to the Roth IRA as his “hill to die on.” There are some things he’ll shut down the government over, but this isn’t likely to be one of them.

Nevertheless, this is evidence that the Roth IRA is essentially predicated on a promise of future tax treatment that does not necessarily bind future Congresses, who can all vote as they see fit. Anyone who says it is incomprehensible that policymakers would move to tax Roth IRAs is not paying attention. Such a move is not likely to come to fruition any time soon. But it is by no means unmentionable. People are already starting to mention it.

Roth IRAs and Self-Directed Roth IRAs, however, still make terrific sense – even in the unlikely event that the Obama Administration gets its way in this matter, and its two proposals become law.

The law would primarily affect people who don’t need the money to live on. People who do need their Roths to generate income to live on are probably going to be taking distributions anyway – and generally won’t be leaving great big Roth stretch IRAs to their children.

While the new rule wouldn’t be beneficial to those who inherited a large Roth IRA, there are worse problems to have.

The Roth will still provide tax-free growth for its owner, and protect the owner against future income tax increases. This is still its most important feature, and that doesn’t change under this rule.

Roth IRAs are still better bets for those who expect to be subject to the estate tax. This is because paying income taxes before the distribution, rather than waiting until the IRA owner dies, still gets money out of the estate that would otherwise be subject to estate taxes.

Some things that would change would include the decision for older individuals to convert traditional IRA assets to Roth IRA assets. If heirs must still empty accounts within five years, it doesn’t make much sense for older individuals to pay a big income tax bill to do a conversion.

Those with illiquid assets in their Roth IRAs, including owners of self-directed IRAs, would have to pay more attention to required minimum distributions. These can be tough if everything in your Roth IRA is in illiquid investments. However, with some prior planning this can be overcome.

Meanwhile, we’re not too worried about this set of rules passing Congress this time around. The President also proposed them in his 2014 budget, which didn’t go anywhere, either. And this year he won’t have a friendly Senate in his corner and an even smaller minority in the Senate.

For specific information on your individual financial situation, we encourage you to discuss things with your own advisor. For the most part, though, we recommend staying the course, with perhaps some extra attention paid to maintaining future liquidity in the event the law does change to reflect the President’s proposals sometime in the future.

If you have further questions, or wish to discuss the current rules concerning self-directed IRAs, we would love to hear from you. Visit us online at www.americanira.com, or call us today at 866-7500-IRA(472).

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Self-Employed Retirement Planning

October 20, 2014/in Articles, Blog, Roth IRA, SEP, Solo 401K /by American IRA

If you are successfully self-employed, or you are the owner-employee of a successful small business, most of the financial news you see doesn’t speak about self-employed retirement planning.

For example, there’s a lot of information out there about how a straight W-2 employee can make use of his or her employer’s Traditional 401(k) plan. But there’s not much out there about self-employed retirement planning such as how to design a Solo 401(k) plan for yourself, or whether you could be better off with something like a SEP, or Simplified Employee Pension plan.

Taking Charge

For those of you who are in charge of your own financial destiny, and who have not hitched their stars to an outside employer, understanding self-employed retirement planning is critical. You can’t rely on anyone else to take care of your retirement security. Unfortunately, according to a recent industry survey, some 28 percent self-employed individuals aren’t saving for retirement at all.

Nobody is going to do it for you. With that in mind, you will want to take advantage of every quirk the law allows to help you amass your retirement nest egg, and protect it from predators. Here are some principles to keep in mind.

Use tax leverage. Accounts grow faster if the tax man leaves them intact, as opposed to levying a current tax on every dividend, every dollar of interest received, and on ever dollar of profit from trading. Retirement accounts like IRAs, Roth IRAs, Solo 401(k)s, Traditional 401(k)s, SEPs and SIMPLES let your money grow tax deferred, or in the case of Roth accounts, tax-free.

Protect assets from lawsuits. Trial lawyers go after businesses all the time, for both good reasons and on trumped-up pretenses. They also go after business owners, personally. But money you can keep outside of your business, and in a retirement account, is largely off the table for collections. Specific laws vary by state, but federal law gives a great deal of protection to funds in Traditional 401(k)s and Solo 401(k)s and other pension plans and in IRAs.

Leverage your expertise. You’re in business, or you’re self-employed because you’re good at something. You are probably an expert in something you can leverage, even within your IRA or other retirement account. That’s where we have some good news: Retirement accounts aren’t limited to mutual funds, annuities, CDs and money markets. You can invest in nearly anything you can imagine except life insurance, gems, jewelry, art, collectibles and alcoholic beverages – through an increasingly popular option called self-direction.

Put lots away. As long as you have sufficient cash on hand to meet your immediate business needs, and accomplish your long term business strategy and lifestyle goals, the more money you can take out of your business and out of your personal name and move into protected retirement accounts, the better.

Combine multiple types of accounts. For example, combine Roth and tax-deferred accounts to hedge against changes in tax rates in the future. Take advantage of more liberal hardship withdrawal terms in IRAs but also take as much advantage as you can of the bigger contribution ceilings on Traditional 401(k)s, Solo 401(k)s and SEPs.

Your Options

When it comes to self-employed retirement planning, you have several – the best one for you depends on your circumstances, including the amount you can contribute and what percentage of your income is salary versus Schedule C or dividend income.

The IRA – You get a tax deduction, and you can contribute up to $5,500 per year, or $6,500 if you are age 50 or over. Taxes are deferred until you take the money out. You also have a 10 percent penalty on most non-hardship withdrawals prior to age 59½. Beware: Once you turn 70 ½, you must begin taking money out by the following April 1, or you will face some harsh tax penalties. Your deduction may be limited if your income is high, or if you are covered by another retirement plan at work.

The Roth IRA – Similar rules to the IRA, except there’s no tax deduction. Instead, your investment grows tax-free after that, as long as you leave the money in it at least 5 years. There’s still a 10 percent penalty on the growth if you withdraw money prior to age 59 ½, unless certain hardship conditions apply.

Both versions of the IRA lend themselves easily to self-direction.

The Solo 401(k) – This is a 401(k) plan specially designed for the self-employed or ultra-small business owner. Fees and administration requirements are stripped down, but you can still contribute up to 20 percent of your net self-employment income plus $17,500, up to $52,000 in 2014, when you combine employer and employee contributions. Those age 50 or older can put in up to $5,500 more on an annual basis. This makes the Solo 401(k) an attractive option for those with relatively high incomes who are working on self-employed retirement planning.

Solo 401(k) plans lend themselves well to self-direction, and you can set them up to allow for loans from within the plan if you should so choose. Solo 401(k)s also tend to work well for self-directed investing strategies that involve leverage, such as real estate, because 401(k)s are exempt from unrelated debt-financed income tax rules that apply to IRAs.

You can also select Roth tax treatment for your Solo 401(k) plan, if you choose.

The SEP IRA – The SEP IRA also allows you to set aside up to $52,000 in 2014, or 25 percent of self-employment compensation – whichever is less. You have more flexibility if you have no employees – if you do have full-time employees you will likely have to fund their accounts with matching funds on the same basis that you match your own contributions with company money.

The SEP IRA is a great option for self-employed retirement planning because of the large annual contribution limit, and because of the relative ease of setup and low ongoing administration costs.

The SEP IRA also is compatible with self-direction.

Want to learn more? Stay tuned to this blog! Or better yet, visit our library at www.AmericanIRA.com, or call us at 866-7500-IRA (472). We are one of America’s leading experts on self-directed retirement investing and work with clients all over the country.

We look forward to serving you.

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IRA Income Thresholds Increased in 2014 – But Self-Directed IRA Owners Should Be Careful

August 13, 2014/in Articles, Roth IRA, Roth IRA, Self-Directed IRA /by American IRA

Did you notice? The IRS loosened some of its requirements that restrict the amounts individuals can contribute to certain retirement plans. This may mean more people can qualify to participate in Self-Directed IRAs, or perhaps contribute more money on a tax-advantaged basis than they thought.

Traditional Self-Directed IRAs

Last year, in 2013, the tax deduction phase-outs for those who had access to a workplace retirement plan began with modified adjusted gross incomes starting at $59,000, and phased out completely at $69,000. In 2014, though, the phaseouts begin with a MAGI of $60,000 and phase out completely at $70,000.

For those who are married and who have a workplace retirement plan, the phaseouts also clime by $1,000, from $95,000 to $96,000 at the low end and terminate at $116,000, up from$115,000 in 2013.

For those who don’t have a workplace retirement plan but whose spouse has one, the available deduction begins phasing out with a combined income of $181,000 – up from $178,000 in 2013 – and ends with a combined income of $191,000. That is also up from $188,000 in 2013.

Does that help self-directed retirement account owners? It helps everyone with incomes within that range.

Self-Directed Roth IRAs

For those who prefer Roth IRAs, you can enjoy the benefits of Self-Directed Roth IRAs at higher income levels than you could in 2013. Specifically, the AGI threshold for Roth IRAs for single filers begins at $114,000. From that point, the normal $5,500 allowable contribution to a Self-Directed Roth IRA or a conventional Roth IRA declines gradually as income increases, until the AGI reaches $129,000. The same goes for heads of households.

For married couples, the phaseouts begin at an income of $181,000 and go up to $191,000 before the allowable contribution to a Self-Directed Roth IRA or a conventional Roth IRA falls to zero. In each case, the thresholds have increased over 2013 levels by 3,000.

These increases didn’t exactly make headlines this year. That’s because the overall contribution limits for both traditional and Roth IRS remained unchanged, at $5,500, for 2014. Those age 50 and older also qualify for “catch-up contributions of $1,000, for a total of $6,500 to both kinds of accounts.

Will you benefit from the revised income thresholds? In many cases, it could be difficult to tell. If you have deductions or you do not have a set income every month, it could be hard to tell what your eventual adjusted gross income will be until you actually file your tax return.

So what if you overcontribute? In that case, the IRS may assess a 6 percent penalty on the amount overcontributed. But the IRS allows you to correct the overcontribution. You just have to make any corrections from the same IRA you overcontributed to. If you didn’t make any contributions to IRA X this year, you cannot correct the overage by withdrawing from that IRA!

Second, you must correct the overcontribution prior to the tax deadline. Roth IRA excess contributions removed post-deadline get treated like any other distribution. The amount will be tax-free and the 10 percent early distribution penalty generally does not apply. The 6 percent excise tax applies every year for as long as the excess contribution remains in the IRA.

As a third party administrator for Self-Directed IRAs and other retirement accounts, we will help you track and avoid excess contributions. But Self-Directed IRA owners have something else to think of: Liquidity. If you frequently purchase non-liquid assets for your Self-Directed IRA and you overcontribute, you will have a harder time correcting the overcontribution.

For this reason, it may make sense to keep contributions in assets that are easily liquidated until you are certain of your income in 2014.

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5 Factors of the Self-Directed Roth IRA Conversion Decision Process

February 20, 2014/in Articles, Blog, Resources, Roth IRA, Roth IRA, Self-Directed IRA /by American IRA

Deciding whether one should convert assets from a traditional retirement account to a Self-Directed Roth IRA is an important task, and in order to make a reasonable and educated decision, many factors must be taken into consideration. Still it is well worth the consideration since the account will grow tax-free forever after it is converted to a Roth IRA.

The following are only five of the many factors that should be taken into consideration.

1. Current vs. Future Tax Rates

Many economists and tax professionals who have analyzed factors such as the historical changes in tax rates, the events that either cause or predict increases in tax rates, and the national debt, agree that significant increases in tax rates in future years is inevitable. Individuals who agree with these experts may feel that it is a smart tax move to convert to a Self-Directed Roth IRA now when tax rates are lower, rather than keeping assets in a Traditional IRA where they would be taxed at a higher rate when withdrawn later.

2. Retirement Horizon

One of the factors to consider when deciding about whether a Self-Directed Roth IRA makes good tax sense is whether you will have sufficient time to accrue enough tax-free earnings that would, at a minimum, offset the tax-related cost of converting amounts to a Roth IRA.

Example: Assume that you convert $100,000 in pre-tax amounts from your Traditional IRA to your Roth IRA, and you owe income tax of $28,000 on the amount. This $28,000 will have to be taken from your retirement account or other sources, which means $28,000 that is no longer available for investing in your retirement nest egg.

A Roth conversion analysis would take the number of years you have until retirement into consideration, so as to determine whether the tax-free earnings that could be accrued during that time is sufficient to make the conversion worthwhile.

3. Your Beneficiaries and Who You Want to Pay The Income Tax

If you will be leaving your retirement savings to a charity, a Traditional IRA may be a better choice since the charity will not owe income tax on the amount. On the other hand, if your beneficiary is someone like your spouse or child, converting the amount to a Self-Directed Roth IRA could allow him or her to inherit the amount tax-free.

4. Source of Income Tax Payment

Generally, you are required to pay the income due on a Roth conversion by your tax filing deadline. If you do not have the amount available in non-retirement saving accounts, then the income tax can be paid from the conversion amount. If you choose to pay the income tax from the conversion amount, only the net amount would be converted, which means the income tax amount would not be available for tax-free growth in the Roth IRA.

Example: Assume you convert $100,000 and elect to have $20,000 withheld for federal income tax. Only $80,000 would be converted to your Roth IRA, with $20,000 remitted to the IRS as an income tax payment on your behalf.

A Roth conversion analysis would help to make a reasonable determination of whether a conversion would make sense in such cases.

5. Investment Vehicles and Rate of Return

A critical component of a Self-Directed Roth IRA conversion analysis is the rate of return on your investments. If your investment portfolio includes stocks, bonds, mutual funds and other investments that do not offer a guaranteed rate of return, then the rate of return is based on assumptions and speculations. On the other hand, if your conversion amount is invested in a product that provides a guaranteed rate of return (such as an annuity), you might get a more realistic determination of the comparison between converting and not converting to a Roth IRA.

These are just a few of the many factors that should be taken into consideration, and what might apply to one person might not apply to another. As such, the Self-Directed Roth IRA conversion decision is often based on a customized Roth profile. Further, whether an outcome is considered favorable can be a matter of personal preference.

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Reducing Your Tax Burden with a Self-Directed Roth IRA

February 8, 2014/in Articles, Blog, Resources, Roth IRA, Roth IRA, Roth IRA /by American IRA

It’s that time of year again…’Tax Time’! If the amount of taxes you have to pay on your real estate investments gives you a headache, we have a solution. Using your Self-Directed Roth IRA to hold your real estate investments allows your earnings to grow tax-free forever! The recent changes made to Roth IRA rules have removed funding restrictions, and now allow everyone to fund a Roth IRA, regardless of income and/or tax filing status.

How Roth IRAs Work

Roth IRAs are funded with assets that have already been taxed. As a result, distributions taken from a Roth IRA are tax-free, providing certain requirements have been met. In general, a Roth IRA distribution is tax-free once you have funded a Roth IRA for at least five years, and:

You are age 59½ or older when the distribution is made,
The distribution is taken by your beneficiaries after your death,
The distribution is taken for first time homebuyer purposes, which is subject to a lifetime dollar limit of $10,000, or
You are disabled, as defined by the IRS, when the distribution is made.

Roth IRA Funding Options

If you are considering funding a Self-Directed Roth IRA, you have several options from which to choose, some of which have limitations based on eligibility for withdrawals. The funding options are as follows:

Regular Roth IRA Contributions: You can make a regular Roth IRA contribution of up to 100% of your compensation received for the year, subject to a dollar limit of up to $5,500, or $6,500 if you are at least age 50 by the end of the year. In order to use this option, your modified adjusted gross income (MAGI) must not exceed the following amount:

$188,000 if your tax filing status is ‘Married filing jointly’. If your MAGI is between $178,000 and $188,000, you can contribute a percentage of the contribution limit provided above.

$127,000 if your tax filing status is ‘Single’. If your MAGI is between $112,000 and $127,000, you can contribute a percentage of the contribution limit provided above.

$10,000 if your tax filing status is ‘Married filing separately. If your MAGI is between $-0- and $10,000, you can contribute a percentage of the contribution limit provided above.

In order to use this option, you must receive taxable compensation for the year, such as salary, commissions, and income from self employment.

Conversions and Rollovers: You can move assets from an existing retirement account to your Roth IRA. These include:

Conversions from Traditional, SEP and SIMPLE IRAs. If the account is a SIMPLE IRA, you must wait until it has been at least 2-years since it was first funded before initiating the conversion.

Rollovers from pension, 401(k), 403(b) and governmental 457(b) plans, including Roth accounts under these plans. In order to rollover amounts from these plans to your Roth IRA, you must first meet the plan’s requirements for making withdrawals.

We can help you to determine if you are eligible to make withdrawals from your accounts under these plans.

Notes:

Unlike making regular Roth IRA contributions, there is no MAGI limit or income requirement for conversions and rollovers to Roth IRAs.
Any pre-tax balance in the account from which the assets are taken will be included in your taxable income for the year.

Traditional IRA or Roth IRA Contribution – Making The Choice

February 6, 2014/in Articles, Blog, Resources, Roth IRA, Roth IRA, Traditional IRA /by American IRA

Many taxpayers agree that making a contribution to a Traditional IRA or Roth IRA is a good way to help fund a retirement nest egg. However, choosing which of the two IRAs to fund is not an easy decision to make for most. This is due in part to the many factors that should be taken into consideration, including the affordability of giving give up any tax deduction now in exchange for tax-free distributions later. We review some of these factors in this article.

Eligibility for a Roth IRA Contribution

If you have eligible compensation for the year, such as W-2 wages, you can contribute to a Roth IRA, providing your modified adjusted gross income (MAGI) does not exceed certain amounts. The chart below shows these amounts.

Tax Filing Status	2014 MAGI	Allowed contribution
Single	$114,000 or less	100%
	$114,000 – $129,000	Partial
	$129,000 or more	None
Married filing jointly	$181,000 or less	100%
	$181,000 -$191,000	Partial
	$191,000 or more	None
Married filing separately	Less than $10,000	Partial
Married filing separately	$10,000 or more	None

If you are not eligible to contribute to a Roth IRA, you may make your contribution to a Traditional IRA, assuming you are eligible to do so. Contributions cannot be made to your Traditional IRA if you are at least age 70½ as of the end of the year for which the contribution is being made.

Deductibility for Traditional IRA Contribution

A Traditional IRA contribution is fully deductible, if you are not covered under an employer sponsored retirement plan, such as a pension or 401(k) plan or married to someone who is. If you are covered under an employer sponsored retirement plan or married to someone who is, your eligibility to deduct a contribution to a Traditional IRA is based on your marital status and MAGI amount, as indicated in the chart below.

Tax Filing Status	2014 MAGI	Allowed deduction
Single	$60,000 or less	100%
	$60,000 – $70,000	Partial
	$70,000 or more	None
Married filing jointly or a qualifying widower, and active	$96,000 or less	100%
	$96,000- $116,000	Partial
	$116,000 or more	None
Married filing jointly. Not active, but spouse is active	$181,000 or less	100%
	$181,000 – $191,000	Partial
	$191,000 or more	None
Married filing separately	Less than $10,000	Partial
Married filing separately	$10,000 or more	None

When Eligible For Both a Roth IRA Contribution and a Deduction

If you are eligible to make a Roth IRA contribution and eligible to deduct a Traditional IRA contribution, you should then determine which is more suitable for your financial profile. The answer depends on several factors, which includes the following:

Affordability

Consider whether you can afford to give up the tax deduction now in exchange for the tax-free growth. Taking a tax-deduction for an IRA contribution reduces the immediate financial impact of the contribution, by offsetting the contribution with the deduction. However, earnings that accrue in a Traditional IRA are subject to income tax when withdrawn. On the other hand, while a contribution to a Roth IRA is not deductible, the earnings can be tax-free if certain requirements are met,

Taxes

Consideration should also be given as to which option could result in the least amount of income tax owed, which is largely dependent on whether you tax bracket will be lower when making the contributions vs. when the withdrawals will be made.

Typically, an individual who will be in a higher tax bracket during retirement will find it more tax-efficient to fund a Roth IRA instead of a Traditional IRA, as this would result in a lower amount of taxes being paid . In order to make a realistic determination, an analysis which includes current tax rate and projected tax rate during retirement, should be done.

Estate Planning

If the objective is to leave tax-free assets to beneficiaries, and you prefer to forego the tax deduction regardless of which is more tax efficient, a Roth IRA would be the more suitable choice.

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Is a Self-directed IRA Safe?

July 25, 2013/in Coverdell Education Savings Account, Coverdell Savings Account, Health Savings Account, Health Savings Account, Real Estate IRA Investing, Resources, Roth IRA, Roth IRA, Roth IRA, Self-Directed IRA, Self-directed IRA Account, SEP, SEP IRA, Solo 401K, Traditional IRA, Traditional IRA /by American IRA

FDIC Insured

All un-invested cash in your self-directed IRA is FDIC insured.

As a note, FDIC insurance only covers cash balances, not assets. All credit card transactions are safe — American IRA is certified by SecurityMetrics. All accounting is processed through a top-rated trust accounting system. We maintain professional insurance coverage, including a crime shield policy and an errors and omissions policy.

Asset Vesting with Your Self-directed IRA

All assets are vested in the client’s name at the time of purchase. American IRA, LLC for the Benefit of Client’s Name IRA.

Investing with Your Self-directed IRA

Investing within a self-directed IRA is completely within the investor’s control. Is it safe? Yes, to the extent that the investor controls it. Here’s something that’s overlooked many times when we’re talking about safety between the securities industry, and let’s say in this case we’re talking about the real estate industry. Each investment has its own characteristics as to safety.

In the real estate investment arena, take a look at this example – $100,000 investment in 2000 inside a self-directed IRA in a single-family home. In 2013, the value doesn’t matter. The investor’s not selling the property. It may have gone up and it may have gone down.

Here’s an absolute certainty. It had 12 years’ worth of rental income so far and it’s still free and clear, versus investing in securities, which are absolutely out of your control, out of the investor’s control completely or anybody else’s control for that matter.

With $100,000 invested in 2000 in Washington Mutual Bank, the 2013 value is zero. Washington Mutual Bank was the biggest bank in the country when it failed in the early 2000’s. There is no guarantee in the securities industry any more than there is in the self-directed industry, but at least in the self-directed industry you have a way of controlling your risk by investing in what you know and understand, and you can do your own due diligence.

Types of Investment Accounts within a Self-directed IRA

Here are the types of investment accounts that you can utilize. It’s not just an IRA.

The Self-DirectedTraditional IRA, which is the one you’d be familiar with, which allows for you to make a tax deductible contribution.
The Self-Directed ROTH IRA on the far right is the one that you hear a lot about, which is the account that is absolutely tax free when the profits come out at the end. However, you do not get a deduction when you make the contribution.
A Spousal IRA can be either a traditional or a ROTH. The way that works is that if you’re under 50, you’re only allowed to put away $5,000 a year. If you have a nonworking spouse, they’re also eligible for an IRA, either a traditional or a ROTH, and they too can put away the same $5,000.
Another type of account is an employer based plan, which is a SEP IRA. If you’re self-employed, we provide servicing for SEP IRA Plans – Simplified Employee Pension plans – which is an employer funded plan. We also provide services for the simple, which is an employee funded plan with a contribution from the employer.
The Self-Directed 401(k), which is a plan that’s for people who are self-employed – a sole proprietor, LLC or corporation – and for people who don’t have any common law employees, meaning that they don’t have anybody that’s on W-2 for greater than 1,000 hours a year. It can be a husband and wife that are in a business. It could be a couple of partners. The Solo 401k, provided you qualify for it, basically is a self-directed account on steroids. It gives you so many features and opportunities that are absolutely incredible.
A Coverdell Education Savings Account is an account that you can put away for anybody. Typically it’s grandchildren or children. That too can be self-directed.
You can put money away in a Health Savings Account, and that works in many ways like a ROTH. You put the money in there, except you get a deduction. You can pay your medical expenses out of it, and it comes out absolutely tax free and you pay the medical expenses. It’s a great tool.

The Sky’s the Limit!

With the multitude of investment accounts available and the wealth of investment types allowed within those accounts, the sky really is the limit when it comes to what you can do with your self-directed retirement account.

For more information, or to explore your options, call American IRA today at 866-7500-IRA (472). We look forward to working with you.

What’s the Buzz!?! Is it a bird? Is it a bee? Read on and You’ll See!

October 11, 2012/in American IRA News, Articles, Coverdell Education Savings Account, Health Savings Account, Other Investments, Roth IRA, SEP, Simple IRA, Solo 401K, Traditional IRA /by American IRA

Buzz Words and Warning Signs

As investors, we must always be aware that there are fraud promoters lurking in every corner waiting for their next opportunity to pounce on an un-expecting investor. To help you avoid falling victim to fraud, here’s a recent study of SEC Investor Alerts which show some very obvious but worth mentioning ‘buzz’ words every investor should watch out for:

Guaranteed
Can’t Miss
Extremely High Returns
Safe and Risk Free
Promised _____% Returns

In the SEC alerts they are primarily discussing investing in LLCs and Private Placements; however, these warnings are absolutely applicable to real estate transactions, private loans, or any other investment a person would consider making.

Examples:

Note: The information presented in these examples has been taken directly from the September 2011 SEC Investor Alert.

Jerry Smith and Jasen Snelling bilked investors out of more than $4.5 million in a nearly decade-long Ponzi scheme. They told investors they were talented day traders and ‘promised’ up to 20% returns.

James Elton Warr through Warr Investment Group LLC and other entities, defrauded the public through their illegal and deceptive sales of securities in real estate programs, raising at least $970,000 from 30 investors. They claimed investors would receive a ‘guaranteed’ 8% annual return and that the real estate investments were a ‘safe and lucrative’ alternative to more traditional investments such as certificates of deposit and stocks.

Let’s not forget Madoff ($50 billion) and Stanford ($8 billion)!

What’s so Bad about Those Buzz Words?!

There is nothing inherently wrong with those words. The problem is that any honest investor knows that there are no guarantees and nothing is safe and risk free. A responsible investor will share their knowledge of the asset they are selling you including all expenses and income they have received over the period of time they have owned the asset they are trying to sell you.

Awareness

American IRA, LLC is very aware of the risks that investors face. That is why we have created educational tools about many facts everyone needs to know in order to do their ‘due diligence’ on their investments. Awareness is key in keeping your hard earned dollars safe.

Minimizing Risk

The best way to minimize risk is to do your ‘due diligence” on every asset you purchase; always consult with professionals; walk, no, RUN away if they use the ‘buzz’ words, and never enter into an investment that does not meet your goals.

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”.

Disclaimer

American IRA, LLC does not give investment advice. They do offer guidance as to the rules and regulations related to their self-directed accounts and the benefits of different account types so that their clients can take that information to their professionals to discuss the ramifications of various decisions on their individual situation.

For more information, or to explore your options, call American IRA today at 866-7500-IRA (472). We look forward to working with you.

If you are successfully self-employed, or you are the owner-employee of a successful small business, most of the financial news you see doesn’t speak about self-employed retirement planning.

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